Grandfathered Plans and the ACA

Health plans that existed before the Affordable Care Act was signed into law on March 23, 2010 may retain a protected legal status known as "grandfathered" status, shielding them from a defined set of ACA requirements. This page covers how that status is defined under federal regulation, the specific changes that terminate it, the practical scenarios where it arises, and how employers and insurers weigh the trade-offs of maintaining versus losing grandfathered standing. Understanding these boundaries is essential context within the broader regulatory framework governing ACA compliance.

Definition and Scope

Grandfathered plan status is established under Section 1251 of the Affordable Care Act (Public Law 111-148) and implemented through joint regulations issued by the Departments of Health and Human Services (HHS), Labor (DOL), and the Treasury (45 CFR Part 147, 29 CFR Part 2590, and 26 CFR Part 54).

A plan holds grandfathered status if it continuously covered at least one enrollee since March 23, 2010, and has not undergone any of the changes that federal regulation deems disqualifying. Both individual and group health plans can hold this status. The plan — not the insurance carrier or employer — carries the status, and it must be disclosed to enrollees. Under 45 CFR § 147.140(b), plans are required to include a notice in plan materials stating that the plan believes it is a grandfathered health plan.

What grandfathered plans are exempt from:

What grandfathered plans must still comply with:

  1. Prohibition on lifetime dollar limits for essential health benefits
  2. Prohibition on rescissions of coverage except in cases of fraud or intentional misrepresentation
  3. Dependent coverage extension to age 26
  4. Prohibition on preexisting condition exclusions for enrollees under age 19 (and for all ages after 2014)

The ACA compliance overview available on this site provides further context on which ACA provisions apply across plan types.

How It Works

Maintaining grandfathered status requires that a plan avoid crossing a set of numeric thresholds defined in 26 CFR § 54.9815-1251T. These thresholds are measured against the plan's terms as of March 23, 2010 — the baseline date — using either the Consumer Price Index for All Urban Consumers (CPI-U) as a medical inflation index or fixed percentage benchmarks.

The six disqualifying changes are:

  1. Elimination of benefits — Removing coverage for a condition or treatment that was covered on the baseline date.
  2. Increase in coinsurance percentage — Any increase above the baseline coinsurance rate.
  3. Increase in fixed-amount cost sharing (deductibles, out-of-pocket maximums, copayments) — An increase that exceeds medical inflation (CPI-U for medical care) plus 15 percentage points. As of the original regulation, HHS calculated this threshold using the Bureau of Labor Statistics medical care component of CPI-U.
  4. Decrease in employer contribution — If the employer's or plan sponsor's contribution rate toward the cost of any tier of coverage drops by more than 5 percentage points below the contribution rate on the baseline date.
  5. Imposition of annual dollar limits — Adding an annual limit on benefits where none existed, or lowering an existing annual limit below the baseline amount.
  6. Change in insurance carriers — For insured group health plans, switching to a different issuer terminates status unless there are special circumstances addressed in DOL guidance.

Plans must maintain records documenting the plan terms in effect on March 23, 2010 to substantiate continued status (26 CFR § 54.9815-1251T(a)(1)(i)). Loss of status is immediate upon crossing any threshold and is not reversible.

Common Scenarios

Scenario 1: Large self-insured employer plan
A manufacturing company maintained a self-insured group health plan continuously from before March 2010. Over time, the plan raised deductibles to manage costs. If the deductible increase exceeds the CPI-U medical inflation rate plus 15 percentage points measured from the 2010 baseline, the plan loses grandfathered status and must come into compliance with all applicable ACA mandates, including preventive care coverage at no cost.

Scenario 2: Small group fully insured plan
A small business with a fully insured plan switched carriers at renewal to obtain better network pricing. Carrier switches in the fully insured market are among the most common triggers for loss of grandfathered status. The plan loses status at the moment the carrier change takes effect.

Scenario 3: Collective bargaining agreement plans
Collectively bargained plans have a specific carve-out under ACA Section 1251: plans maintained under collective bargaining agreements ratified before March 23, 2010 retain grandfathered status until the last of those agreements expires. Once the final agreement expires, the standard disqualifying-change analysis applies.

Scenario 4: New employees added
Adding new employees or new dependents to a grandfathered group plan does not terminate the plan's status. The regulation explicitly allows enrollment of new participants without loss of status, as long as no disqualifying structural changes occur.

Decision Boundaries

The core trade-off for plan sponsors maintaining a grandfathered plan is the value of retained exemptions against the constraint on plan design flexibility. Plans that cannot raise cost-sharing above the regulatory thresholds without losing status may be locked into plan designs that no longer reflect market costs or benefit strategy objectives.

Grandfathered vs. non-grandfathered group plan — key distinctions:

Feature Grandfathered Plan Non-Grandfathered ACA-Compliant Plan
Preventive care at $0 cost-sharing Not required Required (PHS Act § 2713)
External appeals process Pre-ACA standard may apply Full ACA external review required
Essential health benefits Not required for large group/self-insured Required for small group insured
Cost-sharing flexibility Constrained by 2010 baseline thresholds Subject only to ACA out-of-pocket maximum caps
Clinical trials coverage Not required Required
Carrier changes (insured plans) Terminates status No restriction

A plan sponsor evaluating whether to let grandfathered status lapse should assess three factors:

  1. The cost impact of mandated preventive benefits — For most employer plans, the addition of preventive care at no cost-sharing is the most financially significant change required after losing grandfathered status.
  2. Cost-sharing redesign needs — If deductibles, copayments, or out-of-pocket limits need to be restructured beyond the regulatory thresholds to remain competitive with market benchmarks, continuation of grandfathered status may not be operationally viable.
  3. Enrollment and plan continuity — A plan with shrinking enrollment may struggle to demonstrate continuous coverage of at least one person since 2010, particularly as retiree-only plans or legacy product lines wind down.

The distinction between grandfathered plans and grandmothered transitional plans — a separate category addressing individual and small group policies from 2010–2014 — is a frequent source of confusion. Grandmothered status rests on state-level enforcement discretion under HHS transition policy, not on a statutory provision; grandfathered status is the only category with direct statutory protection under ACA Section 1251.

References

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)