Grandfathered Plan

Grandfathered Plan: What It Means for Employers and Employees

A Grandfathered Plan is health coverage that existed on March 23, 2010, and has kept a special status that exempts it from some, but not all, Affordable Care Act requirements.

If you’re an employer, that status may let you continue an older group health plan without making every change required of newer plans. If you’re an employee, it means your coverage still has many federal protections, but it may not include every benefit or consumer protection you’d expect from a non-grandfathered plan.

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Learn what a Grandfathered Plan is, which Affordable Care Act rules it must follow, how a plan keeps or loses its status, and what employers and employees should check.

What is a grandfathered health plan?

The term comes from the Patient Protection and Affordable Care Act, often shortened to the Affordable Care Act or ACA. In general, it covers an individual insurance policy or employer-sponsored group health plan in which at least one person was enrolled on March 23, 2010.

Grandfathered doesn’t mean unregulated. These plans must follow several ACA protections, including the prohibition on lifetime dollar limits for essential health benefits, restrictions on annual dollar limits, and the rule that generally lets dependent children remain on a parent’s plan until age 26. Group plans also must follow protections concerning preexisting-condition exclusions and waiting periods.

At the same time, grandfathered coverage may be exempt from certain requirements that apply to newer plans. Depending on whether it’s group or individual coverage, those exemptions can include some preventive services without cost sharing, certain patient protections, and the ACA’s internal claims and external review rules. The governing standards appear in the federal grandfathered-plan regulation, 26 Code of Federal Regulations Section 54.9815-1251, 29 Code of Federal Regulations Section 2590.715-1251, and 45 Code of Federal Regulations Section 147.140.

This status belongs to the plan or policy, not to the employer as a permanent privilege. A business can’t start a brand-new plan in 2026 and call it grandfathered simply because the company existed before the ACA.

How does a Grandfathered Plan work in practice?

A plan doesn’t have to freeze every detail forever. It can make certain routine changes, such as changing insurance carriers in the group market, adjusting premiums, adding new benefits, or making some permitted changes to cost sharing and employer contributions.

But changes beyond the regulatory limits can cause the plan to lose grandfathered status. Common pressure points include:

• Eliminating substantially all benefits used to diagnose or treat a condition
• Increasing coinsurance percentages
• Raising deductibles, copayments, or other fixed cost-sharing amounts beyond permitted limits
• Reducing the employer’s contribution rate by more than the allowed amount
• Adding or tightening certain annual dollar limits

Federal amendments published in the 2020 Final Rule on grandfathered group health plans gave plans another method for measuring permitted increases to fixed-amount cost sharing and added flexibility for some high-deductible health plans. The exact calculation can depend on when the change takes effect, so an employer should compare proposed changes against the current regulation before approving a renewal.

The plan must include a notice in materials describing benefits, stating that it believes it’s grandfathered and providing contact information for questions or complaints. It also must preserve records showing the terms in effect on March 23, 2010, plus later documents needed to verify continued status. The U.S. Department of Labor’s model grandfathered-plan notice gives employers standard disclosure language.

Who does grandfathered status apply to?

Grandfathered status can apply to an employer’s insured or self-funded group health plan and to certain individual policies purchased before March 23, 2010. It doesn’t apply to every old policy automatically; continuous coverage and the plan’s later changes matter.

For employers, new hires and their family members may generally enroll in an existing grandfathered group plan without causing it to lose status. A merger, acquisition, or employee transfer can receive closer scrutiny if its main purpose is to move people into grandfathered coverage.

For employees, your own hire date doesn’t have to predate 2010. You could join a grandfathered employer plan years later. Ask the plan administrator for the grandfathered-plan notice and Summary Plan Description, then check which ACA protections apply before assuming the plan works like a newer policy.

What does a Grandfathered Plan cost an employer?

There’s no special government fee for keeping grandfathered status. Your direct costs are still the insurer’s premium or, for a self-funded plan, paid claims, administration, stop-loss coverage, and required notices.

Premiums can rise without ending grandfathered status. What matters is whether you change benefits, employee cost sharing, or your contribution formula beyond the permitted limits. For example, reducing your contribution rate by more than five percentage points below its March 23, 2010 level can cause a loss of status, even if the dollar amount you pay has increased.

Grandfathering also doesn’t excuse an Applicable Large Employer—generally one averaging at least 50 full-time employees, including full-time equivalents—from the Affordable Care Act’s employer shared-responsibility rules. For 2026, Internal Revenue Code Section 4980H uses annualized penalty amounts of $3,340 per full-time employee for certain failures to offer coverage and $5,010 for each full-time employee who triggers the alternative penalty; assessments are calculated monthly. The Internal Revenue Service publishes the inflation-adjusted amounts and reporting rules.

