Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act, 34538-34570 [2010-14488]
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Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
[TD 9489]
RIN 1545–BJ51
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
RIN 1210–AB42
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
[OCIIO–9991–IFC]
45 CFR Part 147
RIN 0991–AB68
Interim Final Rules for Group Health
Plans and Health Insurance Coverage
Relating to Status as a Grandfathered
Health Plan Under the Patient
Protection and Affordable Care Act
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AGENCY: Internal Revenue Service,
Department of the Treasury; Employee
Benefits Security Administration,
Department of Labor; Office of
Consumer Information and Insurance
Oversight, Department of Health and
Human Services.
ACTION: Interim final rules with request
for comments.
SUMMARY: This document contains
interim final regulations implementing
the rules for group health plans and
health insurance coverage in the group
and individual markets under
provisions of the Patient Protection and
Affordable Care Act regarding status as
a grandfathered health plan.
DATES: Effective date. These interim
final regulations are effective on June
14, 2010, except that the amendments to
26 CFR 54.9815–2714T, 29 CFR
2590.715–2714, and 45 CFR 147.120 are
effective July 12, 2010.
Comment date. Comments are due on
or before August 16, 2010.
ADDRESSES: Written comments may be
submitted to any of the addresses
specified below. Any comment that is
submitted to any Department will be
shared with the other Departments.
Please do not submit duplicates.
All comments will be made available
to the public. Warning: Do not include
any personally identifiable information
(such as name, address, or other contact
information) or confidential business
information that you do not want
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publicly disclosed. All comments are
posted on the Internet exactly as
received, and can be retrieved by most
Internet search engines. No deletions,
modifications, or redactions will be
made to the comments received, as they
are public records. Comments may be
submitted anonymously.
Department of Labor. Comments to
the Department of Labor, identified by
RIN 1210–AB42, by one of the following
methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail: EOHPSCA1251.EBSA@dol.gov.
• Mail or Hand Delivery: Office of
Health Plan Standards and Compliance
Assistance, Employee Benefits Security
Administration, Room N–5653, U.S.
Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210,
Attention: RIN 1210–AB42.
Comments received by the
Department of Labor will be posted
without change to https://
www.regulations.gov and https://
www.dol.gov/ebsa, and available for
public inspection at the Public
Disclosure Room, N–1513, Employee
Benefits Security Administration, 200
Constitution Avenue, NW., Washington,
DC 20210.
Department of Health and Human
Services. In commenting, please refer to
file code OCIIO–9991–IFC. Because of
staff and resource limitations, the
Departments cannot accept comments
by facsimile (FAX) transmission.
You may submit comments in one of
four ways (please choose only one of the
ways listed):
1. Electronically. You may submit
electronic comments on this regulation
to https://www.regulations.gov. Follow
the instructions under the ‘‘More Search
Options’’ tab.
2. By regular mail. You may mail
written comments to the following
address ONLY: Office of Consumer
Information and Insurance Oversight,
Department of Health and Human
Services, Attention: OCIIO–9991–IFC,
P.O. Box 8016, Baltimore, MD 21244–
1850.
Please allow sufficient time for mailed
comments to be received before the
close of the comment period.
3. By express or overnight mail. You
may send written comments to the
following address ONLY: Office of
Consumer Information and Insurance
Oversight, Department of Health and
Human Services, Attention: OCIIO–
9991–IFC, Mail Stop C4–26–05, 7500
Security Boulevard, Baltimore, MD
21244–1850.
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4. By hand or courier. If you prefer,
you may deliver (by hand or courier)
your written comments before the close
of the comment period to either of the
following addresses:
a. For delivery in Washington, DC—
Office of Consumer Information and
Insurance Oversight, Department of
Health and Human Services, Room 445–
G, Hubert H. Humphrey Building, 200
Independence Avenue, SW.,
Washington, DC 20201.
(Because access to the interior of the
Hubert H. Humphrey Building is not
readily available to persons without
Federal government identification,
commenters are encouraged to leave
their comments in the OCIIO drop slots
located in the main lobby of the
building. A stamp-in clock is available
for persons wishing to retain a proof of
filing by stamping in and retaining an
extra copy of the comments being filed.)
b. For delivery in Baltimore, MD—
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, 7500 Security
Boulevard, Baltimore, MD 21244–1850.
If you intend to deliver your
comments to the Baltimore address,
please call (410) 786–7195 in advance to
schedule your arrival with one of our
staff members.
Comments mailed to the addresses
indicated as appropriate for hand or
courier delivery may be delayed and
received after the comment period.
Submission of comments on
paperwork requirements. You may
submit comments on this document’s
paperwork requirements by following
the instructions at the end of the
‘‘Collection of Information
Requirements’’ section in this document.
Inspection of Public Comments: All
comments received before the close of
the comment period are available for
viewing by the public, including any
personally identifiable or confidential
business information that is included in
a comment. The Departments post all
comments received before the close of
the comment period on the following
Web site as soon as possible after they
have been received: https://
www.regulations.gov. Follow the search
instructions on that Web site to view
public comments.
Comments received timely will also
be available for public inspection as
they are received, generally beginning
approximately three weeks after
publication of a document, at the
headquarters of the Centers for Medicare
& Medicaid Services, 7500 Security
Boulevard, Baltimore, Maryland 21244,
Monday through Friday of each week
from 8:30 a.m. to 4 p.m. EST. To
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schedule an appointment to view public
comments, phone 1–800–743–3951.
Internal Revenue Service. Comments
to the IRS, identified by REG–118412–
10, by one of the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: CC:PA:LPD:PR (REG–118412–
10), room 5205, Internal Revenue
Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
• Hand or courier delivery: Monday
through Friday between the hours of 8
a.m. and 4 p.m. to: CC:PA:LPD:PR
(REG–118412–10), Courier’s Desk,
Internal Revenue Service, 1111
Constitution Avenue, NW., Washington,
DC 20224.
All submissions to the IRS will be
open to public inspection and copying
in room 1621, 1111 Constitution
Avenue, NW., Washington, DC from 9
a.m. to 4 p.m.
FOR FURTHER INFORMATION CONTACT:
Amy Turner or Beth Baum, Employee
Benefits Security Administration,
Department of Labor, at (202) 693–8335;
Karen Levin, Internal Revenue Service,
Department of the Treasury, at (202)
622–6080; Jim Mayhew, Office of
Consumer Information and Insurance
Oversight, Department of Health and
Human Services, at (410) 786–1565.
Customer Service Information:
Individuals interested in obtaining
information from the Department of
Labor concerning employment-based
health coverage laws may call the EBSA
Toll-Free Hotline at 1–866–444–EBSA
(3272) or visit the Department of Labor’s
Web site (https://www.dol.gov/ebsa). In
addition, information from HHS on
private health insurance for consumers
can be found on the Centers for
Medicare & Medicaid Services (CMS)
Web site (https://www.cms.hhs.gov/
HealthInsReformforConsume/
01_Overview.asp) and information on
health reform can be found at https://
www.healthreform.gov.
SUPPLEMENTARY INFORMATION:
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I. Background
The Patient Protection and Affordable
Care Act (the Affordable Care Act),
Public Law 111–148, was enacted on
March 23, 2010; the Health Care and
Education Reconciliation Act (the
Reconciliation Act), Public Law 111–
152, was enacted on March 30, 2010.
The Affordable Care Act and the
Reconciliation Act reorganize, amend,
and add to the provisions in part A of
title XXVII of the Public Health Service
Act (PHS Act) relating to group health
plans and health insurance issuers in
the group and individual markets. The
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term ‘‘group health plan’’ includes both
insured and self-insured group health
plans.1 The Affordable Care Act adds
section 715(a)(1) to the Employee
Retirement Income Security Act (ERISA)
and section 9815(a)(1) to the Internal
Revenue Code (the Code) to incorporate
the provisions of part A of title XXVII
of the PHS Act into ERISA and the
Code, and make them applicable to
group health plans, and health
insurance issuers providing health
insurance coverage in connection with
group health plans. The PHS Act
sections incorporated by this reference
are sections 2701 through 2728. PHS
Act sections 2701 through 2719A are
substantially new, though they
incorporate some provisions of prior
law. PHS Act sections 2722 through
2728 are sections of prior law
renumbered, with some, mostly minor,
changes. Section 1251 of the Affordable
Care Act, as modified by section 10103
of the Affordable Care Act and section
2301 of the Reconciliation Act, specifies
that certain plans or coverage existing as
of the date of enactment (that is,
grandfathered health plans) are only
subject to certain provisions.
The Affordable Care Act also adds
section 715(a)(2) of ERISA, which
provides that, to the extent that any
provision of part 7 of ERISA conflicts
with part A of title XXVII of the PHS
Act with respect to group health plans
or group health insurance coverage, the
PHS Act provisions apply. Similarly,
the Affordable Care Act adds section
9815(a)(2) of the Code, which provides
that, to the extent that any provision of
subchapter B of chapter 100 of the Code
conflicts with part A of title XXVII of
the PHS Act with respect to group
health plans or group health insurance
coverage, the PHS Act provisions apply.
Therefore, although ERISA section
715(a)(1) and Code section 9815(a)(1)
incorporate by reference new
provisions, they do not affect
preexisting sections of ERISA or the
Code unless they cannot be read
consistently with an incorporated
provision of the PHS Act. For example,
ERISA section 732(a) generally provides
that part 7 of ERISA—and Code section
9831(a) generally provides that chapter
100 of the Code—does not apply to
plans with less than two participants
who are current employees (including
retiree-only plans that cover less than
two participants who are current
employees). Prior to enactment of the
1 The term ‘‘group health plan’’ is used in title
XXVII of the PHS Act, part 7 of ERISA, and chapter
100 of the Code, and is distinct from the term
‘‘health plan’’, as used in other provisions of title I
of the Affordable Care Act. The term ‘‘health plan’’
does not include self-insured group health plans.
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Affordable Care Act, the PHS Act had a
parallel provision at section 2721(a).
After the Affordable Care Act amended,
reorganized, and renumbered most of
title XXVII of the PHS Act, that
exception no longer exists. Similarly,
ERISA section 732(b) and (c) generally
provides that the requirements of part 7
of ERISA—and Code section 9831(b)
and (c) generally provides that the
requirements of chapter 100 of the
Code—do not apply to excepted
benefits.2 Prior to enactment of the
Affordable Care Act, the PHS Act had a
parallel section 2721(c) and (d) that
indicated that the provisions of subparts
1 through 3 of part A of title XXVII of
the PHS Act did not apply to excepted
benefits. After the Affordable Care Act
amended and renumbered PHS Act
section 2721(c) and (d) as section
2722(b) and (c), that exception could be
read to be narrowed so that it applies
only with respect to subpart 2 of part A
of title XXVII of the PHS Act, thus, in
effect requiring excepted benefits to
comply with subparts I and II of part A.
The absence of an express provision
in part A of title XXVII of the PHS Act
does not create a conflict with the
relevant requirements of ERISA and the
Code. Accordingly, the exceptions of
ERISA section 732 and Code section
9831 for very small plans and certain
retiree-only health plans, and for
excepted benefits, remain in effect and,
thus, ERISA section 715 and Code
section 9815, as added by the Affordable
Care Act, do not apply to such plans or
excepted benefits.
Moreover, there is no express
indication in the legislative history of an
intent to treat issuers of group health
insurance coverage or nonfederal
governmental plans (that are subject to
the PHS Act) any differently in this
respect from plans subject to ERISA and
the Code. The Departments of Health
and Human Services, Labor, and the
Treasury (the Departments) operate
under a Memorandum of Understanding
(MOU) 3 that implements section 104 of
the Health Insurance Portability and
Accountability Act of 1996 (HIPAA),
enacted on August 21, 1996, and
subsequent amendments, and provides
that requirements over which two or
more Secretaries have responsibility
(‘‘shared provisions’’) must be
administered so as to have the same
effect at all times. HIPAA section 104
2 Excepted benefits generally include dental-only
and vision-only plans, most health flexible
spending arrangements, Medigap policies, and
accidental death and dismemberment coverage. For
more information on excepted benefits, see 26 CFR
54.9831–1, 29 CFR 2590.732, 45 CFR 146.145, and
45 CFR 148.220.
3 See 64 FR 70164 (December 15, 1999).
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also requires the coordination of
policies relating to enforcing the shared
provisions in order to avoid duplication
of enforcement efforts and to assign
priorities in enforcement.
There is no express statement of
intent that nonfederal governmental
retiree-only plans should be treated
differently from private sector plans or
that excepted benefits offered by
nonfederal governmental plans should
be treated differently from excepted
benefits offered by private sector plans.
Because treating nonfederal
governmental retiree-only plans and
excepted benefits provided by
nonfederal governmental plans
differently would create confusion with
respect to the obligations of issuers that
do not distinguish whether a group
health plan is subject to ERISA or the
PHS Act, and in light of the MOU, the
Department of Health and Human
Services (HHS) does not intend to use
its resources to enforce the requirements
of HIPAA or the Affordable Care Act
with respect to nonfederal governmental
retiree-only plans or with respect to
excepted benefits provided by
nonfederal governmental plans.
