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"Grandfathered" health insurance plans allows for consumer choice Posted: December 26th, 2010

By Clare Kaufman

The Affordable Care Act enforces new standards of coverage and fair play in the health insurance industry. At the same time, the need to preserve marketplace choice and diversity is recognized. In an effort to reconcile federal consumer protection and individual freedom, the U.S. Department of Health & Human Services is allowing patients and their employers to keep existing plans that serve their needs.

Preserving patient choice

President Obama's pledge to the American public throughout the health care reform debate has been, "If you like your health plan, you can keep it." The new regulation, under the Affordable Care Act, does not restrict access to an existing medical insurance policy. Announced in June 2010, the regulation made good on this promise by "grandfathering in" any health insurance policy already in place by March 23, 2010. The full range of the Affordable Care Act's new consumer protection regulations only apply to new health insurance plans established after this date.

Medical insurance plan benefit requirements

There is one caveat to the "grandfathered" plans provision: while consumers enjoy the option to keep their current plan, health insurance providers may need to adjust plan benefits in order to qualify for grandfathered status.

The new minimum benefit standards for all health insurance policies, newly established or grandfathered, are:

  • No lifetime limits on coverage for all plans
  • No rescission of coverage when people get sick
  • Extension of parents' coverage to young adult dependents under age 26

Employer-sponsored health insurance plans must also comply with these benefit standards:

  • No coverage exclusions for children with pre-existing conditions
  • No "restricted" annual limits--meaning coverage can't be set below a minimum level determined by federal law

In addition, grandfathered plans could lose their privileged status if they make the following changes to their current policies:

  • Significant cuts or benefit reductions
  • Increases to co-insurance or co-payment fees
  • Significant increases to deductibles
  • Significant cuts to employer contributions
  • Further reduction of annual benefit limits
  • Change from one health insurance plan to another or change in contract

"Grandfathered" health insurance company privileges

The new regulation protecting existing insurance plans upholds a degree of flexibility and exempts health insurance companies from some new Affordable Care Act requirements.

Grandfathered plans may make routine changes to policies, including:

  • Adjusting plan costs to keep pace with medical inflation
  • Adding new benefits
  • Making modest adjustments to existing benefits
  • Voluntarily adopting new consumer protections

Grandfathered plans are exempt from the following Affordable Care Act provisions:

  • Non-referral provision to see specialists such as OB-GYNs and pediatricians
  • Cost-sharing for preventive services
  • Coverage for emergency services.
  • Claims appeals process.
  • Coverage for clinical trials
  • Primary care physician choice

These privileges allow grandfathered medical insurance companies "to innovate and contain costs" and preserve their viability in the market.

The combination of requirements and privileges for "grandfathered" plans upholds consumer choice. Secretary of Health and Human Services Kathleen Sebelius explains, "With the announcement of the new 'grandfather' rule, we're providing the market stability and flexibility to ensure that families and businesses can make the choices that work best for them." The new regulation is meant to uphold consumer protection without constraining market demand.

From choice to competition

The "grandfather" rule aims to promote consumer choice and market diversity ahead of future health insurance exchanges. The regulation allowing "grandfathered" status gives individual patients and employers the option to keep their existing coverage or transfer to a new plan with broader consumer protection.