Compliance duties, timing, and possible penalties

You don’t submit an annual application to renew grandfathered status. Instead, you need an evidence trail and a review process:

• Include the required status statement and contact details whenever you distribute a summary of plan benefits.
• Retain the March 23, 2010 plan terms and contribution records, along with documents supporting every later change.
• Test proposed renewal changes before their effective date, not after employees enroll.
• Continue other applicable duties, including Summary of Benefits and Coverage distribution, Employee Retirement Income Security Act disclosures, Consolidated Omnibus Budget Reconciliation Act continuation coverage, and Internal Revenue Service reporting.

Losing status isn’t itself a fine. The problem starts if the plan loses status and then fails to follow requirements that now apply to it. Internal Revenue Code Section 4980D can impose an excise tax generally equal to $100 per affected person for each day of a group health plan failure, subject to correction rules, exceptions, and caps. Employees and regulators may also have remedies under the Employee Retirement Income Security Act, while a willful failure to provide an accurate Summary of Benefits and Coverage can carry a separate monetary penalty. The governing details sit in the tri-agency grandfathered-plan regulations and related guidance from the Department of Labor.

What employees may see in their coverage and paycheck

Your paycheck contribution can increase even while the plan remains grandfathered. Premium increases alone aren’t restricted, and your share can rise when the total premium rises without the employer changing its contribution percentage.

Check the plan materials for services that may work differently from newer coverage. You might owe cost sharing for some preventive care, face a provider network that changes at renewal, or have claims-review rights that differ from current Affordable Care Act standards.

You can decline the employer plan, but declining doesn’t automatically create a Marketplace special enrollment period. If the employer’s offer is affordable and provides minimum value, you’ll generally be ineligible for a premium tax credit even if you’d rather buy Marketplace coverage. Grandfathered status by itself doesn’t prove that a plan is affordable or provides minimum value.

If you currently have no insurance, ask when the employer’s next enrollment window opens and whether a marriage, birth, loss of other coverage, or another event gives you special enrollment rights. You can apply for Medicaid or the Children’s Health Insurance Program year-round, while individual Marketplace enrollment is available during annual open enrollment or after a qualifying event through HealthCare.gov.

Worked cost example

Maple Street Design has 10 employees and is weighing whether to replace its old group plan with a $500-per-employee monthly Individual Coverage Health Reimbursement Arrangement, or ICHRA. If everyone claims the full allowance, its maximum reimbursement budget is 10 × $500 × 12 = $60,000 a year.

Using the published SimplyHRA prices from the company context, Basic administration would add 10 × $9 × 12 = $1,080 annually, while Premium would add 10 × $29 × 12 = $3,480. That comparison isn’t a reason by itself to terminate the old plan: the employer must compare premiums, expected reimbursements, employee affordability, plan-class rules, and transition timing. Once grandfathered coverage is terminated or loses its status, the employer generally can’t recreate that status later.

Common mistakes employers and employees make

1. Assuming “grandfathered” means exempt from the Affordable Care Act. Many federal protections still apply.

2. Treating every premium increase as a status-ending change. Premium increases aren’t the test; benefit, cost-sharing, annual-limit, and employer-contribution changes are the main pressure points.

3. Assuming an old plan is automatically cheaper or better. Employers need current cost and compliance comparisons, while employees should compare payroll deductions, deductibles, provider access, prescriptions, and eligibility for other coverage.

Frequently Asked Questions About Grandfathered Plan

Does grandfathered health plan status ever expire?

No. Federal law doesn’t set an automatic expiration date for grandfathered status, so a qualifying plan can keep it indefinitely if it continues meeting the rules. That said, the status isn’t a promise that the insurer will keep offering the policy or that the employer will keep sponsoring it. The plan can end for ordinary business reasons even though it hasn’t violated the grandfathering standards.

What’s the difference between a grandfathered plan and a grandmothered plan?

They’re not the same. A grandfathered plan generally dates back to March 23, 2010, and its status comes directly from the Affordable Care Act. “Grandmothered” is an informal name for certain non-grandfathered individual and small-group policies issued later that were temporarily allowed to continue under federal transition guidance and state decisions. Transition policies depend on government extensions and insurer participation; they don’t receive permanent grandfathered status. The Centers for Medicare & Medicaid Services publishes federal insurance standards and transition guidance.

Can I use a premium tax credit for a grandfathered individual plan?

