Most grandfathered plans are offered by smaller organizations* (less than 200 people) that have typically offered traditional fully-funded plans through insurance carriers. But while grandfathered plans may have some cost-containment advantages, they also significantly limit the amount of change that can be made to coverage – in costs, delivery, and services. In addition, grandfathered plans don’t cover many of the key consumer benefits that newer ACA plans do. Consequently, employees could face disadvantages when it comes to securing the same patient benefits, rights and regulations as those on updated plans.
As a result many organizations are now shifting away from these somewhat antiquated plans, with just 35% of those offering group healthcare providing at least one grandfathered option in 2015 (down from 72% in 2011)*. Two major reasons for moving away from these types of plans is the lack of flexibility and limited options for lowering costs and engaging employees in decision-making. For example, Cigna reports that 80% of their clients have chosen to discontinue grandfathered plans citing a desire for more consumer-driven plans.
With a competitive job market and the ACA educating employees to be more healthcare-savvy, grandfathered plans are slowly making their way out of the market in lieu of more employee-friendly options. But at the same time, moving away from the familiar may cause some worry among smaller employers who wonder at the changes (read: possible increases) in healthcare costs that come with newer plans. Small-midsize organizations are now looking more broadly at innovative healthcare coverage choices that take into account both employee needs and strict bottom lines.
Nontraditional brokerage firms are bucking the old system and paving the way for those “status quo” employers hanging on to grandfathered plans. Zenefits, Zane, and Collective Health are a few of the successful start-ups that have come out of the ACA innovation movement, and various other types of funding opportunities abound. One example is partial self-funding (combining a high deductible health plan (HDHP) with reserve funds to cover out-of-pocket expenses). While this was an approach previously only available to larger organizations due to the financial risks, entrepreneurs are finding creative ways to mitigate the risks, reduce costs, and offer improved employee benefits.
For more information about partial self-funding as an option
for transitioning off grandfathered healthcare plans, download the
Nonprofit Executive's Guide to Partial Self-Insurance:
* Source: Kaiser Family Foundation
The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources believed to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose