Federal officials say they issued a new regulation designed to give market flexibility and stability to health insurance coverage as reform takes hold.

Kathleen Sebelius

The rule on grandfathering of policies also affirms one of President Barack Obama’s promises with health care reform: that people who like their health plan may keep it.

The U.S. Departments of Health and Human Services, Labor and Treasury issued the new regulation on grandfathering to “protect the ability of individuals and businesses to keep their current plan while providing important consumer protections that give Americans – rather than insurance companies – control over their own health care,” according to a statement.

“The new regulation also provides stability and flexibility to insurers and businesses that offer health insurance coverage as the nation transitions to a more competitive marketplace in 2014 when businesses and consumers will have more affordable choices through exchanges,” according to the government statement.

Grandfathered health plans will be able to make routine changes to their policies and maintain their status. These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with State or other Federal laws. Premium changes are not taken into account when determining whether or not a plan is grandfathered, according to federal authorities.

Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to consumers. If a plan loses its grandfathered status, then consumers in these plans will gain additional new benefits, including coverage of recommended prevention services with no cost sharing and patient protections such as access to OB/GYNs and pediatricians without a referral by a separate primary care provider, according to the statement.

“The Affordable Care Act gives American families more control over their health care by providing greater benefits, cost savings and protections,” said Secretary of Health and Human Services Kathleen Sebelius. “Today, with the announcement of the new ‘grandfather’ rule, we’re providing the market stability and flexibility to ensure that families and businesses can make the choices that work best for them.”

While the Affordable Care Act requires all health plans to provide new benefits to consumers, under the law, plans that existed March 23, are exempt from some new requirements.

Federal officials said the grandfather rule makes it clear that these plans can continue to innovate and contain costs by allowing insurers and employers to make routine changes without losing grandfather status. Plans will lose their grandfather status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers – and consumers in plans that make such changes will gain new consumer protections, government officials said.

“The rule we are announcing today will allow employers to make routine and modest adjustments to co-payments, deductibles and employer contributions to their employees’ premiums without forfeiting grandfather status. This flexibility will encourage employers to continue offering health coverage to their employees and help to ensure coverage for all Americans,” said Secretary of Labor Hilda Solis.

Starting Sept. 23, all health plans – whether or not they are grandfathered plans – must provide no lifetime limits on coverage for all plans; no rescissions of coverage when people get sick and have previously made an unintentional mistake on their application; and the extension of parents’ coverage to young adults under 26 years old.

Details about what routine changes insurers and employers can make without losing their grandfathered status, and the projected impact on large and small employer plans and the individual plan market can be found at http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html.