No. An advance premium tax credit generally can be applied only to an eligible Marketplace plan, not to premiums for a grandfathered individual policy bought outside the Marketplace. You’d need to enroll in qualifying Marketplace coverage and meet the household-income and other eligibility rules to claim the credit. Don’t cancel existing coverage until your replacement plan’s effective date is confirmed. HealthCare.gov explains how Marketplace savings are determined and applied.

Can a grandfathered plan be paired with a Health Savings Account?

Possibly. Grandfathered status doesn’t determine eligibility for a Health Savings Account, or HSA. The medical plan must separately qualify as a high-deductible health plan under Internal Revenue Service rules, and you can’t have disqualifying additional coverage or be enrolled in Medicare. Before contributing, verify the plan’s deductible, out-of-pocket limit, and coverage before the deductible against the applicable year’s HSA requirements on the Internal Revenue Service website.

Can a grandfathered health plan rescind my coverage?

Generally, a plan can’t retroactively cancel your coverage merely because you made an honest mistake on an application or enrollment form. Rescission is generally allowed only for fraud or an intentional misrepresentation of a material fact, and advance notice rules apply. A prospective cancellation for unpaid premiums is different from rescission. If this happens, request the decision and appeal instructions in writing rather than relying on a phone explanation.

Can an insurance company discontinue a grandfathered policy?

Yes. Grandfathered status is a regulatory classification, not a guarantee of lifetime availability. An insurer may discontinue a product or leave a market if it follows applicable federal and state requirements, including required notices and renewal rules. For employer coverage, the business may also decide to stop offering the plan. If you receive a termination notice, use the stated end date to line up replacement coverage and ask whether it creates a special enrollment opportunity.

Can state law add protections to a grandfathered health plan?

Yes, especially when an insurance policy is issued by a state-regulated insurer. A state may require benefits, continuation rights, or consumer protections beyond the federal baseline, although the details differ by state and market. Self-funded employer plans are generally regulated primarily under the federal Employee Retirement Income Security Act, so many state insurance mandates don’t apply to them. Ask whether your plan is fully insured or self-funded, then check your state insurance department and the U.S. Department of Labor before relying on a state rule.

How long do I have to enroll after a qualifying life event?

For job-based coverage, federal Health Insurance Portability and Accountability Act special-enrollment rules commonly give you 30 days to request enrollment after losing other coverage, marrying, or gaining a dependent through birth, adoption, or placement for adoption. A loss of Medicaid or Children’s Health Insurance Program eligibility, or new eligibility for premium assistance under either program, generally provides 60 days. Effective-date rules vary by event, so notify the plan administrator promptly and keep proof of when the event occurred.

Can owners and part-time employees join a grandfathered group health plan?

That depends on the plan’s written eligibility terms and the insurer’s rules, not merely its grandfathered status. A working owner may qualify under one business structure but receive different tax treatment under another; sole proprietors, partners, and more-than-2-percent S corporation shareholders require particular care. Part-time workers may be excluded if the eligibility classification is lawful and consistently applied. Employers should verify carrier participation requirements and tax treatment before promising coverage or payroll deductions.

Does COBRA continuation coverage keep the plan’s grandfathered status?

If you elect continuation under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, you generally continue the same employer plan available to similarly situated active employees; your election doesn’t separately remove its grandfathered status. You may have to pay the entire premium plus a 2 percent administrative charge. Federal COBRA generally covers private-sector employers with at least 20 employees, while smaller employers may face state continuation rules. The Centers for Medicare & Medicaid Services provides COBRA coordination information.

Should I keep a grandfathered employer plan when I become eligible for Medicare?

Don’t decide based on the grandfathered label. Which coverage pays first can depend on why you qualify for Medicare, whether you’re actively employed, and the employer’s size. COBRA and retiree coverage generally don’t count as current-employment coverage for the Medicare Part B special enrollment period, so delaying Part B may create gaps or late-enrollment penalties. Before changing coverage, confirm the coordination rules with the employer plan and Medicare, including how prescription coverage affects Part D enrollment.

Review Your Grandfathered Plan Before Making Changes

Remember three things: grandfathered status exempts a health plan from only certain Affordable Care Act requirements, seemingly routine benefit or contribution changes can end that status, and an older plan isn’t automatically the best or least expensive choice. Employers should test changes before renewal, while employees should compare their actual premiums, benefits, providers, prescriptions, and alternatives.

SimplyHRA fits small businesses and startups, HR managers, and employees considering a move from traditional group coverage to an Individual Coverage Health Reimbursement Arrangement or Qualified Small Employer Health Reimbursement Arrangement. We built it after living small-business benefits problems ourselves, and we’ve helped other owners and their teams set up and run these benefits without enterprise overhead.

This article is education, not legal or tax advice. Email info@simplyhra.com or schedule a call for a consultation about employer or employee benefits.