Grandfathered Coverage: What Happened?

When the Affordable Care Act was passed in 2010, it allowed health care insurance plans purchased prior to March 23, the day the act became the law, to be “grandfathered” in. Grandfathered plans did not have to be upgraded by the insurance companies to offer the protections guaranteed under the new law.

However, grandfathered plans could no longer be offered to new subscribers. Further, the new law said that insurance companies could no longer increase the deductibles on these policies, cut features and benefits, or raise the premiums substantially after December 31, 2013.

Most of these were individual policies covering only hospitalization after a huge deductible was paid by the subscriber. They were meant to protect individuals in the event of a catastrophe, such as an accident or major illness. Individuals paid out of pocket for the rest of their care, including preventive services such as doctor’s office visits.

So, why were these policies canceled rather than grandfathered in even though President Obama promised that everyone could keep their plans?

Because the law did not require the insurance companies to continue offering these plans. The law allowed them to decide. Without the ability to reduce benefits, raise premiums, or add more people to the plan, insurers had little incentive to grandfather in these plans.

Why Some Policies Will Cost More
Health care exchanges in many states, including California, ruled that all policies, including those that had been eligible to be grandfathered in, had to include the new protections or be canceled. In effect, they voted not to grandfather in the plans even though the law allows it. Covered California, this state’s health insurance exchange, required the 11 insurance carriers who make up the exchange to, instead, cancel these plans.

What are these new protections? The Affordable Care Act (ACA), known as Obamacare, requires health insurance plans to meet certain minimum standards. These include preventive care services, such as doctor’s office visits and screenings, well-baby and well-woman care, maternity care, and management of chronic diseases. Further, individuals can’t be denied coverage because of pre-existing conditions or canceled because they get sick and use their coverage.

In the past, many people battling major illnesses had their policies canceled in the mist of their treatment, leaving them and their families liable for hundreds of thousands of dollars in medical bills. These patients faced bankruptcy and even worse denial of further medical treatment. ACA eliminates these policy dollar-based limits on care.

So, some people will pay more for their premiums because their bare-bones policies are being replaced with one providing more coverage. The upside of this is that they will no longer have to pay out of pocket for preventive care services because the new policies cover this care with no deductible. More, if they face a major illness, they can know that their insurance will be there for them.

For the estimated 19 million Americans who have individual insurance policies, and the millions more who will be entering the market, Obamacare means they will now enjoy the same protections afforded people with group or employer coverage.

Source: David Lazarus, “Obamacare Puzzle Takes New Twists and Turns,” Los Angeles Times (Nov. 21, 2013).