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Grandfathered Plans Will Be Rare By 2014

Several provisions in the new health care reform law will begin to take effect next month.  More changes will take place over the next three years, leading up the biggest changes in 2014, when all individual policies will have to be guaranteed issue, and everyone will be required to have health insurance.

The only way an insurance policy will be able to avoid some of the changes implemented by the new law is to retain grandfathered status, basically by keeping the policy mostly unchanged from the way it was on March 23, 2010, when the law was passed.  But it turns out that the benefits of grandfathering a policy aren’t really worth the restrictions involved, for most US companies. Ninety percent of employers expect to lose their grandfathered status before 2014, mainly because they want to be able to make significant changes to their plan design or adjust the amount that they contribute to employees’ premiums.

Some of the new rules will apply to all policies, even if they retain grandfathered status.  The ban on rescission except for causes of fraud, the ability for people to remain on their parents’ policy until age 26, and the removal of lifetime coverage maximums will apply to all policies, grandfathered or not.  In addition, employer sponsored group plans will have to provide coverage for children regardless of pre-existing conditions, even if the plan is grandfathered.

Most large employer-based plans already offer many of the protections that are included in the Affordable Care Act, which likely explains why employers would rather choose flexibility over grandfathered status.  They won’t have to make significant changes in order to conform with the law, and they want to retain the option to decrease benefits or lower their contribution rates in order to keep their health insurance costs in check.

Small employers and people with individual health insurance are more likely than large groups to make significant plan changes or switch to a new carrier in any given year, so it’s reasonable to expect that most people with small group or individual coverage will not be on grandfathered plans by 2014 either.

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