Compliance Bulletin:  Employee Benefit Plan Limits for 2019.  Read more here.

“Grandfathered” vs. “Grandmothered” Health Plans

September 21, 2018

Company-sponsored group health plans that are categorized as “grandfathered” or “grandmothered” may sound similar, but they do have significant differences in how (and when) they were started, and how they can continue within an organization. Here, we have compiled a summary of key components to define the plans.

Grandfathered Health Plans

A grandfathered health plan is a group health insurance coverage plan that was already in existence at an organization on March 23, 2010 when the Affordable Care Act (ACA) was signed into law. These plans can continue offering coverage as they did prior to the ACA with very specific stipulations.  These plans are exempt from some of the ACA requirements such as preventive health services coverage without any cost-sharing and the expanded appeals process and external review.  However, they are subject to other provisions and non-compliance can result in a loss of the grandfathered status:

    • The plan or coverage has continuously covered a person (not necessarily the same person) since March 23, 2010
    • No prohibited plan design changes are made such as –
      • Any increase in a cost-sharing percentage (i.e., increase in co-insurance)
      • Increases in fixed-amount cost-sharing (other than co-payments) of more than 15% above medical inflation
      • Increased in fixed-amount co-payments above the greater of a specified dollar amount or 15% above medical inflation
      • Decreases in employer contributions of more than a specified percentage
      • elimination of all or substantially all the benefits to diagnose or treat a particular condition
      • changing insurance contract or policy
    • Required disclosure and recordkeeping requirements are met

Grandfathered plans may add new employees, as well as family members, without losing their status. However, there is an anti-abuse rule:  A plan will lose grandfathered status if it engages in a business transaction (i.e., a merger) for the principle purpose of covering new individuals under a grandfathered plan, or if it transfers employees from one plan to another in certain circumstances without a “bona fide employment-based reason.”

For employers looking to preserve their grandfathered status, they will need to fully comprehend and apply all rules. Once grandfathered status is lost, it cannot be regained.

Grandmothered Health Plans

These small-group (and individual) health plans took effect after the ACA was signed into law in March 2010, but before the exchanges opened for business in October 2013. Grandmothered plans are subject to an HHS transition policy allowing insurers in these markets to renew health insurance policies they would otherwise have cancelled due to noncompliance with certain ACA insurance market reforms such as:

    • Premium rate rules
    • Guaranteed availability and renewability
    • The requirement to provide essential health benefits

Grandmothered plans do not have to comply with the bulk of the ACA’s provisions. They are not required to cover essential health benefits other than preventive care, but they cannot have annual or lifetime benefit limits for essential health benefits that they cover.  These plans have not been available for purchase by any individuals or employers since the end of 2013, but employees can still newly enroll in grandmothered plans, as long as the employer purchased the plan prior to 2014 (small group grandmothered plans cannot impose pre-existing condition exclusions, or benefit waiting periods that exceed 90 days).

Transition relief for grandmothered plans has been extended several times. Under the most recent extension, states may permit insurers that have continually renewed grandmothered plans since January 1, 2014, to renew such coverage again for any policy year beginning on or before October 1, 2019. However, the insurance policies must not extend past December 31, 2019. An insurer that renews a grandmothered plan is required to provide an annual informational notice explaining the right to retain existing coverage to affected individuals and small businesses.

The details of these plans are complicated and require diligence when applying the rules. As always, it recommended to discuss the guidelines and rules with your broker to maintain compliance, and to evaluate if it is valuable to continue with the plan.

For more information regarding Employee Benefits for your organization, email Billy MacNair, Vice President at Brown & Brown Benefit Advisors at bmacnair@advisorsbb.com.


Brown & Brown Benefit Advisors