PHS Act section 2723(a)(2) (formerly
section 2722(a)(2)) gives the States
primary authority to enforce the PHS
Act group and individual market
provisions over group and individual
health insurance issuers. HHS enforces
these provisions with respect to issuers
only if it determines that the State has
‘‘failed to substantially enforce’’ one of
the Federal provisions. Furthermore, the
PHS Act preemption provisions allow
States to impose requirements on
issuers in the group and individual
markets that are more protective than
the Federal provisions. However, HHS
is encouraging States not to apply the
provisions of title XXVII of the PHS Act
to issuers of retiree-only plans or of
excepted benefits. HHS advises States
that if they do not apply these
provisions to the issuers of retiree-only
plans or of excepted benefits, HHS will
not cite a State for failing to
substantially enforce the provisions of
part A of title XXVII of the PHS Act in
these situations.
Subtitles A and C of title I of the
Affordable Care Act amend the
requirements of title XXVII of the PHS
Act (changes to which are incorporated
into ERISA section 715). The
preemption provisions of ERISA section
731 and PHS Act section 2724 4
(implemented in 29 CFR 2590.731(a)
4 Code section 9815 incorporates the preemption
provisions of PHS Act section 2724. Prior to the
Affordable Care Act, there were no express
preemption provisions in chapter 100 of the Code.
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and 45 CFR 146.143(a)) apply so that the
requirements of part 7 of ERISA and
title XXVII of PHS Act, as amended by
the Affordable Care Act, are not to be
‘‘construed to supersede any provision
of State law which establishes,
implements, or continues in effect any
standard or requirement solely relating
to health insurance issuers in
connection with group or individual
health insurance coverage except to the
extent that such standard or
requirement prevents the application of
a requirement’’ of the Affordable Care
Act. Accordingly, State laws that
impose on health insurance issuers
requirements that are stricter than the
requirements imposed by the Affordable
Care Act will not be superseded by the
Affordable Care Act.
The Departments are issuing
regulations implementing the revised
PHS Act sections 2701 through 2719A
in several phases. The first publication
in this series was a Request for
Information relating to the medical loss
ratio provisions of PHS Act section
2718, published in the Federal Register
on April 14, 2010 (75 FR 19297). The
second publication was interim final
regulations implementing PHS Act
section 2714 (requiring dependent
coverage of children to age 26),
published in the Federal Register on
May 13, 2010 (75 FR 27122). This
document contains interim final
regulations implementing section 1251
of the Affordable Care Act (relating to
grandfathered health plans), as well as
adding a cross-reference to these interim
final regulations in the regulations
implementing PHS Act section 2714.
The implementation of other provisions
in PHS Act sections 2701 through
2719A will be addressed in future
regulations.
II. Overview of the Regulations: Section
1251 of the Affordable Care Act,
Preservation of Right To Maintain
Existing Coverage (26 CFR 54.9815–
1251T, 29 CFR 2590.715–1251, and 45
CFR 147.140)
A. Introduction
Section 1251 of the Affordable Care
Act, as modified by section 10103 of the
Affordable Care Act and section 2301 of
the Reconciliation Act, provides that
certain group health plans and health
insurance coverage existing as of March
23, 2010 (the date of enactment of the
Affordable Care Act), are subject only to
certain provisions of the Affordable Care
Act. The statute and these interim final
regulations refer to these plans and
health insurance coverage as
grandfathered health plans.
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The Affordable Care Act balances the
objective of preserving the ability of
individuals to maintain their existing
coverage with the goals of ensuring
access to affordable essential coverage
and improving the quality of coverage.
Section 1251 provides that nothing in
the Affordable Care Act requires an
individual to terminate the coverage in
which the individual was enrolled on
March 23, 2010. It also generally
provides that, with respect to group
health plans or health insurance
coverage in which an individual was
enrolled on March 23, 2010, various
requirements of the Act shall not apply
to such plan or coverage, regardless of
whether the individual renews such
coverage after March 23, 2010. However,
to ensure access to coverage with certain
particularly significant protections,
Congress required grandfathered health
plans to comply with a subset of the
Affordable Care Act’s health reform
provisions. Thus, for example,
grandfathered health plans must comply
with the prohibition on rescissions of
coverage except in the case of fraud or
intentional misrepresentation and the
elimination of lifetime limits (both of
which apply for plan years, or in the
individual market, policy years,
beginning on or after September 23,
2010). On the other hand, grandfathered
health plans are not required to comply
with certain other requirements of the
Affordable Care Act; for example, the
requirement that preventive health
services be covered without any cost
sharing (which otherwise becomes
generally applicable for plan years, or in
the individual market, policy years,
beginning on or after September 23,
2010).
A number of additional reforms apply
for plan years (in the individual market,
policy years) beginning on or after
January 1, 2014. As with the
requirements effective for plan years (in
the individual market, policy years)
beginning on or after September 23,
2010, grandfathered health plans must
then comply with some, but not all of
these reforms. See Table 1 in section
II.D of this preamble for a list of various
requirements that apply to
grandfathered health plans.
In making grandfathered health plans
subject to some but not all of the health
reforms contained in the Affordable
Care Act, the statute balances its
objective of preserving the ability to
maintain existing coverage with the
goals of expanding access to and
improving the quality of health
coverage. The statute does not, however,
address at what point changes to a
group health plan or health insurance
coverage in which an individual was
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enrolled on March 23, 2010 are
significant enough to cause the plan or
health insurance coverage to cease to be
a grandfathered health plan, leaving that
question to be addressed by regulatory
guidance.
These interim final regulations are
designed to ease the transition of the
healthcare industry into the reforms
established by the Affordable Care Act
by allowing for gradual implementation
of reforms through a reasonable
grandfathering rule. A more detailed
description of the basis for these interim
final regulations and other regulatory
alternatives considered is included in
section IV.B later in this preamble.
B. Definition of Grandfathered Health
Plan Coverage in Paragraph (a) of 26
CFR 54.9815–1251T, 29 CFR 2590.715–
1251, and 45 CFR 147.140 of These
Interim Final Regulations
Under the statute and these interim
final regulations, a group health plan or
group or individual health insurance
coverage is a grandfathered health plan
with respect to individuals enrolled on
March 23, 2010. Paragraph (a)(1) of 26
CFR 54.9815–1251T, 29 CFR 2590.715–
1251, and 45 CFR 147.140 of these
interim final regulations provides that a
group health plan or group health
insurance coverage does not cease to be
grandfathered health plan coverage
merely because one or more (or even all)
individuals enrolled on March 23, 2010
cease to be covered, provided that the
plan or group health insurance coverage
has continuously covered someone
since March 23, 2010 (not necessarily
the same person, but at all times at least
one person). The determination under
the rules of these interim final
regulations is made separately with
respect to each benefit package made
available under a group health plan or
health insurance coverage.
Moreover, these interim final
regulations provide that, subject to the
rules of paragraph (f) of 26 CFR
54.9815–1251T, 29 CFR 2590.715–1251,
and 45 CFR 147.140 for collectively
bargained plans, if an employer or
employee organization enters into a new
policy, certificate, or contract of
insurance after March 23, 2010
(because, for example, any previous
policy, certificate, or contract of
insurance is not being renewed), then
that policy, certificate, or contract of
insurance is not a grandfathered health
plan with respect to the individuals in
the group health plan. Any policies sold
in the group and individual health
insurance markets to new entities or
individuals after March 23, 2010 will
not be grandfathered health plans even
if the health insurance products sold to
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those subscribers were offered in the
group or individual market before
March 23, 2010.
To maintain status as a grandfathered
health plan, a plan or health insurance
coverage (1) must include a statement,
in any plan materials provided to
participants or beneficiaries (in the
individual market, primary subscribers)
describing the benefits provided under
the plan or health insurance coverage,
that the plan or health insurance
coverage believes that it is a
grandfathered health plan within the
meaning of section 1251 of the
Affordable Care Act and (2) must
provide contact information for
questions and complaints.
Model language is provided in these
interim final regulations that can be
used to satisfy this disclosure
requirement. Comments are invited on
possible improvements to the model
language of grandfathered health plan
status. Some have suggested, for
example, that each grandfathered health
plan be required to list and describe the
various consumer protections that do
not apply to the plan or health
insurance coverage because it is
grandfathered, together with their
effective dates. The Departments intend
to consider any comments regarding
possible improvements to the model
language in the near term; any changes
to the model language that may result
from such comments could be
published in additional administrative
guidance other than in the form of
regulations.
Similarly, under these interim final
regulations, to maintain status as a
grandfathered health plan, a plan or
issuer must also maintain records
documenting the terms of the plan or
health insurance coverage that were in
effect on March 23, 2010, and any other
documents necessary to verify, explain,
or clarify its status as a grandfathered
health plan. Such documents could
include intervening and current plan
documents, health insurance policies,
certificates or contracts of insurance,
summary plan descriptions,
documentation of premiums or the cost
of coverage, and documentation of
required employee contribution rates. In
addition, the plan or issuer must make
such records available for examination.
Accordingly, a participant, beneficiary,
individual policy subscriber, or State or
Federal agency official would be able to
inspect such documents to verify the
status of the plan or health insurance
coverage as a grandfathered health plan.
The plan or issuer must maintain such
records and make them available for
examination for as long as the plan or
issuer takes the position that the plan or
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health insurance coverage is a
grandfathered health plan.
Under the statute and these interim
final regulations, if family members of
an individual who is enrolled in a
grandfathered health plan as of March
23, 2010 enroll in the plan after March
23, 2010, the plan or health insurance
coverage is also a grandfathered health
plan with respect to the family
members.
C. Adding New Employees in Paragraph
(b) of 26 CFR 54.9815–1251T, 29 CFR
2590.715–1251, and 45 CFR 147.140 of
These Interim Final Regulations
These interim final regulations at 26
CFR 54.9815–1251T, 29 CFR 2590.715–
1251, and 45 CFR 147.140 provide that
a group health plan that provided
coverage on March 23, 2010 generally is
also a grandfathered health plan with
respect to new employees (whether
newly hired or newly enrolled) and
their families who enroll in the
grandfathered health plan after March
23, 2010. These interim final regulations
clarify that in such cases, any health
insurance coverage provided under the
group health plan in which an
individual was enrolled on March 23,
2010 is also a grandfathered health plan.
To prevent abuse, these interim final
regulations provide that if the principal
purpose of a merger, acquisition, or
similar business restructuring is to cover
new individuals under a grandfathered
health plan, the plan ceases to be a
grandfathered health plan. The goal of
this rule is to prevent grandfather status
from being bought and sold as a
commodity in commercial transactions.
These interim final regulations also
contain a second anti-abuse rule
designed to prevent a plan or issuer
from circumventing the limits on
changes that cause a plan or health
insurance coverage to cease to be a
grandfathered health plan under
paragraph (g) (described more fully in
section II.F of this preamble). This rule
in paragraph (b)(2)(ii) addresses a
situation under which employees who
previously were covered by a
grandfathered health plan are
transferred to another grandfathered
health plan. This rule is intended to
prevent efforts to retain grandfather
status by indirectly making changes that
would result in loss of that status if
those changes were made directly.
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D. Applicability of Part A of Title XXVII
of the PHS Act to Grandfathered Health
Plans Paragraphs (c), (d), and (e) of 26
CFR 54.9815–1251T, 29 CFR 2590.715–
1251, and 45 CFR 147.140 of These
Interim Final Regulations
A grandfathered health plan generally
is not subject to subtitles A and C of title
I of the Affordable Care Act, except as
specifically provided by the statute and
these interim final regulations. The
statute and these interim final
regulations provide that some
provisions of subtitles A and C of title
I of the Affordable Care Act continue to
apply to all grandfathered health plans
and some provisions continue to apply
only to grandfathered health plans that
are group health plans. These interim
final regulations clarify that a
grandfathered health plan must
continue to comply with the
requirements of the PHS Act, ERISA,
and the Code that were applicable prior
to the changes enacted by the Affordable
Care Act, except to the extent
supplanted by changes made by the
Affordable Care Act. Therefore, the
HIPAA portability and
nondiscrimination requirements and the
Genetic Information Nondiscrimination
Act requirements applicable prior to the
effective date of the Affordable Care Act
continue to apply to grandfathered
health plans. In addition, the mental
health parity provisions, the Newborns’
and Mothers’ Health Protection Act
provisions, the Women’s Health and
Cancer Rights Act, and Michelle’s Law
continue to apply to grandfathered
health plans. The following table lists
the new health coverage reforms in part
A of title XXVII of the PHS Act (as
amended by the Affordable Care Act)
that apply to grandfathered health
plans:
TABLE 1—LIST OF THE NEW HEALTH REFORM PROVISIONS OF PART A OF TITLE XXVII OF THE PHS ACT THAT APPLY TO
GRANDFATHERED HEALTH PLANS
PHS Act statutory provisions
Application to grandfathered health plans
§ 2704 Prohibition of preexisting condition exclusion or other discrimination based on health status.
Applicable to grandfathered group health plans and group health insurance coverage.
Not applicable to grandfathered individual health insurance coverage.
Applicable.
Lifetime limits: Applicable.
Annual limits: Applicable to grandfathered group health plans and
group health insurance coverage; not applicable to grandfathered individual health insurance coverage.
