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.