What Is a Grandfathered Health Plan?
The term "grandfathered health plan," or legacy health plan, refers to health insurance policies created or purchased prior to passage of the Affordable Care Act (ACA).
- A legacy health plan is one introduced prior to the passage of the ACA in March 2010.
- Legacy health plans are exempt from certain requirements of the ACA and keep this status as long as terms do not substantially change.
- However, legacy health plans must follow certain consumer protection provisions of the ACA to be considered "grandfathered health plans."
Understanding Legacy Health Plans
President Barack Obama signed the Affordable Care Act into law on March 23, 2010. Although the ACA made substantial changes to healthcare in the United States, many of these changes applied only to new plans. Group and individual health insurance plans created or purchased before the passage of the ACA were allowed to continue, subject to certain restrictions. These older plans are sometimes referred to as "grandfathered health plans."
Whether or not a plan is considered legacy depends on when it was created by the insurance company, not when a particular individual person joined the plan. Therefore, sponsors are free to continue signing up new policyholders into a legacy plan, as long as the plan does not introduce changes that would substantially reduce benefits or increase coverage costs for policyholders. Any such changes would result in the plan losing its legacy status and becoming subject to the new requirements under the ACA.
The ACA permitted legacy health plans to help consumers keep their coverage in place. If a company decides to discontinue a legacy health plan, it must notify policyholders in writing at least 90 days prior and offer other coverage options.
Grandfathered Racial History
The word "grandfathered" has roots in racial discrimination. In 1870, Black men were nominally given the right to vote with the passage of the 15th Amendment, which prohibited racial discrimination in voting. But in reality, many Black men were still not permitted to vote. Various states created unconstitutional requirements—such as literacy tests and poll taxes and constitutional quizzes. Eleven states then laws that made men eligible to vote if they had been able to vote before about 1867, or if they were the lineal descendants of voters back then.
Real World Example of a Legacy Health Plan
The ACA mandates that all health plans—legacy or not—to include certain consumer protections. Health plans must not apply lifetime dollar limits to key health benefits; they cannot be canceled due to unintentional documentation mistakes made by the policyholder or their employer; and they must extend dependent coverage to adult children until they turn 26.
However, legacy plans are exempt from other requirements of the ACA. They are not required to offer free preventative care, nor guarantee customers the right to appeal coverage denials. They are also not required to end yearly limits on health coverage or cover pre-existing health conditions. However, some legacy plans offer protections they are not required to.