Applicable.
Applicable 5.
Applicable.
§ 2708 Prohibition on excessive waiting periods .....................................
§ 2711 No lifetime or annual limits ...........................................................
§ 2712 Prohibition on rescissions .............................................................
§ 2714 Extension of dependent coverage until age 26 ............................
§ 2715 Development and utilization of uniform explanation of coverage
documents and standardized definitions.
§ 2718 Bringing down cost of health care coverage (for insured coverage).
Applicable to insured grandfathered health plans.
5 For a group health plan or group health insurance coverage that is a grandfathered health plan for plan years beginning before January 1,
2014, PHS Act section 2714 is applicable in the case of an adult child only if the adult child is not eligible for other employer-sponsored health
plan coverage. The interim final regulations relating to PHS Act section 2714, published in 75 FR 27122 (May 13, 2010), and these interim final
regulations clarify that, in the case of an adult child who is eligible for coverage under the employer-sponsored plans of both parents, neither parent’s plan may exclude the adult child from coverage based on the fact that the adult child is eligible to enroll in the other parent’s employersponsored plan.
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E. Health Insurance Coverage
Maintained Pursuant to a Collective
Bargaining Agreement of Paragraph (f)
of 26 CFR 54.9815–1251T, 29 CFR
2590.715–1251, and 45 CFR 147.140 of
These Interim Final Regulations
In paragraph (f) of 26 CFR 54.9815–
1251T, 29 CFR 2590.715–1251, and 45
CFR 147.140, these interim final
regulations provide that in the case of
health insurance coverage maintained
pursuant to one or more collective
bargaining agreements ratified before
March 23, 2010, the coverage is a
grandfathered health plan at least until
the date on which the last agreement
relating to the coverage that was in
effect on March 23, 2010 terminates.
Thus, before the last of the applicable
collective bargaining agreement
terminates, any health insurance
coverage provided pursuant to the
collective bargaining agreements is a
grandfathered health plan, even if there
is a change in issuers (or any other
change described in paragraph (g)(1) of
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26 CFR 54.9815–1251T, 29 CFR
2590.715–1251, and 45 CFR 147.140 of
these interim final regulations) during
the period of the agreement. The
statutory language of the provision
refers solely to ‘‘health insurance
coverage’’ and does not refer to a group
health plan; therefore, these interim
final regulations apply this provision
only to insured plans maintained
pursuant to a collective bargaining
agreement and not to self-insured plans.
After the date on which the last of the
collective bargaining agreements
terminates, the determination of
whether health insurance coverage
maintained pursuant to a collective
bargaining agreement is grandfathered
health plan coverage is made under the
rules of paragraph (g). This
determination is made by comparing the
terms of the coverage on the date of
determination with the terms of the
coverage that were in effect on March
23, 2010. A change in issuers during the
period of the agreement, by itself, would
not cause the plan to cease to be a
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grandfathered health plan at the
termination of the agreement. However,
for a change in issuers after the
termination of the agreement, the rules
of paragraph (a)(1)(ii) of 26 CFR
54.9815–1251T, 29 CFR 2590.715–1251,
and 45 CFR 147.140 of these interim
final regulations apply.
Similar language to section 1251(d) in
related bills that were not enacted
would have provided a delayed effective
date for collectively bargained plans
with respect to the Affordable Care Act
requirements. Questions have arisen as
to whether section 1251(d) as enacted in
the Affordable Care Act similarly
operated to delay the application of the
Affordable Care Act’s requirements to
collectively bargained plans—
specifically, whether the provision of
section 1251(d) that exempts
collectively bargained plans from
requirements for the duration of the
agreement effectively provides the plans
with a delayed effective date with
respect to all new PHS Act requirements
(in contrast to the rules for
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grandfathered health plans which
provide that specified PHS Act
provisions apply to all plans, including
grandfathered health plans). However,
the statutory language that applies only
to collectively bargained plans, as
signed into law as part of the Affordable
Care Act, provides that insured
collectively bargained plans in which
individuals were enrolled on the date of
enactment are included in the definition
of a grandfathered health plan.
Therefore, collectively bargained plans
(both insured and self-insured) that are
grandfathered health plans are subject to
the same requirements as other
grandfathered health plans, and are not
provided with a delayed effective date
for PHS Act provisions with which
other grandfathered health plans must
comply. Thus, the provisions that apply
to grandfathered health plans apply to
collectively bargained plans before and
after termination of the last of the
applicable collective bargaining
agreement.
F. Maintenance of Grandfather Status of
Paragraph (g) of 26 CFR 54.9815–1251T,
29 CFR 2590.715–1251, and 45 CFR
147.140 of These Interim Final
Regulations)
Questions have arisen regarding the
extent to which changes can be made to
a plan or health insurance coverage and
still have the plan or coverage
considered the same as that in existence
on March 23, 2010, so as to maintain
status as a grandfathered health plan.
Some have suggested that any change
would cause a plan or health insurance
coverage to be considered different and
thus cease to be a grandfathered health
plan. Others have suggested that any
degree of change, no matter how large,
is irrelevant provided the plan or health
insurance coverage can trace some
continuous legal relationship to the plan
or health insurance coverage that was in
existence on March 23, 2010.
In paragraph (g)(1) of 26 CFR
54.9815–1251T, 29 CFR 2590.715–1251,
and 45 CFR 147.140 of these interim
final regulations, coordinated rules are
set forth for determining when changes
to the terms of a plan or health
insurance coverage cause the plan or
coverage to cease to be a grandfathered
health plan. The first of those rules (in
paragraph (g)(1)(i)) constrains the extent
to which the scope of benefits can be
reduced. It provides that the elimination
of all or substantially all benefits to
diagnose or treat a particular condition
causes a plan or health insurance
coverage to cease to be a grandfathered
health plan. If, for example, a plan
eliminates all benefits for cystic fibrosis,
the plan ceases to be a grandfathered
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health plan (even though this condition
may affect relatively few individuals
covered under the plan). Moreover, for
purposes of paragraph (g)(1)(i), the
elimination of benefits for any necessary
element to diagnose or treat a condition
is considered the elimination of all or
substantially all benefits to diagnose or
treat a particular condition. An example
in these interim final regulations
illustrates that if a plan provides
benefits for a particular mental health
condition, the treatment for which is a
combination of counseling and
prescription drugs, and subsequently
eliminates benefits for counseling, the
plan is treated as having eliminated all
or substantially all benefits for that
mental health condition.
A second set of rules (in paragraphs
(g)(1)(ii) through (g)(1)(iv)) limits the
extent to which plans and issuers can
increase the fixed-amount and the
percentage cost-sharing requirements
that are imposed with respect to
individuals for covered items and
services. Plans and issuers can choose to
make larger increases to fixed-amount or
percentage cost-sharing requirements
than permissible under these interim
final regulations, but at that point the
individual’s plan or health insurance
coverage would cease to be
grandfathered health plan coverage. A
more detailed description of the basis
for the cost-sharing requirements in
these interim final regulations is
included in section IV.B later in this
preamble.
These interim final regulations
provide different standards with respect
to coinsurance and fixed-amount cost
sharing. Coinsurance automatically rises
with medical inflation. Therefore,
changes to the level of coinsurance
(such as moving from a requirement that
the patient pay 20 percent to a
requirement that the patient pay 30
percent of inpatient surgery costs)
would significantly alter the level of
benefits provided. On the other hand,
fixed-amount cost-sharing requirements
(such as copayments and deductibles)
do not take into account medical
inflation. Therefore, changes to fixedamount cost-sharing requirements (for
example, moving from a $35 copayment
to a $40 copayment for outpatient
doctor visits) may be reasonable to keep
up with the rising cost of medical items
and services. Accordingly, paragraph
(g)(1)(ii) provides that any increase in a
percentage cost-sharing requirement
(such as coinsurance) causes a plan or
health insurance coverage to cease to be
a grandfathered health plan.
With respect to fixed-amount costsharing requirements, paragraph
(g)(1)(iii) provides two rules: a rule for
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34543
cost-sharing requirements other than
copayments and a rule for copayments.
Fixed-amount cost-sharing requirements
include, for example, a $500 deductible,
a $30 copayment, or a $2,500 out-ofpocket limit. With respect to fixedamount cost-sharing requirements other
than copayments, a plan or health
insurance coverage ceases to be a
grandfathered health plan if there is an
increase, since March 23, 2010, in a
fixed-amount cost-sharing requirement
that is greater than the maximum
percentage increase. The maximum
percentage increase is defined as
medical inflation (from March 23, 2010)
plus 15 percentage points. For this
purpose, medical inflation is defined in
these interim final regulations by
reference to the overall medical care
component of the Consumer Price Index
for All Urban Consumers, unadjusted
(CPI), published by the Department of
Labor. For fixed-amount copayments, a
plan or health insurance coverage ceases
to be a grandfathered health plan if
there is an increase since March 23,
2010 in the copayment that exceeds the
greater of (A) the maximum percentage
increase or (B) five dollars increased by
medical inflation. A more detailed
description of the basis for these rules
relating to cost-sharing requirements is
included in section IV.B later in this
preamble.
With respect to employer
contributions, these interim final
regulations include a standard for
changes that would result in cessation
of grandfather status. Specifically,
paragraph (g)(1)(v) limits the ability of
an employer or employee organization
to decrease its contribution rate for
coverage under a group health plan or
group health insurance coverage. Two
different situations are addressed. First,
if the contribution rate is based on the
cost of coverage, a group health plan or
group health insurance coverage ceases
to be a grandfathered health plan if the
employer or employee organization
decreases its contribution rate towards
the cost of any tier of coverage for any
class of similarly situated individuals 6
by more than 5 percentage points below
the contribution rate on March 23, 2010.
For this purpose, contribution rate is
defined as the amount of contributions
made by an employer or employee
organization compared to the total cost
of coverage, expressed as a percentage.
These interim final regulations provide
that total cost of coverage is determined
in the same manner as the applicable
6 Similarly situated individuals are described in
the HIPAA nondiscrimination regulations at 26 CFR
54.9802–1(d), 29 CFR 2590.702(d), and 45 CFR
146.121(d).
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premium is calculated under the
COBRA continuation provisions of
section 604 of ERISA, section
4980B(f)(4) of the Code, and section
2204 of the PHS Act. In the case of a
self-insured plan, contributions by an
employer or employee organization are
calculated by subtracting the employee
contributions towards the total cost of
coverage from the total cost of coverage.
Second, if the contribution rate is based
on a formula, such as hours worked or
tons of coal mined, a group health plan
or group health insurance coverage
ceases to be a grandfathered health plan
if the employer or employee
organization decreases its contribution
rate towards the cost of any tier of
coverage for any class of similarly
situated individuals by more than 5
percent below the contribution rate on
March 23, 2010.
Finally, paragraph (g)(1)(vi) addresses
the imposition of a new or modified
annual limit by a plan, or group or
individual health insurance coverage.7
Three different situations are addressed:
• A plan or health insurance coverage
that, on March 23, 2010, did not impose
an overall annual or lifetime limit on
the dollar value of all benefits ceases to
be a grandfathered health plan if the
plan or health insurance coverage
imposes an overall annual limit on the
dollar value of benefits.
• A plan or health insurance
coverage, that, on March 23, 2010,
imposed an overall lifetime limit on the
dollar value of all benefits but no overall
annual limit on the dollar value of all
benefits ceases to be a grandfathered
health plan if the plan or health
insurance coverage adopts an overall
annual limit at a dollar value that is
lower than the dollar value of the
lifetime limit on March 23, 2010.
• A plan or health insurance coverage
that, on March 23, 2010, imposed an
overall annual limit on the dollar value
of all benefits ceases to be a
grandfathered health plan if the plan or
health insurance coverage decreases the
dollar value of the annual limit
(regardless of whether the plan or health
insurance coverage also imposed an
overall lifetime limit on March 23, 2010
on the dollar value of all benefits).
Under these interim final regulations,
changes other than the changes
7 Independent of these rules regarding the impact
on grandfather status of newly adopted or reduced
annual limits, group health plans and group or
individual health insurance coverage (other than
individual health insurance policies that are
grandfathered health plans) are required to comply
with PHS Act section 2711, which permits
restricted annual limits (as defined in regulations)
until 2014. The Departments expect to publish
regulations regarding restricted annual limits in the
very near future.
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described in 26 CFR 54.9815–
1251T(g)(1), 29 CFR 2590.715–
1251(g)(1), and 45 CFR 147.140(g)(1)
will not cause a plan or coverage to
cease to be a grandfathered health plan.
Examples include changes to premiums,
changes to comply with Federal or State
legal requirements, changes to
voluntarily comply with provisions of
the Affordable Care Act, and changing
third party administrators, provided
these changes are made without
exceeding the standards established by
paragraph (g)(1).
These interim final regulations
provide transitional rules for plans and
issuers that made changes after the
enactment of the Affordable Care Act
pursuant to a legally binding contract
entered into prior to enactment, made
changes to the terms of health insurance
coverage pursuant to a filing before
March 23, 2010 with a State insurance
department, or made changes pursuant
to written amendments to a plan that
were adopted prior to March 23, 2010.
If a plan or issuer makes changes in any
of these situations, the changes are
effectively considered part of the plan
terms on March 23, 2010 even though
they are not then effective. Therefore,
such changes are not taken into account
in considering whether the plan or
health insurance coverage remains a
grandfathered health plan.
Because status as a grandfathered
health plan under section 1251 of the
Affordable Care Act is determined in
relation to coverage on March 23, 2010,
the date of enactment of the Affordable
Care Act, the Departments considered
whether they should provide a goodfaith compliance period from
Departmental enforcement until
guidance regarding the standards for
maintaining grandfather status was
made available to the public. Group
health plans and health insurance
issuers often make routine changes from
year to year, and some plans and issuers
may have needed to implement such
changes prior to the issuance of these
interim final regulations.
Accordingly, for purposes of
enforcement, the Departments will take
into account good-faith efforts to
comply with a reasonable interpretation
of the statutory requirements and may
disregard changes to plan and policy
terms that only modestly exceed those
changes described in paragraph (g)(1) of
26 CFR 54.9815–1251T, 29 CFR
2590.715–1251, and 45 CFR 147.140
and that are adopted before June 14,
2010, the date the regulations were
made publicly available.
In addition, these interim final
regulations provide employers and
issuers with a grace period within
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which to revoke or modify any changes
adopted prior to June 14, 2010, where
the changes might otherwise cause the
plan or health insurance coverage to
cease to be a grandfathered health plan.
Under this rule, grandfather status is
preserved if the changes are revoked,
and the plan or health insurance
coverage is modified, effective as of the
first day of the first plan or policy year
beginning on or after September 23,
2010 to bring the terms within the limits
for retaining grandfather status in these
interim final regulations. For this
purpose, and for purposes of the
reasonable good faith standard changes
will be considered to have been adopted
before these interim final regulations are
publicly available if the changes are
effective before that date, the changes
are effective on or after that date
pursuant to a legally binding contract
entered into before that date, the
changes are effective on or after that
date pursuant to a filing before that date
with a State insurance department, or
the changes are effective on or after that
date pursuant to written amendments to
a plan that were adopted before that
date.
While the Departments have
determined that the changes identified
in paragraph (g)(1) of these interim final
regulations would cause a group health
plan or health insurance coverage to
cease to be a grandfathered health plan,
the Departments invite comments from
the public on whether this list of
changes is appropriate and what other
changes, if any, should be added to this
list. Specifically, the Departments invite
comments on whether the following
changes should result in cessation of
grandfathered health plan status for a
plan or health insurance coverage: (1)
Changes to plan structure (such as
switching from a health reimbursement
arrangement to major medical coverage
or from an insured product to a selfinsured product); (2) changes in a
network plan’s provider network, and if
so, what magnitude of changes would
have to be made; (3) changes to a
prescription drug formulary, and if so,
what magnitude of changes would have
to be made; or (4) any other substantial
change to the overall benefit design. In
addition, the Departments invite
comments on the specific standards
included in these interim final
regulations on benefits, cost sharing,
and employer contributions. The
Departments specifically invite
comments on whether these standards
should be drawn differently in light of
the fact that changes made by the
Affordable Care Act may alter plan or
issuer practices in the next several
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years. Any new standards published in
the final regulations that are more
restrictive than these interim final
regulations would only apply
prospectively to changes to plans or
health insurance coverage after the
publication of the final rules.
Moreover, the Departments may issue,
as appropriate, additional
administrative guidance other than in
the form of regulations to clarify or
interpret the rules contained in these
interim final regulations for maintaining
grandfathered health plan status prior to
the issuance of final regulations. The
ability to issue prompt, clarifying
guidance is especially important given
the uncertainty as to how plans or
issuers will alter their plans or policies
in response to these rules. This
guidance can address unanticipated
changes by plans and issuers to ensure
that individuals benefit from the
Affordable Care Act’s new health care
protections while preserving the ability
to maintain the coverage individuals
had on the date of enactment.
III. Interim Final Regulations and
Request for Comments
Section 9833 of the Code, section 734
of ERISA, and section 2792 of the PHS
Act authorize the Secretaries of the
Treasury, Labor, and HHS (collectively,
the Secretaries) to promulgate any
interim final rules that they determine
are appropriate to carry out the
provisions of chapter 100 of the Code,
part 7 of subtitle B of title I of ERISA,
and part A of title XXVII of the PHS Act,
which include PHS Act sections 2701
through 2728 and the incorporation of
those sections into ERISA section 715
and Code section 9815. The rules set
forth in these interim final regulations
govern the applicability of the
requirements in these sections and are
therefore appropriate to carry them out.
Therefore, the foregoing interim final
rule authority applies to these interim
final regulations.
In addition, under Section 553(b) of
the Administrative Procedure Act (APA)
(5 U.S.C. 551 et seq.) a general notice of
proposed rulemaking is not required
when an agency, for good cause, finds
that notice and public comment thereon
are impracticable, unnecessary, or
contrary to the public interest. The
provisions of the APA that ordinarily
require a notice of proposed rulemaking
do not apply here because of the
specific authority granted by section
9833 of the Code, section 734 of ERISA,
and section 2792 of the PHS Act.
However, even if the APA were
applicable, the Secretaries have
determined that it would be
impracticable and contrary to the public
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interest to delay putting the provisions
in these interim final regulations in
place until a full public notice and
comment process was completed. As
noted above, numerous provisions of
the Affordable Care Act are applicable
for plan years (in the individual market,
policy years) beginning on or after
September 23, 2010, six months after
date of enactment. Grandfathered health
plans are exempt from many of these
provisions while group health plans and
group and individual health insurance
coverage that are not grandfathered
health plans must comply with them.
The determination of whether a plan or
health insurance coverage is a
grandfathered health plan therefore
could substantially affect the design of
the plan or health insurance coverage.
The six-month period between the
enactment of the Affordable Care Act
and the applicability of many of the
provisions affected by grandfather status
would not allow sufficient time for the
Departments to draft and publish
proposed regulations, receive and
consider comments, and draft and
publish final regulations. Moreover,
regulations are needed well in advance
of the effective date of the requirements
of the Affordable Care Act. Many group
health plans and health insurance
coverage that are not grandfathered
health plans must make significant
changes in their provisions to comply
with the requirements of the Affordable
Care Act. Moreover, plans and issuers
considering other modifications to their
terms need to know whether those
modifications will affect their status as
grandfathered health plans.
Accordingly, in order to allow plans and
health insurance coverage to be
designed and implemented on a timely
basis, regulations must be published
and available to the public well in
advance of the effective date of the
requirements of the Affordable Care Act.
It is not possible to have a full notice
and comment process and to publish
final regulations in the brief time
between enactment of the Affordable
Care Act and the date regulations are
needed.
The Secretaries further find that
issuance of proposed regulations would
not be sufficient because the provisions
of the Affordable Care Act protect
significant rights of plan participants
and beneficiaries and individuals
covered by individual health insurance
policies and it is essential that
participants, beneficiaries, insureds,
plan sponsors, and issuers have
certainty about their rights and
responsibilities. Proposed regulations
are not binding and cannot provide the
necessary certainty. By contrast, the
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34545
interim final regulations provide the
public with an opportunity for
comment, but without delaying the
effective date of the regulations.
For the foregoing reasons, the
Departments have determined that it is
impracticable and contrary to the public
interest to engage in full notice and
comment rulemaking before putting
these regulations into effect, and that it
is in the public interest to promulgate
interim final regulations.
IV. Economic Impact and Paperwork
Burden
A. Overview—Department of Labor and
Department of Health and Human
Services
As stated earlier in this preamble,
these interim final regulations
implement section 1251 of the
Affordable Care Act, as modified by
section 10103 of the Affordable Care Act
and section 2301 of the Reconciliation
Act. Pursuant to section 1251, certain
provisions of the Affordable Care Act do
not apply to a group health plan or
health insurance coverage in which an
individual was enrolled on March 23,
2010 (a grandfathered health plan).8 The
statute and these interim final
regulations allow family members of
individuals already enrolled in a
grandfathered health plan to enroll in
the plan after March 23, 2010; in such
cases, the plan or coverage is also a
grandfathered health plan with respect
to the family members. New employees
(whether newly hired or newly
enrolled) and their families can enroll in
a grandfathered group health plan after
March 23, 2010 without affecting status
as a grandfathered health plan.9
8 The Affordable Care Act adds section 715(a)(1)
to ERISA and section 9815(a)(1) to the Code to
incorporate the provisions of part A of title XXVII
of the PHS Act into ERISA and the Code, and make
them applicable to group health plans, and health
insurance issuers providing health insurance
coverage in connection with group health plans.
The PHS Act sections incorporated by this reference
are sections 2701 through 2728. PHS Act sections
2701 through 2719A are substantially new, though
they incorporate some provisions of prior law. PHS
Act sections 2722 through 2728 are sections of prior
law renumbered, with some, mostly minor,
changes. Section 1251 of the Affordable Care Act,
as modified by section 10103 of the Affordable Care
Act and section 2301 of the Reconciliation Act,
specifies that certain plans or coverage existing as
of the date of enactment (that is, grandfathered
health plans) are only subject to certain provisions.
9 For individuals who have coverage through an
insured group health plans subject to a collective
bargaining agreement ratified before March 23,
2010, an individual’s coverage is grandfathered at
least until the date on which the last agreement
relating to the coverage that was in effect on March
23, 2010, terminates. These collectively bargained
plans may make any permissible changes to the
benefit structure before the agreement terminates
and remain grandfathered. After the termination
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As addressed earlier in this preamble,
and further discussed below, these
interim final regulations include rules
for determining whether changes to the
terms of a grandfathered health plan
made by issuers and plan sponsors
allow the plan or health insurance
coverage to remain a grandfathered
health plan. These rules are the primary
focus of this regulatory impact analysis.
The Departments have quantified the
effects where possible and provided a
qualitative discussion of the economic
effects and some of the transfers and
costs that may result from these interim
final regulations.
emcdonald on DSK2BSOYB1PROD with RULES2
B. Executive Order 12866—Department
of Labor and Department of Health and
Human Services
Under Executive Order 12866 (58 FR
51735), ‘‘significant’’ regulatory actions
are subject to review by the Office of
Management and Budget (OMB).
Section 3(f) of the Executive Order
defines a ‘‘significant regulatory action’’
as an action that is likely to result in a
rule (1) having an annual effect on the
economy of $100 million or more in any
one year, or adversely and materially
affecting a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local or tribal governments or
communities (also referred to as
‘‘economically significant’’); (2) creating
a serious inconsistency or otherwise
interfering with an action taken or
planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
raising novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order. OMB
has determined that this regulation is
economically significant within the
meaning of section 3(f)(1) of the
Executive Order, because it is likely to
have an annual effect on the economy
of $100 million in any one year.
Accordingly, OMB has reviewed these
rules pursuant to the Executive Order.
The Departments provide an assessment
of the potential costs, benefits, and
transfers associated with these interim
final regulations below. The
Departments invite comments on this
assessment and its conclusions.
date, grandfather status will be determined by
comparing the plan, as it existed on March 23, 2010
to the changes that the plan made before
termination under the rules established by these
interim final regulations.
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1. Need for Regulatory Action
As discussed earlier in this preamble,
Section 1251 of the Affordable Care Act,
as modified by section 10103 of the
Affordable Care Act and section 2301 of
the Reconciliation Act, provides that
grandfathered health plans are subject
only to certain provisions of the
Affordable Care Act. The statute,
however, is silent regarding changes
plan sponsors and issuers can make to
plans and health insurance coverage
while retaining grandfather status.
These interim final regulations are
necessary in order to provide rules that
plan sponsors and issuers can use to
determine which changes they can make
to the terms of the plan or health
insurance coverage while retaining their
grandfather status, thus exempting them
from certain provisions of the
Affordable Care Act and fulfilling a goal
of the legislation, which is to allow
those that like their healthcare to keep
it. These interim final regulations are
designed to allow individuals who wish
to maintain their current health
insurance plan to do so, to reduce short
term disruptions in the market, and to
ease the transition to market reforms
that phase in over time.
In drafting this rule, the Departments
attempted to balance a number of
competing interests. For example, the
Departments sought to provide adequate
flexibility to plan sponsors and issuers
to ease transition and mitigate potential
premium increases while avoiding
excessive flexibility that would conflict
with the goal of permitting individuals
who like their healthcare to keep it and
might lead to longer term market
segmentation as the least costly plans
remain grandfathered the longest. In
addition, the Departments recognized
that many plan sponsors and issuers
make changes to the terms of plans or
health insurance coverage on an annual
basis: Premiums fluctuate, provider
networks and drug formularies change,
employer and employee contributions
and cost-sharing change, and covered
items and services may vary. Without
some ability to make some adjustments
while retaining grandfather status, the
ability of individuals to maintain their
current coverage would be frustrated,
because most plans or health insurance
coverage would quickly cease to be
regarded as the same group health plan
or health insurance coverage in
existence on March 23, 2010. At the
same time, allowing unfettered changes
while retaining grandfather status
would also be inconsistent with
Congress’s intent to preserve coverage
that was in effect on March 23, 2010.
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Therefore, as further discussed below,
these interim final regulations are
designed, among other things, to take
into account reasonable changes
routinely made by plan sponsors or
issuers without the plan or health
insurance coverage relinquishing its
grandfather status so that individuals
can retain the ability to remain enrolled
in the coverage in which they were
enrolled on March 23, 2010. Thus, for
example, these interim final regulations
generally permit plan sponsors and
issuers to make voluntary changes to
increase benefits, to conform to required
legal changes, and to adopt voluntarily
other consumer protections in the
Affordable Care Act.
2. Regulatory Alternatives
Section 6(a)(3)(C)(iii) of Executive
Order 12866 requires an economically
significant regulation to include an
assessment of the costs and benefits of
potentially effective and reasonable
alternatives to the planned regulation,
and an explanation of why the planned
regulatory action is preferable to the
potential alternatives. The alternatives
considered by the Departments fall into
two general categories: Permissible
changes to cost sharing and benefits.
The discussion below addresses the
considered alternatives in each category.
The Departments considered allowing
looser cost-sharing requirements, such
as 25 percent plus medical inflation.
However, the data analysis led the
Departments to believe that the costsharing windows provided in these
interim final regulations permit enough
flexibility to enable a smooth transition
in the group market over time, and
further widening this window was not
necessary and could conflict with the
goal of allowing those who like their
healthcare to keep it.
Another alternative the Departments
considered was an annual allowance for
cost-sharing increases above medical
inflation, as opposed to the one-time
allowance of 15 percent above medical
inflation. An annual margin of 15
percent above medical inflation, for
example, would permit plans to
increase cost sharing by medical
inflation plus 15 percent every year. The
Departments concluded that the effect of
the one-time allowance (15 percent of
the original, date-of-enactment level
plus medical inflation) would diminish
over time insofar as it would represent
a diminishing fraction of the total level
of cost sharing with the cumulative
effects of medical inflation over time.
Accordingly, the one-time allowance
would better reflect (i) the potential
need of grandfathered health plans to
make adjustments in the near term to
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Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Rules and Regulations
reflect the requirement that they comply
with the market reforms that apply to
grandfathered health plans in the near
term as well as (ii) the prospect that, for
many plans and health insurance
coverage, the need to recover the costs
of compliance in other ways will
diminish in the medium term, in part
because of the changes that will become
effective in 2014 and in part because of
the additional time plan sponsors and
issuers will have to make gradual
adjustments that take into account the
market reforms that are due to take
effect in later years.
The Departments considered
establishing an overall prohibition
against changes that, in the aggregate, or
cumulatively over time, render the plan
or coverage substantially different than
the plan or coverage that existed on
March 23, 2010, or further delineating
other examples of changes that could
cause a plan to relinquish grandfather
status. This kind of ‘‘substantially
different’’ standard would have captured
significant changes not anticipated in
the interim final regulation. However, it
would rely on a ‘‘facts and
circumstances’’ analysis in defining
‘‘substantially different’’ or ‘‘significant
changes,’’ which would be less
transparent and result in greater
uncertainty about the status of a health
plan. That, in turn, could hinder plan
sponsor or issuer decisions as well as
enrollee understanding of what
protections apply to their coverage.
An actuarial equivalency standard
was another considered option. Such a
standard would allow a plan or health
insurance coverage to retain status as a
grandfathered health plan if the
actuarial value of the coverage remains
in approximately the same range as it
was on March 23, 2010. However, under
such a standard, a plan could make
fundamental changes to the benefit
design, potentially conflicting with the
goal of allowing those who like their
healthcare to keep it, and still retain
grandfather status. Moreover, the
complexity involved in defining and
determining actuarial value for these
purposes, the likelihood of varying
methodologies for determining such
value unless the Departments
promulgated very detailed prescriptive
rules, and the costs of administering and
ensuring compliance with such rules
led the Departments to reject that
approach.
Another alternative was a requirement
that employers continue to contribute
the same dollar amount they were
contributing for the period including
March 23, 2010, plus an inflation
component. However, the Departments
were concerned that this approach
would not provide enough flexibility to
accommodate the year-to-year volatility
in premiums that can result from
changes in some plans’ covered
populations or other factors.
The Departments also considered
whether a change in third party
administrator by a self-insured plan
should cause the plan to relinquish
grandfather status. The Departments
decided that such a change would not
necessarily cause the plan to be so
different from the plan in effect on
March 23, 2010 that it should be
required to relinquish grandfather
status.
After careful consideration, the
Departments opted against rules that
would require a plan sponsor or issuer
to relinquish its grandfather status if
only relatively small changes are made
to the plan. The Departments concluded
that plan sponsors and issuers of
grandfathered health plans should be
permitted to take steps within the
boundaries of the grandfather definition
to control costs, including limited
increases in cost-sharing and other plan
changes not prohibited by these interim
final regulations. As noted earlier,
deciding to relinquish grandfather status
is a one-way sorting process: after some
period of time, more plans will
relinquish their grandfather status.
These interim final regulations will
likely influence plan sponsors’
decisions to relinquish grandfather
status.
10 Medical inflation is defined in these interim
regulations by reference to the overall medical care
component of the CPI.
above the level at which it was on
March 23, 2010;
• Increases fixed-amount cost-sharing
requirements other than copayments,
such as a $500 deductible or a $2,500
out-of-pocket limit, by a total percentage
measured from March 23, 2010 that is
more than the sum of medical inflation
and 15 percentage points.10
• Increases copayments by an amount
that exceeds the greater of: a total
percentage measured from March 23,
2010 that is more than the sum of
medical inflation plus 15 percentage
points, or $5 increased by medical
inflation measured from March 23,
2010;
• For a group health plan or group
health insurance coverage, an employer
or employee organization decreases its
contribution rate by more than five
percentage points below the
contribution rate on March 23, 2010; or
• With respect to annual limits (1) a
group health plan, or group or
individual health insurance coverage,
that, on March 23, 2010, did not impose
an overall annual or lifetime limit on
the dollar value of all benefits imposes
an overall annual limit on the dollar
value of benefits; (2) a group health
plan, or group or individual health
insurance coverage, that, on March 23,
2010, imposed an overall lifetime limit
on the dollar value of all benefits but no
overall annual limit on the dollar value
of all benefits adopts an overall annual
limit at a dollar value that is lower than
the dollar value of the lifetime limit on
March 23, 2010; or (3) a group health
plan, or group or individual health
insurance coverage, that, on March 23,
2010, imposed an overall annual limit
on the dollar value of all benefits
decreases the dollar value of the annual
limit (regardless of whether the plan or
health insurance coverage also imposes
an overall lifetime limit on the dollar
value of all benefits).
Table 1, in section II.D of this preamble,
lists the relevant Affordable Care Act
provisions that apply to grandfathered
health plans.
In accordance with OMB Circular A–
4,11 Table 2 below depicts an
accounting statement showing the
Departments’ assessment of the benefits,
costs, and transfers associated with this
regulatory action. In accordance with
Executive Order 12866, the Departments
believe that the benefits of this
regulatory action justify the costs.
11 Available at https://www.whitehouse.gov/omb/
circulars/a004/a-4.pdf.
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3. Discussion of Regulatory Provisions
As discussed earlier in this preamble,
these interim final regulations provide
that a group health plan or health
insurance coverage no longer will be
considered a grandfathered health plan
if a plan sponsor or an issuer:
• Eliminates all or substantially all
benefits to diagnose or treat a particular
condition. The elimination of benefits
for any necessary element to diagnose or
treat a condition is considered the
elimination of all or substantially all
benefits to diagnose or treat a particular
condition;
• Increases a percentage cost-sharing
requirement (such as coinsurance)
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TABLE 2—ACCOUNTING TABLE
Benefits
Qualitative: These interim final regulations provide plans with guidance about the requirements for retaining grandfather status. Non-grandfathered plans are required to offer coverage with minimum benefit standards and patient protections as required by the Affordable Care Act,
while grandfathered plans are required only to comply with certain provisions. The existence of grandfathered health plans will provide individuals with the benefits of plan continuity, which may have a high value to some. In addition, grandfathering could potentially slow the rate of
premium growth, depending on the extent to which their current plan does not include the benefits and protections of the new law. It could
also provide incentives to employers to continue coverage, potentially reducing new Medicaid enrollment and spending and lowering the number of uninsured individuals. These interim final regulations also provide greater certainty for plans and issuers about what changes they can
make without affecting their grandfather status. As compared with alternative approaches, these regulations provide significant economic and
noneconomic benefits to both issuers and beneficiaries, though these benefits cannot be quantified at this time.
Costs
Low-end
estimate
Annualized ...............................................
Monetized ($millions/year) .......................
22.0
21.2
Mid-range
estimate
High-end
estimate
25.6
24.7
Year dollar
27.9
26.9
2010
2010
Discount rate
7%
3%
Period
covered
2011–2013
2011–2013
Monetized costs are due to a requirement to notify participants and beneficiaries of a plan’s grandfather status and maintain plan documents to
verify compliance with these interim final regulation’s requirements to retain grandfather status.
Qualitative: Limitations on cost-sharing increases imposed by these interim final regulations could result in the cost of some grandfathered
health plans increasing more (or decreasing less) than they otherwise would. This increased cost may encourage some sponsors and issuers
to replace their grandfathered health plans with new, non-grandfathered ones. Market segmentation (adverse selection) due to the decision of
higher risk plans to relinquish grandfathering could cause premiums in the exchanges to be higher than they would have been absent
grandfathering.
emcdonald on DSK2BSOYB1PROD with RULES2
Transfers
Qualitative: Limits on the changes to cost-sharing in grandfathered plans and the elimination of cost-sharing for some services in non-grandfathered plans, leads to transfers of wealth from premium payers overall to individuals using covered services. Once pre-existing conditions
are fully prohibited and other insurance reforms take effect, the extent to which individuals are enrolled in grandfathered plans could affect adverse selection, as higher risk plans relinquish grandfather status to gain new protections while lower risk grandfathered plans retain their
grandfather status. This could result in a transfer of wealth from non-grandfathered plans to grandfathered health plans.
4. Discussion of Economic Impacts of
Retaining or Relinquishing Grandfather
Status
The economic effects of these interim
final regulations will depend on
decisions by plan sponsors and issuers,
as well as by those covered under these
plans and health insurance coverage.
The collective decisions of plan
sponsors and issuers over time can be
viewed as a one-way sorting process in
which these parties decide whether, and
when, to relinquish status as a
grandfathered health plan.
Plan sponsors and issuers can decide
to:
1. Continue offering the plan or
coverage in effect on March 23, 2010
with limited changes, and thereby retain
grandfather status;
2. Significantly change the terms of
the plan or coverage and comply with
Affordable Care Act provisions from
which grandfathered health plans are
excepted; or
3. In the case of a plan sponsor, cease
to offer any plan.
For a plan sponsor or issuer, the
potential economic impact of the
application of the provisions in the
Affordable Care Act may be one
consideration in making its decisions.
To determine the value of retaining the
health plan’s grandfather status, each
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plan sponsor or issuer must determine
whether the rules applicable to
grandfathered health plans are more or
less favorable than the rules applicable
to non-grandfathered health plans. This
determination will depend on such
factors as the respective prices of
grandfathered and non-grandfathered
health plans, as well as on the
preferences of grandfathered health
plans’ covered populations and their
willingness to pay for benefits and
patient protections available under nongrandfathered health plans. In making
its decisions about grandfather status, a
plan sponsor or issuer is also likely to
consider the market segment (because
different rules apply to the large and
small group market segments), and the
utilization pattern of its covered
population.
In deciding whether to change a
plan’s benefits or cost sharing, a plan
sponsor or issuer will examine its shortrun business requirements. These
requirements are regularly altered by,
among other things, rising costs that
result from factors such as technological
changes, changes in risk status of the
enrolled population, and changes in
utilization and provider prices. As
shown below, changes in benefits and
cost sharing are typical in insurance
markets. Decisions about the extent of
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changes will determine whether a plan
retains its grandfather status.
Ultimately, these decisions will involve
a comparison by the plan sponsor or
issuer of the long run value of
grandfather status to the short-run need
of that plan sponsor or issuer to adjust
plan structure in order to control
premium costs or achieve other business
objectives.
Decisions by plan sponsors and
issuers may be significantly affected by
the preferences and behavior of the
enrollees, especially a tendency among
many towards inertia and resistance to
change. There is limited research that
has directly examined what drives this
tendency—whether individuals remain
with health plans because of simple
inertia and procrastination, a lack of
relevant information, or because they
want to avoid risk associated with
switching to new plans. One study that
examined the extent to which premium
changes influenced plan switching
determined that younger low-risk
employees were the most price-sensitive
to premium changes; older, high-risk
employees were the least pricesensitive. This finding suggests that, in
particular, individuals with substantial
health needs may be more apt to remain
with a plan because of inertia as such
or uncertainties associated with plan
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emcdonald on DSK2BSOYB1PROD with RULES2
switching rather than quality per se—a
phenomenon some behavioral
economists have called ‘‘status quo
bias,’’ 12 which can be found when
people stick with the status quo even
though a change would have higher
expected value.
Even when an enrollee could reap an
economic or other advantage from
changing plans, that enrollee may not
make the change because of inertia, a
lack of relevant information, or because
of the cost and effort involved in
examining new options and uncertainty
about the alternatives. Consistent with
well-known findings in behavioral
economics, studies of private insurance
demonstrate the substantial effect of
inertia in the behavior of the insured.
One survey found that approximately 83
percent of privately insured individuals
stuck with their plans in the year prior
to the survey.13 Among those who did
change plans, well over half sought the
same type of plan they had before.
Those who switched plans also tended
to do so for reasons other than
preferring their new plans. For example,
many switched because they changed
jobs or their employer changed
insurance offerings, compelling them to
switch.
Medicare beneficiaries display similar
plan loyalties. On average, only seven
percent of the 17 million seniors on
Medicare drug plans switch plans each
year, according to the Centers for
Medicare and Medicaid Services.14
Researchers have found this
comparatively low rate of switching is
maintained whether or not those
insured have higher quality information
about plan choices, and that switching
has little effect on the satisfaction of the
insured with their health plans.15
The incentives to change are different
for people insured in the individual
market than they are for those covered
by group health plans or group health
insurance coverage. The median length
of coverage for people entering the
individual market is eight months.16 In
12 https://www.nber.org/reporter/summer06/
buchmueller.html. ‘‘Consumer Demand for Health
Insurance’’ The National Bureau of Economic
Research (Buchmueller, 2006).
13 https://content.healthaffairs.org/cgi/reprint/19/
3/158.pdf. ‘‘Health Plan Switching: Choice Or
Circumstance?’’ (Cunnigham and Kohn, 2000).
14 https://www.kaiserhealthnews.org/Stories/2009/
December/01/Medicare-Drug-Plan.aspx. ‘‘Seniors
Often Reluctant To Switch Medicare Drug Plans’’
(2009, Kaiser Health News/Washington Post).
15 https://www.ncbi.nlm.nih.gov/pubmed/
16704882. ‘‘The effect of quality information on
consumer health plan switching: evidence from the
Buyers Health Care Action Group.’’ (Abraham,
Feldman, Carlin, and Christianson, 2006).
16 Erika C. Ziller, Andrew F. Coburn, Timothy D.
McBride, and Courtney Andrews. Patterns of
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part, this ‘‘churn’’ stems from the
individual market’s function as a
stopping place for people between jobs
with employer-sponsored or other types
of health insurance, but in part, the
churn is due to the behavior of issuers.
Evidence suggests that issuers often
make policy changes such as raising
deductibles as a means of attracting
new, healthy enrollees who have few
medical costs and so are littleconcerned about such deductibles.
There is also evidence that issuers use
such changes to sort out high-cost
enrollees from low-cost ones.17
Decisions about the value of retaining
or relinquishing status as a
grandfathered health plan are complex,
and the wide array of factors affecting
issuers, plan sponsors, and enrollees
poses difficult challenges for the
Departments as they try to estimate how
large the presence of grandfathered
health plans will be in the future and
what the economic effects of their
presence will be. As one example, these
interim final regulations limit the extent
to which plan sponsors and issuers can
increase cost sharing and still remain
grandfathered. The increases that are
allowed provide plans and issuers with
substantial flexibility in attempting to
control expenditure increases. However,
there are likely to be some plans and
issuers that would, in the absence of
these regulations, choose to make even
larger increases in cost sharing than are
specified here. Such plans will need to
decide whether the benefits of
maintaining grandfather status outweigh
those expected from increasing cost
sharing above the levels permitted in
the interim final regulations.
A similar analysis applies to the
provision that an employer’s or
employee organization’s share of the
total premium of a group health plan
cannot be reduced by more than 5
percentage points from the share it was
paying on March 23, 2010 without that
plan or health insurance coverage
relinquishing its grandfather status.
Employers and employee organizations
sponsoring group health plans or health
insurance coverage may be faced with
economic circumstances that would
lead them to reduce their premium
contributions. But reductions of greater
than 5 percentage points would cause
them to relinquish the grandfather
status of their plans. These plan
sponsors must decide whether the
benefit of such premium reductions
Individual Health Insurance Coverage, 1996–2000.
Health Affairs Nov/Dec 2004: 210–221.
17 Melinda Beeuwkes Bustin, M. Susan Marquis,
and Jill M. Yegian. The Role of the Individual
Health Insurance Market and Prospects for Change.
Health Affairs 2004; 23(6): 79–90.
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outweigh those of retaining grandfather
status.
Market dynamics affecting these
decisions change in 2014, when the
Affordable Care Act limits variation in
premium rates for individual and small
group policies. Small groups for this
purpose include employers with up to
100 employees (States may limit this
threshold to 50 employees until 2016).
The Affordable Care Act rating rules
will not apply to grandfathered health
plans, but such plans will remain
subject to State rating rules, which vary
widely and typically apply to employers
with up to 50 employees. Based on the
current State rating rules, it is likely
that, in many States, no rating rules will
apply to group health insurance policies
that are grandfathered health plans
covering employers with 51 to 100
employees.18
The interaction of the Affordable Care
Act and State rating rules implies that,
beginning in 2014, premiums can vary
more widely for grandfathered plans
than for non-grandfathered plans for
employers with up to 100 employees in
many States. This could encourage both
plan sponsors and issuers to continue
grandfathered health plans that cover
lower-risk groups, because these groups
will be isolated from the larger, higherrisk, non-grandfathered risk pool. On
the other hand, this scenario likely will
encourage plan sponsors and issuers
that cover higher-risk groups to end
grandfathered health plans, because the
group would be folded into the larger,
lower-risk non-grandfathered pool.
Depending on the size of the
grandfathered health plan market, such
adverse selection by grandfathered
health plans against non-grandfathered
plans could cause premiums in the
exchanges to be higher than they would
have been absent grandfathering. To
accommodate these changes in market
dynamics in 2014, the Departments
have structured a cost-sharing rule
whose parameters enable greater
flexibility in early years and less over
time. It is likely that few plans will
delay for many years before making
changes that exceed medical inflation.
This is because the cumulative increase
in copayments from March 23, 2010 is
compared to a maximum percentage
increase that includes a fixed amount—
15 percentage points—that does not
increase annually with any type of
inflator. This should help mitigate
adverse selection and require plans and
issuers that seek to maintain grandfather
status to find ways other than increased
18 Kaiser Family Foundation State Health Facts
(2010), https://www.statehealthfacts.org/
comparetable.jsp?ind=351&cat=7.
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copayments to limit cost growth. As
discussed in the preamble, the
Departments are also soliciting
comments to make any adjustments
needed for the final rule prior to 2014.
Therefore it is premature to estimate the
economic effects described above in
2014 and beyond. In the following
section, the Departments provide a
range of estimates of how issuers and
sponsors might respond to these interim
final regulations, with the caveat that
there is substantial uncertainty about
actual outcomes, especially considering
that available data are historical and so
do not account for behavioral changes in
plans and the insured as a result of
enactment of the Affordable Care Act.
a. Methodology for Analyzing Plan
Changes Over Time in the Group Market
For the large and small group markets,
the Departments analyzed three years of
Kaiser-HRET data to assess the changes
that plans made between plan years
2007 to 2008 and 2008 to 2009.
Specifically, the Departments examined
changes made to deductibles, out-ofpocket maximums, copayments,
coinsurance, and the employer’s share
of the premium or cost of coverage. The
Departments also estimated the number
of fully-insured plans that changed
issuers.21 The distribution of changes
made within the two time periods were
nearly identical and ultimately the
2008–2009 changes were used as a basis
for the analyses.
As discussed previously, plans will
need to make decisions that balance the
value they (and their enrollees) place on
maintaining grandfather status with the
need to meet short run objectives by
changing plan features including the
various cost sharing requirements that
are the subject of this rule. The 2008–
2009 data reflect changes in plan benefit
design that were made under very
different market conditions and
expectations than will exist in 2011 and
beyond. Therefore, there is a significant
degree of uncertainty associated with
using the 2008–2009 data to project the
number of plans whose grandfather
status may be affected in the next few
years. Because the level of uncertainty
becomes substantially greater when
trying to use this data to predict
outcomes once the full range of reforms
takes effect in 2014 and the exchanges
begin operating, substantially changing
market dynamics the Departments
restrict our estimates to the 2011–2013
period and use the existing data and a
range of assumptions to estimate
possible outcomes based on a range of
assumptions concerning how plans’
behavior regarding cost sharing changes
may change relative to what is reflected
in the 2008–2009 data.
Deriving projections of the number of
plans that could retain grandfather
status under the requirements of these
interim final regulations required
several steps:
• Using Kaiser/HRET data for 2008–
2009, estimates were generated of the
number of plans in the large and small
group markets that made changes in
employer premium share or any of the
cost-sharing parameters that were larger
than permitted for a plan to retain
grandfather status under these interim
final regulations;
• In order to account for a range of
uncertainty with regard to changes in
plan behavior toward cost sharing
changes, the Departments assumed that
many plans will want to maintain
grandfather status and will look for
ways to achieve short run cost control
and still maintain that status. One
plausible assumption is that plans
would look to a broader range of cost
sharing strategies in order to achieve
19 All participant counts and the estimates of
individual policies are from the 2009 Current
Population Survey (CPS).
20 Estimate is from the 2007 Census of
Government.
21 Under the Affordable Care Act and these
interim final regulations, if a plan that is not a
collectively bargained plan changes issuers after
March 23, 2010, it is no longer a grandfathered
health plan.
emcdonald on DSK2BSOYB1PROD with RULES2
5. Estimates of Number of Plans and
Employees Affected
The Affordable Care Act applies to
group health plans and health insurance
issuers in the group and individual
markets. The large and small group
markets will be discussed first, followed
by a discussion of impacts on the
individual market. The Departments
have defined a large group health plan
as a plan at an employer with 100 or
more workers and a small group plan as
a plan at an employer with less than 100
workers. Using data from the 2008
Medical Expenditure Survey—Insurance
Component, the Departments estimated
that there are approximately 72,000
large ERISA-covered health plans and
2.8 million small group health plans
with an estimated 97.0 million
participants and beneficiaries 19 in large
group plans and 40.9 million
participants and beneficiaries in small
group plans. The Departments estimate
that there are 126,000 governmental
plans 20 with 36.1 million participants
in large plans and 2.3 million
participants in small plans. The
Departments estimate there are 16.7
million individuals under age 65
covered by individually purchased
policies.
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cost containment and other objectives
than they had in the past. In order to
examine this possibility, the
Departments carefully analyzed those
plans that would have relinquished
grandfather status based on a change
they made from 2008–2009. The
Departments then estimated the
proportion of these plans that could
have achieved similar cost control by
using one or more other cost-sharing
changes in addition to the one they
made in a manner that would not have
exceeded the limits set by these interim
final regulations for qualifying as a
grandfathered health plan. For example,
if a plan was estimated to relinquish
grandfather status because it increased
its deductible by more than the allowed
15 percentage points plus medical
inflation, the Departments analyze
whether the plan could have achieved
the same cost control objectives with a
smaller change in deductible, but larger
changes (within the limits set forth in
these interim final regulations) in
copayments, out-of-pocket maximums,
and employer contributions to the
premium or cost of coverage.
• Finally, the Departments examined
the impact of alternative assumptions
about sponsor behavior. For example, it
is possible that some sponsors who
made changes from 2008–2009 in plan
parameters that were so large that they
would have relinquished their
grandfather status would not make
similar changes in 2011–2013. It is also
possible that even though a sponsor
could make an equivalent change that
conforms to the rules established in
these interim final regulations to
maintain grandfather status, it would
decide not to.
The estimates in this example rely on
several other assumptions. Among
them: (1) The annual proportion of
plans relinquishing grandfather status is
the same throughout the period; (2) all
group health plans existing at the
beginning of 2010 qualify for
grandfather status; (3) all changes
during 2010 occur after March 23, 2010;
(4) annual medical inflation is 4 percent
(based on the average annual change in
the medical CPI between 2000 and
2009); and (5) firms for which the
Kaiser-HRET survey has data for both
2008 and 2009 are representative of all
firms.22 The assumption used for
22 The analysis is limited to firms that responded
to the Kaiser/HRET survey in both 2008 and 2009.
Large firms are overrepresented in the analytic
sample. New firms and firms that went out of
business in 2008 or 2009 are underrepresented. The
Departments present results separately for large
firms and small firms, and weight the results to the
number of employees in each firm-size category.
Results are presented for PPO plans. The Kaiser/
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estimating the effects of the limits on
copayment increases does not take into
account the greater flexibility in the
near term than in the long term; the
estimated increase in firms losing their
grandfather status over time reflects
cumulative effects of a constant policy.
To the extent that the data reflect plans
that are more likely to make frequent
changes in cost sharing, the assumption
that a constant share of plans
relinquishing grandfather status
throughout the period may
underestimate the number of plans that
will retain grandfather status through
2013. In addition, data on substantial
benefit changes were not available and
thus not included in the analysis. The
survey data is limited, in that it covers
only one year of changes in healthcare
plans. The Departments’ analysis
employed data only on PPO plans, the
predominant type of plan. In addition,
the difficulties of forecasting behavior in
response to this rule create uncertainties
for quantitative evaluation. However,
the analysis presented here is
illustrative of the rule’s goal of
balancing flexibility with maintaining
current coverage.
emcdonald on DSK2BSOYB1PROD with RULES2
b. Impacts on the Group Market
Resulting From Changes From 2008 to
2009
The Departments first estimated the
percentage of plans that had a percent
change in the dollar value of
deductibles, copayments, or out-ofpocket maximums that exceeded 19
percent (the sum of medical inflation
(assumed in these analyses to be four
percent) plus 15 percentage points
measured from March 23, 2010. Plans
making copayment changes of five
dollars or less were considered to have
satisfied the copayment limit, even if
that change exceeded 19 percent.23 The
Departments also estimated the number
of plans for whom the percentage of
HRET survey gathers information about the PPO
with the most enrollment in each year. If
enrollment at a given employer shifted from one
PPO to a different PPO between 2008 and 2009,
then the PPO with the most enrollment in 2009 may
be different than the PPO with the most enrollment
in 2008. To the extent this occurred, the estimates
presented here may overestimate the fraction of
plans that will relinquish grandfather status.
However, given the behavioral assumptions of the
analysis and the need to present a range of results,
the Departments believe that such overestimation
will not have a noticeable effect on estimates
presented here.
23 The regulation allows plans to increase fixedamount copayments by an amount that does not
exceed $5 increased by medical inflation. In this
analysis, the Departments used a threshold of $5,
rather than the threshold of approximately $5.20
that would be allowed by these interim final
regulations. There would have been no difference
in the results if the Departments had used $5.20
rather than $5 as the threshold.
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total premium paid by the employer
declined by more than 5 percentage
points. For fully-insured plans only,
estimates were made of the proportion
that switched to a different issuer.24
This estimate does not take into account
collectively bargained plans, which can
change issuers during the period of the
collective bargaining agreement without
a loss of grandfather status, because the
Departments could not quantify this
category of plans. Accordingly, this
estimate represents an upper bound.
Using the Kaiser/HRET data, the
Departments estimated that 55 percent
of small employers and 36 percent of
large employers made at least one
change in cost-sharing parameters above
the thresholds provided in these interim
final regulations. Similarly, 33 percent
of small employers and 21 percent of
large employers decreased the
employer’s share of premium by more
than five percentage points. In total,
approximately 66 percent of small
employers and 48 percent of large
employers made a change in either cost
sharing or premium contribution during
2009 that would require them to
relinquish grandfather status if the same
change were made in 2011.25
The changes made by employers from
2008 to 2009 were possibly made in
anticipation of the recession. As
discussed previously, analysis of
changes from 2007 to 2008 suggests that
the 2007–08 changes were not much
different from the 2008–09 changes.
Nevertheless, as a result of
improvements in economic conditions,
it makes sense to think that the pressure
on employers to reduce their
contributions to health insurance will
be smaller in 2011 than they were in
2009, and that the Department’s analysis
of changes in 2009 may overestimate the
changes that should be expected in
2011.26
As discussed previously, it is highly
unlikely that plans would continue to
exhibit the same behavior in 2011 to
2013 as in 2008 to 2009. In order to
guide the choice of behavioral
assumptions, the Departments
24 In contrast, for self-insured plans, a change in
third party administrator in and of itself does not
cause a group health plan to cease to be a
grandfathered health plan, provided changes do not
exceed the limits of paragraph (g)(1) of these
interim final regulations.
25 Some employers made changes which
exceeded at least one cost-sharing threshold and
decreased the employer’s share of contribution by
more than five percent.
26 Employers who offer plans on a calendar year
basis generally make decisions about health plan
offerings during the preceding summer. Thus,
decisions for calendar 2009 were generally made
during the summer of 2008. At that time, the depth
of the coming recession was not yet clear to most
observers.
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34551
conducted further analyses of the 2008–
2009 data. Many employers who made
changes between 2008 and 2009 that
would have caused them to relinquish
grandfather status did so based on
exceeding one of the cost-sharing limits.
Assuming that the sponsor’s major
objective in implementing these changes
was to restrain employer costs or overall
premiums, the Departments examined
whether the sponsor could have
achieved the same net effect on
employer cost or premiums by
spreading cost sharing over two or more
changes without exceeding the limits on
any of these changes. For example, an
employer that increased its deductible
by 30 percent would have relinquished
grandfather status. However, it is
possible that the employer could have
achieved the same cost control
objectives by limiting the deductible
increase to 19 percent, and, also
increasing the out-of-pocket maximum
or copayments, or decreasing the
employer share of the premium.
The Departments estimate that
approximately two-thirds of the
employers that made changes in 2009
that would have exceeded the threshold
implemented by this rule could have
achieved the same cost-control objective
and remained grandfathered by making
changes in other cost-sharing
parameters or in the employer share of
the premium. Only 24 percent of small
employers and 16 percent of large
employers could not have reconfigured
the cost-sharing parameters or employer
contributions in such a manner that
would have allowed them to stay
grandfathered. If benefit changes that
are allowed within the grandfathered
health plan definition were also taken
into account (not possible with available
data), these percentages would be even
lower.
For fully insured group health plans,
another change that would require a
plan to relinquish grandfather status is
a change in issuer. Between 2008 and
2009, 15 percent of small employers and
four percent of large employers changed
insurance carriers.27 However, it is
likely that the incentive to stay
grandfathered would lead some of these
employers to continue with the same
issuer, making the actual share of firms
relinquishing grandfather status as a
result of an issuer change lower than the
percentage that switched in 2009. There
appears to be no empirical evidence to
27 Among the 76 percent of small employers and
84 percent of large employers who could have
accommodated the cost-sharing changes they
desired to make within the parameters of these
interim final regulations, 13 percent of the small
employers and three percent of the large employers
changed issuers.
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emcdonald on DSK2BSOYB1PROD with RULES2
provide guidance on the proportion of
employers that would choose to remain
with their issuer rather than relinquish
grandfather status. That being so, an
assumption was made that 50 percent of
employers that changed issuers in 2009
would not have made a similar change
in 2011 in order to retain grandfather
status. It is likely that fewer employers
will elect to change carriers than in
recent years given that some will prefer
to retain grandfather status. But it is also
likely that many employers will prefer
to switch carriers given a change in the
issuer’s network or other factors.
Because there is little empirical
evidence regarding the fraction of firms
that would elect to switch in response
to the change in regulations, we take the
midpoint of the plausible range of no
switching carriers at one extreme and all
switching carriers at the other extreme.
We therefore assume that 50 percent of
employers that changed issuers in 2009
would not make a similar change in
2011 to retain grandfather status.
Combining the estimates of the
percentage of employers that would
relinquish grandfather status because
they chose to make cost-sharing, benefit
or employer contribution changes
beyond the permitted parameters with
the estimates of the percentage that
would relinquish grandfather status
because they change issuers, the
Departments estimate that
approximately 31 percent of small
employers and 18 percent of large
employers would make changes that
would require them to relinquish
grandfather status in 2011. The
Departments use these estimates as our
mid-range scenario.
c. Sensitivity Analysis: Assuming That
Employers Will Be Willing To Absorb a
Premium Increase in Order To Remain
Grandfathered
To the extent that a large number of
plans placed a high value on remaining
grandfathered, it is reasonable to assume
that some would consider other
measures to maintain that status. In
addition to the adjustments that
employers could relatively easily make
by simply adjusting the full set of costsharing parameters rather than focusing
changes on a single parameter, the
Departments expect that further
behavioral changes in response to the
incentives created by the Affordable
Care Act and these interim final
regulations is possible. For instance,
plans could alter other benefits or could
decide to accept a slight increase in plan
premium or in premium contribution.
All of these options would further lower
the percentage of firms that would
relinquish grandfather status. There is
substantial uncertainty, however, about
how many firms would utilize these
other avenues.
To examine the impact of this type of
behavior on the estimates on the
number of plans that would not
maintain grandfather status, the
Departments examined the magnitude of
additional premium increases plans
would need to implement if they were
to modify their cost-sharing changes to
stay within the allowable limits. Among
the 24 percent of small firms that would
have relinquished grandfather status
based on the changes they made in
2009, 31 percent would have needed to
increase premiums by 3 percent or less
in order to maintain grandfather status.
The analogous statistic for the 16
percent of large firms that would have
relinquished grandfather status is 41
percent. It is reasonable to think that
employers that are facing only a
relatively small premium increase might
choose to remain grandfathered.
Using these estimates, if employers
value grandfathering enough that they
are willing to allow premiums to
increase by three percent more than
their otherwise intended level (or can
make changes to benefits other than
cost-sharing that achieve a similar
result), then 14 percent of small
employers and 11 percent of large
employers would relinquish grandfather
status if they made the same changes in
2011 as they had in 2009. Adding in the
employers who would relinquish
grandfather status because they change
issuers, the Departments’ lower bound
estimate is that approximately 21
percent of small employers and 13
percent of large employers will
relinquish grandfather status in 2011.
d. Sensitivity Analysis: Incomplete
Flexibility To Substitute One CostSharing Mechanism for Another
Although economic conditions may
cause more plans to remain
grandfathered in 2011 than might be
expected from analysis of the 2009 data,
there are other factors that may cause
the Departments’ estimates of the
fraction of plans retaining grandfather
status to be overestimates of the fraction
that will retain grandfather status. The
estimates are based on the assumption
that all plans that could accommodate
the 2009 change they made in a single
cost-sharing parameter by spreading out
those changes over multiple parameters
would actually do so. However, some
plans and sponsors may be concerned
about the labor relations consequences
of reducing the employer contribution
to premium. For example, if a plan
increases its out-of-pocket maximum
from $3,000 to $5,000 in 2009, it could
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choose to remain grandfathered by
limiting the out-of-pocket maximum to
$3,570, reducing the employer
contribution and increasing the
employee contribution to premium. It is
not clear, however, that all plan
sponsors would do so—some may see
the costs in negative employee relations
as larger than the benefits from
remaining grandfathered. Moreover,
because some plans may already nearly
comply with all provisions of the
Affordable Care Act, or because
enrollees are of average to less favorable
health status, some employers may
place less value on retaining grandfather
status.
With this in mind, the Departments
replicated the analysis, but assumed
that one-half of the employers who
made a change in cost-sharing
parameter that could not be
accommodated without reducing the
employer contribution will be unwilling
to reduce the employer contribution as
a share of premium. Under this
assumption, the 24 percent and 16
percent estimates of the proportion of
employers relinquishing grandfather
status increases to approximately 37
percent and 28 percent among small and
large employers, respectively. Adding in
the number of employers that it is
estimated will change issuers, the
Departments’ high-end estimate for the
proportion that will relinquish
grandfather status in 2011 is
approximately 42 percent for small
employers and 29 percent for large
employers.
e. Estimates for 2011–2013
Estimates are provided above for the
percentage of employers that will retain
grandfather status in 2011. These
estimates are extended through 2013 by
assuming that the identical percentage
of plan sponsors will relinquish
grandfathering in each year. Again, to
the extent that the 2008–2009 data
reflect plans that are more likely to
make frequent changes in cost sharing,
this assumption will overestimate the
number of plans relinquishing
grandfather status in 2012 and 2013.
Under this assumption, the
Departments’ mid-range estimate is that
66 percent of small employer plans and
45 percent of large employer plans will
relinquish their grandfather status by
the end of 2013. The low-end estimates
are for 49 percent and 34 percent of
small and large employer plans,
respectively, to have relinquished
grandfather status, and the high-end
estimates are 80 percent and 64 percent,
respectively.
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34553
TABLE 3—ESTIMATES OF THE CUMULATIVE PERCENTAGE OF EMPLOYER PLANS RELINQUISHING THEIR GRANDFATHERED
STATUS, 2011–2013
2011
Low-end Estimate
Small Employer Plans ..........................................................................................................
Large Employer Plans ..........................................................................................................
All Employer Plans ...............................................................................................................
Mid-range Estimate
Small Employer Plans ..........................................................................................................
Large Employer Plans ..........................................................................................................
All Employer Plans ...............................................................................................................
High-end Estimate
Small Employer Plans ..........................................................................................................
Large Employer Plans ..........................................................................................................
All Employer Plans ...............................................................................................................
2012
2013
20%
13%
15%
36%
24%
28%
49%
34%
39%
30%
18%
22%
51%
33%
38%
66%
45%
51%
42%
29%
33%
66%
50%
55%
80%
64%
69%
Notes: Represents full-time employees. Small Employers=3 to 99 employees; Large Employers=100+ employees. All three scenarios assume
that two percent of all large employer plans and six percent of small employer plans would relinquish grandfathered status due to a change in
issuer. Estimates are based on enrollment in PPOs.
