ACA News & Publications

Health Care Reform: Grandfathering Rules Clarified

July 2010


The health care reform law passed earlier this year brings many changes to employers and health plans. The extent of the impact will depend, in part, on whether you maintained a health care plan on March 23, 2010, the date the primary legislation was enacted. If your company sponsored a plan on that date, it is considered a “grandfathered” plan. Grandfathered plans are exempt from certain health care reform requirements, such as no cost‐sharing for preventive care and other patient protections.

On June 14, 2010, the Departments of Health and Human Services (HHS), Labor and Treasury issued regulations regarding grandfathered plans. Importantly, it clarifies what types of changes can be made to existing plans that will allow them to retain their “grandfathered” status.

This HCR Pathways briefing summarizes the new regulations as follows.


The regulations essentially state that plans will lose their grandfathered status if they choose to significantly cut benefits or increase out‐of‐pocket spending for consumers. Losing grandfathered status means that a plan would have to comply with additional health care reform requirements, such as first‐dollar coverage of recommended prevention services and patient protections such as guaranteed access to OB‐GYNs and pediatricians.

Permitted Changes

Grandfathered health plans will be able to make routine changes to their policies and maintain their status. These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other federal laws. Premium changes are not taken into account when determining whether or not a plan is grandfathered.

Prohibited Changes

Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to consumers. Specifically, making the following changes would cause a plan to lose its grandfathered status:

  • Significantly Cutting or Reducing Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.
  • Raising Co‐Insurance Charges. Typically, co‐insurance requires a patient to pay a fixed percentage of a charge (for example, 20 percent of a hospital bill). Grandfathered plans cannot increase this percentage.
  • Significantly Raising Co‐Payment Charges. Frequently, plans require patients to pay a fixed‐dollar amount for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co‐pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next two years, it will lose its grandfathered status.
  • Significantly Raising Deductibles. Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000 or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.
  • Significantly Reducing Employer Contributions. Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).
  • Adding or Tightening an Annual Limit on What the Insurer Pays. Some insurers cap the amount that they will pay for covered services each year. If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010. Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high‐cost enrollees).
  • Cannot Change Insurance Companies. If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

Transition Relief

The regulations contain some transition relief for plans that may have made changes before the regulations were issued and thus before plan sponsors knew what changes were permissible. The transition relief that is available depends on when the changes were made.

If a group health plan (or health insurance issuer) made legally binding changes to the terms of the plan or coverage on or after March 23, 2010, those changes will be considered part of the plan or coverage on March 23, 2010, even if the changes were not yet effective on that date. A change is considered legally binding if it was made pursuant to a contract, a filing with a state insurance department or a written amendment to the plan that was entered into, made or adopted on or before March 23, 2010.

The regulations also provide transition relief for changes made to plans after the health care reform law was enacted on March 23, 2010, and before the regulations were available on June 14, 2010. If a group health plan or health insurance issuer made changes after March 23, 2010 that were adopted prior to June 14, 2010 and would cause the plan to lose grandfathered status, the plan has a grace period to revoke or modify the changes.

Under this rule, grandfathered status is preserved if the changes are revoked and the plan is modified, effective as of the first day of the first plan year beginning on or after September 23, 2010, to bring the terms of the plans within the limits for retaining grandfathered status.

For enforcement purposes, the agencies will take into account good faith efforts to comply with reasonable interpretations of the statute prior to the issuance of regulations, and may disregard changes to plan and policy terms that “only modestly” exceed the parameters for changes that result in loss of grandfathered status set forth in the regulations and that are adopted before June 14, 2010.

Additional Requirements for Grandfathered Plans

The regulations also contain additional requirements to keep health plans from using the grandfather rule to avoid providing important consumer protections.

To promote transparency, the regulations require a plan to disclose to consumers, every time it distributes materials, whether the plan believes that it is a grandfathered plan and therefore is not subject to some of the additional consumer protections of the health care reform law. This allows consumers to understand the benefits of staying in a grandfathered plan or switching to a new plan.

The plan must also provide contact information for enrollees to have their questions and complaints addressed. Plans that intend to maintain grandfathered status for the 2011 plan year should include notice of grandfathered plan status with open enrollment materials and in the plan’s summary plan description. A model notice appears on page four of this HCR Pathways document.

In addition, for as long as a plan remains grandfathered, the following records must be maintained:

  • Records documenting the terms of the plan in effect on March 23, 2010; and
  • Any documents necessary to support the status as a grandfathered plan (for example, a copy of a legally binding contract in effect on March 23, 2010)

These documents must be made available for examination by participants, beneficiaries, and federal agency officials.

The regulations also provide that a plan’s grandfathered status may be revoked if it forces consumers to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding new consumer protections. Grandfathered status may also be revoked if a plan is bought by or merges with another plan simply to avoid complying with the law.

Projected Impact on Consumers and Plans

The Departments have provided information on the expected impact the grandfathered plan rules will have on health coverage. For additional information, access the fact sheet at:

Burnham Benefits Role

Your Burnham Consultant will contact you to review the grandfathering rules in general and to analyze the cost/benefit of grandfathering your particular medical insurance plans. In the meantime, please reach out to your Burnham Consultant if you have any questions regarding this material.

Grandfathered Status Model Notice

This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.

Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1‐866‐444‐3272 or This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at]

SOURCE: Zywave ‐Content © 2010 Zywave, Inc

For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:

Burnham Benefits

This ACA Pathways is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

The information contained in this ACA Pathways includes emerging health care news from a limited perspective and does not encompass all views. The information was selected from a wide range of sources selected on the basis of their potential impact on employers and/or their employee benefit plans. For more information, please contact Burnham Benefits.

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