Effects Of Grandfathering California Health Plans?

By Dennis Jarvis

There have been many changes in the California individual health insurance market resulting from health reform and none has been more confusing than that of Grandfathering. Being in the insurance market for decades, I can usually give pretty good guidance to a shopper or client regarding directions of various plan options. Grandfathering unfortunately bucks this trend. Let’s try to understand what it is and at least provide a good grounding of the pros and cons to grandfathering.

The first big ramp up of Health Reform drew a line in the sand on October 23rd, 2010. This was the deadline after which certain mandated benefits would kick in for new plans. Any plan with an effective date before the deadline would be grandfathered providing the plan was not changed aside from a few exclusions such as adding family members. To be safe, it’s fair to say that you would not be able to change your coverage if you wanted to retain your grandfathered status. So what was the benefit to having grandfathered status?


By avoiding the mandates on coverage (such as 100% preventative, etc), the rates for these older plans should be lower or more importantly, future rates should grow at a slower pace. With costs exploding, this is a huge advantage and many people chose to keep their grandfathered plans and status. This was after all, the “keep your plan if you like it” option discussed during the Health Reform debates. We personally discussed this decision with 1000’s of clients back in the heady days of late 2010 and the vast majority retained their grandfathered status. So, are there an drawbacks to keeping your grandfathered plan?

Part of the ambivalence back then had to do with historical knowledge of what happens to “closed plans”. Closed plans are plans which will not accept new enrollees which is what the grandfathered plans became. Usually, closed plans will enter a death spiral due to the fact that during the inevitable future rate increase, healthy people enrolled on the plan will shop the market and find cheaper alternatives or downgrades to offset rate increases. Enrolled people with health issues are unable to consider these changes and therefore the risk profile of the plan gets worse. The next rate increase reflects this with even higher increases which accelerates the whole process. Eventually, the plan is priced right out of the market and essentially dead. That’s what usually happens so why would we expect the grandfathered plans to be any different?

I brought this question to one of the carrier’s managers and his response was pretty convincing. That whole death spiral mentioned above only works if there’s actually a cheaper plan to move to! If all the new non-grandfathered plans are more expensive, the healthy people above will not move. We expect the new plans to be more expensive since they have more mandated benefits tied to them. So how did this actually play out since then?

According to plan. Apples to apples (similar benefits), the grandfathered plans are less expensive than newer plans since then and this trend will likely continue as new mandated benefits come online. You would think this would be a discussion past due since all new plans available are non-grandfathered but with every rate increase, current members need to decide if they should jump to a higher deductible to offset premiums. Every time the rates go up, we’re forced to consider the grandfathered decision all over again. First, run your instant California health insurance quote. Look at the available plans and their rates versus what you’re currently paying. We listed a “Key Factors to Comparing Health Plans” article to help you quickly break down the options. Every time we have checked, the rates have been higher unless you’re on one of the old and much richer plans. Of course, we’re happy to walk through these options with you since grandfathering makes the process of shopping California health insurance rates all the more complicated.

About the Author: Dennis Jarvis is a licensed

California health insurance quote

agent with extensive knowledge of the Individual California health market.

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