What Is a Grandfathered Health Plan?

The term "grandfathered health plan" refers to health insurance policies created or purchased prior to passage of the Affordable Care Act (ACA).

Key Takeaways

  • A grandfathered health plan is one introduced prior to the passage of the ACA in March 2010.
  • Grandfathered health plans are exempt from certain requirements of the ACA and keep this status as long as terms do not substantially change.
  • However, grandfathered health plans must follow certain consumer protection provisions of the ACA.

Understanding Grandfathered 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 grandfathered 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 grandfathered 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 grandfathered status and becoming subject to the new requirements under the ACA.

The ACA permitted grandfathered health plans to help consumers keep their coverage in place. If a company decides to discontinue a grandfathered health plan, it must notify policyholders in writing at least 90 days prior and offer other coverage options.

Real World Example of a Grandfathered Health Plan

The ACA mandates that all health plansgrandfathered or notto include certain consumer protections. Health plans must not apply lifetime dollar limits to key health benefits; they cannot be cancelled 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, grandfathered 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 grandfathered plans offer protections they are not required to.