Timothy Stoltzfus Jost, Washington and Lee University School of Law

Posted on January 4, 2011 | No Comments

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One important question that has arisen in the course of implementation of the Affordable Care Act (ACA) is the extent to which the states can impose obligations on grandfathered health plans that are not imposed on those plans by the ACA itself. Section 1251 of the ACA defines grandfathered plans as those in which an enrollee was enrolled as of the effective date of the ACA. It imposes on grandfathered plans some of the new ACA requirements (such as coverage of adult children to age 26) or prohibitions (such as the ban on rescissions or lifetime limits), but not others (such as the prohibition on cost-sharing for preventive care or the requirement that plans offer internal and external appeals). Section 1251 does not, however, expressly address the question of whether states can independently impose requirements or prohibitions on grandfathered plans. This entry discusses this issue. 

The basic principle that governs the relationship between the provisions of the Patient Protection and Affordable Care Act (ACA) and state law is articulated by section 1321(d):

(d) NO INTERFERENCE WITH STATE REGULATORY AUTHORITY.—Nothing in this title shall be construed to preempt any State law that does not prevent the application of the provisions of this title.

Under this subsection a state law may not require or permit insurers to engage in conduct prohibited by Title I of the ACA. A state may not, for example, permit an insurer to underwrite based on health status after January 1, 2014 or require cost-sharing for preventive services that must be covered without cost-sharing. The non-interference principle does not, however, prohibit a state from imposing obligations on insurers that are not imposed by the ACA. Indeed, many of the provisions of the ACA explicitly preserve the authority of the states to impose requirements on insurers not imposed by the ACA.[1] Whether or not state regulatory authority is expressly preserved with respect to a particular issue, however, state law is not preempted as long as it does not interfere with the application of the ACA

Section 1251 section states, in the relevant part:

SEC. 1251. PRESERVATION OF RIGHT TO MAINTAIN EXISTING COVERAGE.

(a) NO CHANGES TO EXISTING COVERAGE.—

(1) IN GENERAL.—Nothing in this Act (or an amendment made by this Act) shall be construed to require that an individual terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on the date of enactment of this Act.

(2) CONTINUATION OF COVERAGE.— (as revised by section 10103(d)(1)). Except as provided in paragraph (3), with respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act, this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply to such plan or coverage, regardless of whether the individual renews such coverage after such date of enactment.

This section does not prohibit the states from regulating grandfathered plans. It specifically does not prohibit states from imposing requirements on grandfathered plans that are imposed on non-grandfathered plans by the ACA. It merely says that “this Act,” “this subtitle” [subtitle C, which contains the ACA’s requirements that are effective in 2014 requirements] and “subtitle A” [which contains the 2010 ACA requirements] do not apply to grandfathered plans (except for the provisions that do apply under paragraph (3), such as the rescission prohibition). It says nothing about state laws.

The ACA in fact only prohibits the states from applying three types of regulations to grandfathered plans. States may not require insurers to include their grandfathered business in the single individual, small group, or combined risk pool into which they must otherwise combine their enrollees (1312(c)(4)). States may not require grandfathered plans to contribute to the reinsurance program established under 1341. And states may not require grandfathered plans to participate in the risk adjustment program under 1343. Otherwise states may impose any requirements on grandfathered plans that they impose on other plans.

As a matter of policy, states may choose to regulate grandfathered plans less stringently than they do non-grandfathered plans. On the other hand, states may as a matter of policy decide to offer all consumers equal protection, regardless of whether they enrolled in their plan before March 23, 2010 or not. As a third option, states may leave in place state laws regulating grandfathered plans that impose requirements imposed by the ACA on non-grandfathered plans (such as state laws prohibiting health status underwriting), but not adopt new laws requiring grandfathered plans to conform to other ACA requirements not addressed by existing state law.

Nothing in the ACA, however, prohibits a state from pursuing its own policies with respect to grandfathered plans.


[1] See, for example, section PHSA 2711(b) (requiring insurers to comply with state prohibitions against limits on non-essential benefits); PHSA 2719(b) (preserving state external review laws that include the protections of the NAIC model external review act): 1101(e)(3) (preserving state laws that prohibit dumping into high risk pools); 1303 (preserving state abortion and conscience protection laws); 1311(d)(3)(B) (preserving state benefit mandates, although the state must pay for the cost of the benefits); and 1557(b) (state civil rights laws not preempted). On the other hand, when Congress intended to preempt state laws, it knew how to do it. See, for example, 2715(e) (preempting state disclosure laws that provide less information than the ACA); 1101(g)(5) (preempting state laws that govern the pre-existing condition high risk pools other than licensing and solvency requirements).
See, for example, section PHSA 2711(b) (requiring insurers to comply with state prohibitions against limits on non-essential benefits); PHSA 2719(b) (preserving state external review laws that include the protections of the NAIC model external review act): 1101(e)(3) (preserving state laws that prohibit dumping into high risk pools); 1303 (preserving state abortion and conscience protection laws); 1311(d)(3)(B) (preserving state benefit mandates, although the state must pay for the cost of the benefits); and 1557(b) (state civil rights laws not preempted). On the other hand, when Congress intended to preempt state laws, it knew how to do it. See, for example, 2715(e) (preempting state disclosure laws that provide less information than the ACA); 1101(g)(5) (preempting state laws that govern the pre-existing condition high risk pools other than licensing and solvency requirements).

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On November 14, 2011 the United States Supreme Court agreed to hear oral arguments on issues that have arisen as a result of more than two dozen legal challenges to the Affordable Care Act (ACA) that were filed upon or immediately following the March 2010 enactment of the health reform law. The Court will consider four constitutional issues related to the ACA: (1) whether Congress has the power under Article I of the Constitution to enact the coverage requirement; (2) if the coverage requirement is found unconstitutional, whether it is severable from the remainder of the ACA; (3) whether the ACA’s requirement that states expand Medicaid eligibility or risk losing federal funds is unduly coercive in violation of the Tenth Amendment; and (4) whether the individual coverage requirement is a tax for purposes of the Anti-Injunction Act, meaning that plaintiffs seeking to challenge the requirement must wait until it takes effect in 2014. Oral arguments are set for March 26-28, 2012, and a decision is expected by the end of the Court’s term in late June of 2012.
The health reform law establishes minimum federal standards, preserving states’ ability to require more stringent standards for insured plans.
On November 17, amendments to the interim final rule (IFR) on grandfathered plans will be published in the federal register with request for comment. The major change it makes to the IFR is that it will allow employers to change issuers without losing grandfathered status.
A new brief from Health Affairs examines grandfathered health plans and the significance of the debate about their status.
A new paper by Professor Timothy Jost and funded by the Commonwealth Fund examines health insurance exchanges and offers insight into 8 difficult issues that face Exchanges.