Grandfathering in the small group market under the Patient Protection and Affordable Care Act : effects on offer rates, premiums, and coverage

The Patient Protection and Affordable Care Act (PPACA), signed into law by President Barack Obama on March 23, 2010, will introduce new health insurance options for many Americans. While PPACA will alter the health insurance options available to many people, one of the goals of the law is to enable Americans to keep the coverage they currently have if they choose to do so. In an effort to ensure that current coverage options do not change, PPACA exempts existing health insurance plans from certain regulations, a policy known as “grandfathering.” Newly offered plans, including plans available through state health insurance exchanges, are not eligible for grandfathering. This paper uses the Comprehensive Assessment of Reform Efforts (COMPARE) microsimulation model to analyze the effects that grandfathering in the small group market will have on outcomes, including the percentage of small firms (with 100 or fewer workers) offering coverage, premium prices in the grandfathered market and in the exchanges, the total number of people enrolled in health insurance coverage, and the number of people enrolled in exchange-based health insurance plans. Results suggest that, while grandfathering may lead to slightly higher exchange premiums, grandfathering is also associated with higher employer-sponsored insurance enrollment and lower government spending. Therefore, grandfathering may be an effective policy if the goal is to maximize the number of people enrolled in employment-based coverage. This article is a shorter version of an occasional paper published by Rand Corporation in 2010 (http://www.rand.org/content/dam/rand/pubs/occasional_papers/2010/RAND_OP313.pdf).