Source: Kaiser/RHET Employer Survey, 2008–2009
f. Impacts on the Individual Market
emcdonald on DSK2BSOYB1PROD with RULES2
The market for individual insurance
is significantly different than that for
group coverage. This affects estimates of
the proportion of plans that will remain
grandfathered until 2014. As mentioned
previously, the individual market is a
residual market for those who need
insurance but do not have group
coverage available and do not qualify for
public coverage. For many, the market
is transitional, providing a bridge
between other types of coverage. One
study found a high percentage of
individual insurance policies began and
ended with employer-sponsored
coverage.28 More importantly, coverage
on particular policies tends to be for
short periods of time. Reliable data are
scant, but a variety of studies indicate
that between 40 percent and 67 percent
of policies are in effect for less than one
year.29 Although data on changes in
benefit packages comparable to that for
the group market is not readily
available, the high turnover rates
described here would dominate benefit
changes as the chief source of changes
in grandfather status.
While a substantial fraction of
individual policies are in force for less
than one year, a small group of
individuals maintain their policies over
longer time periods. One study found
that 17 percent of individuals
maintained their policies for more than
two years,30 while another found that
28 Adele M. Kirk. The Individual Insurance
Market: A Building Block for Health Care Reform?
Health Care Financing Organization Research
Synthesis. May 2008.
29 Ibid.
30 https://content.healthaffairs.org/cgi/content/
full/23/6/210#R14. ‘‘Patterns of Individual Health
Insurance Coverage’’ Health Affairs (Ziller et al,
2004).
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nearly 30 percent maintained policies
for more than three years.31
Using these turnover estimates, a
reasonable range for the percentage of
individual policies that would
terminate, and therefore relinquish their
grandfather status, is 40 percent to 67
percent. These estimates assume that
the policies that terminate are replaced
by new individual policies, and that
these new policies are not, by
definition, grandfathered. In addition,
the coverage that some individuals
maintain for long periods might lose its
grandfather status because the costsharing parameters in policies change
by more than the limits specified in
these interim final regulations. The
frequency of this outcome cannot be
gauged due to lack of data, but as a
result of it, the Departments estimate
that the percentage of individual market
policies losing grandfather status in a
given year exceeds the 40 percent to 67
percent range that is estimated based on
the fraction of individual policies that
turn over from one year to the next.
g. Application to Extension of
Dependent Coverage to Age 26
One way to assess the impact of these
interim final regulations is to assess
how they interact with other Affordable
Care Act provisions. One such provision
is the requirement that, in plan years on
or after September 23, 2010, but prior to
January 1, 2014, grandfathered group
health plans are required to offer
dependent coverage to a child under the
age of 26 who is not eligible for
employer-sponsored insurance. In the
Regulatory Impact Assessment (RIA) for
the regulation that was issued on May
31 https://content.healthaffairs.org/cgi/content/
full/hlthaff.25.w226v1/DC1. ‘‘Consumer Decision
Making in the Individual Health Insurance Market’’
Health Affairs (Marquis et al., 2006).
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13, 2010 (75 FR 27122), the Departments
estimated that there were 5.3 million
young adults age 19–25 who were
covered by employer-sponsored
coverage (ESI) and whose parents were
covered by employer-sponsored
insurance, and an additional 480,000
young adults who were uninsured, were
offered ESI, and whose parents were
covered by ESI. In that impact
assessment, the Departments assumed
that all parents with employersponsored insurance would be in
grandfathered health plans, and that
none of their 19–25 year old dependents
with their own offer of employersponsored insurance would gain
coverage as a result of that regulation.
As estimated here, approximately 80
percent of the parents with ESI are
likely to be in grandfathered health
plans in 2011, leaving approximately 20
percent of these parents in nongrandfathered health plans. Young
adults under 26 with employersponsored insurance or with an offer of
such coverage whose parents are in nongrandfathered plans potentially could
enroll in their parents’ coverage. The
Departments assume that a large
percentage of the young adults who are
uninsured will enroll in their parents’
coverage when given the opportunity. It
is more difficult to model the choices of
young adults with an offer of employersponsored insurance whose parents also
have group coverage. One assumes these
young adults will compare the amount
that they must pay for their own
employer’s coverage with the amount
that they (or their parents) would pay if
they were covered under their parents’
policies. Such a decision will
incorporate the type of plan that the
parent has, since if the parent already
has a family plan whose premium does
not vary by number of dependents, the
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adult child could switch at no
additional cost to the parents. A very
rough estimate therefore is that
approximately 25 percent of young
adults with ESI will switch to their
parents’ coverage when their parents’
coverage is not grandfathered. The
Departments assume that 15 percent of
young adults who are offered ESI but are
uninsured and whose parents have nongrandfathered health plans will switch
to their parents’ plan. This latter
estimate roughly corresponds to the
assumption made in the low-take up
rate scenario in the RIA for dependent
coverage for young adults who are
uninsured.
These assumptions imply that an
additional approximately 414,000 young
adults whose parents have nongrandfathered ESI will be covered by
their parents’ health coverage in 2011,
of whom 14,000 would have been
uninsured, compared with the
dependent coverage regulation impact
analysis that assumed that all existing
plans would have remained
grandfathered and none of these adult
children would have been eligible for
coverage under their parents’ plans. By
2013, an estimated 698,000 additional
young adults with ESI or an offer of ESI
will be covered by their parent’s nongrandfathered health policy, of which
36,000 would have been uninsured.
6. Grandfathered Health Plan Document
Retention and Disclosure Requirements
To maintain grandfathered health
plan status under these interim final
regulations, a plan or issuer must
maintain records that document the
plan or policy terms in connection with
the coverage in effect on March 23,
2010, and any other documents
necessary to verify, explain or clarify is
status as a grandfathered health plan.
The records must be made available for
examination by participants,
beneficiaries, individual policy
subscribers, or a State or Federal agency
official.
Plans or health insurance coverage
that intend to be a grandfathered health
plan, also must include a statement, in
any plan materials provided to
participants or beneficiaries (in the
individual market, primary subscriber)
describing the benefits provided under
the plan or health insurance coverage,
and that the plan or coverage is
intended to be a grandfathered health
plan within the meaning of section 1251
of the Affordable Care Act. In these
interim final regulations, the
Departments provide a model statement
plans and issuers may use to satisfy the
disclosure requirement. The
Department’s estimate that the one time
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cost to plans and insurance issuers of
preparing and distributing the
grandfathered health plan disclosure is
$39.6 million in 2011. The one time cost
to plans and insurance issuers for the
record retention requirement is
estimated to be $32.2 million in 2011.
For a discussion of the grandfathered
health plan document retention and
disclosure requirements, see the
Paperwork Reduction Act section later
in this preamble.
C. Regulatory Flexibility Act—
Department of Labor and Department of
Health and Human Services
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
federal rules that are subject to the
notice and comment requirements of
section 553(b) of the APA (5 U.S.C. 551
et seq.) and that are likely to have a
significant economic impact on a
substantial number of small entities.
Under Section 553(b) of the APA, a
general notice of proposed rulemaking
is not required when an agency, for
good cause, finds that notice and public
comment thereon are impracticable,
unnecessary, or contrary to the public
interest. These interim final regulations
are exempt from the APA, because the
Departments made a good cause finding
that a general notice of proposed
rulemaking is not necessary earlier in
this preamble. Therefore, the RFA does
not apply and the Departments are not
required to either certify that the
regulations would not have a significant
economic impact on a substantial
number of small entities or conduct a
regulatory flexibility analysis.
Nevertheless, the Departments
carefully considered the likely impact of
the regulations on small entities in
connection with their assessment under
Executive Order 12866. Consistent with
the policy of the RFA, the Departments
encourage the public to submit
comments that suggest alternative rules
that accomplish the stated purpose of
section 1251 of the Affordable Care Act
and minimize the impact on small
entities.
D. Special Analyses—Department of the
Treasury
Notwithstanding the determinations
of the Department of Labor and
Department of Health and Human
Services, for purposes of the Department
of the Treasury, it has been determined
that this Treasury decision is not a
significant regulatory action for
purposes of Executive Order 12866.
Therefore, a regulatory assessment is not
required. It has also been determined
that section 553(b) of the Administrative
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Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. For the
applicability of the RFA, refer to the
Special Analyses section in the
preamble to the cross-referencing notice
of proposed rulemaking published
elsewhere in this issue of the Federal
Register. Pursuant to section 7805(f) of
the Code, these temporary regulations
have been submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small businesses.
E. Paperwork Reduction Act
1. Department of Labor and Department
of Treasury: Affordable Care Act
Grandfathered Plan Disclosure and
Record Retention Requirements
As part of their continuing efforts to
reduce paperwork and respondent
burden, the Departments conduct a
preclearance consultation program to
provide the general public and federal
agencies with an opportunity to
comment on proposed and continuing
collections of information in accordance
with the Paperwork Reduction Act of
1995 (PRA) (44 U.S.C. 3506(c)(2)(A)).
This helps to ensure that requested data
can be provided in the desired format,
reporting burden (time and financial
resources) is minimized, collection
requirements on respondents can be
properly assessed.
As discussed earlier in this preamble,
if a plan or health insurance coverage
intends to be a grandfathered health
plan, it must include a statement in any
plan materials provided to participants
or beneficiaries (in the individual
market, primary subscriber) describing
the benefits provided under the plan or
health insurance coverage, and that the
plan or coverage is intended to be
grandfathered health plan within the
meaning of section 1251 of the
Affordable Care Act (‘‘grandfathered
health plan disclosure’’). Model
language has been provided in these
interim final regulations, the use of
which will satisfy this disclosure
requirement
To maintain status as a grandfathered
health plan under these interim final
regulations, a plan or issuer must
maintain records documenting the plan
or policy terms in connection with the
coverage in effect on March 23, 2010,
and any other documents necessary to
verify, explain, or clarify its status as a
grandfathered health plan
(‘‘recordkeeping requirement’’). In
addition, the plan or issuer must make
such records available for examination.
Accordingly, a participant, beneficiary,
individual policy subscriber, or State or
Federal agency official would be able to
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inspect such documents to verify the
status of the plan or health insurance
coverage as a grandfathered health plan.
As discussed earlier in this preamble,
grandfathered health plans are not
required to comply with certain
Affordable Care Act provisions. These
interim regulations define for plans and
issuers the scope of changes that they
can make to their grandfathered health
plans and policies under the Affordable
Care Act while retaining their
grandfathered health plan status.
The Affordable Care Act
grandfathered health plan disclosure
and recordkeeping requirements are
information collection requests (ICR)
subject to the PRA. Currently, the
Departments are soliciting public
comments for 60 days concerning these
disclosures. The Departments have
submitted a copy of these interim final
regulations to OMB in accordance with
44 U.S.C. 3507(d) for review of the
information collections. The
Departments and OMB are particularly
interested in comments that:
• Evaluate whether the collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
for example, by permitting electronic
submission of responses.
Comments should be sent to the
Office of Information and Regulatory
Affairs, Attention: Desk Officer for the
Employee Benefits Security
Administration either by fax to (202)
395–7285 or by e-mail to
oira_submission@omb.eop.gov. A copy
of the ICR may be obtained by
contacting the PRA addressee: G.
Christopher Cosby, Office of Policy and
Research, U.S. Department of Labor,
Employee Benefits Security
Administration, 200 Constitution
Avenue, NW., Room N–5718,
Washington, DC 20210. Telephone:
(202) 693–8410; Fax: (202) 219–2745.
These are not toll-free numbers. E-mail:
ebsa.opr@dol.gov. ICRs submitted to
OMB also are available at reginfo.gov
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(https://www.reginfo.gov/public/do/
PRAMain).
a. Grandfathered Health Plan Disclosure
In order to satisfy the interim final
regulations’ grandfathered health plan
disclosure requirement, the
Departments estimate that 2.2 million
ERISA-covered plans will need to notify
an estimated 56.3 million policy holders
of their plans’ grandfathered health plan
status.32 The following estimates, except
where noted, are based on the mid-range
estimates of the percent of plans
retaining grandfather status. Because the
interim final regulations provide model
language for this purpose, the
Departments estimate that five minutes
of clerical time (with a labor rate of
$26.14/hour) will be required to
incorporate the required language into
the plan document and ten minutes of
an human resource professional’s time
(with a labor rate of $89.12/hour) will be
required to review the modified
language.33 After plans first satisfy the
grandfathered health plan disclosure
requirement in 2011, any additional
burden should be de minimis if a plan
wants to maintain its grandfather status
in future years. The Departments also
expect the cost of removing the notice
from plan documents as plans
relinquish their grandfather status to be
de minimis and therefore is not
estimated. Therefore, the Departments
estimate that plans will incur a one-time
hour burden of 538,000 hours with an
equivalent cost of $36.6 million to meet
the disclosure requirement.
The Departments assume that only
printing and material costs are
associated with the disclosure
requirement, because the interim final
regulations provide model language that
can be incorporated into existing plan
documents, such as a summary plan
description (SPD). The Departments
estimate that the notice will require onehalf of a page, five cents per page
printing and material cost will be
incurred, and 38 percent of the notices
will be delivered electronically. This
results in a cost burden of $873,000
($0.05 per page*1⁄2 pages per notice *
34.9 million notices*0.62).
32 The Departments’ estimate of the number of
ERISA-covered health plans was obtained from the
2008 Medical Expenditure Panel Survey’s Insurance
component. The estimate of the number of policy
holders was obtained from the 2009 Current
Population Survey. The methodology used to
estimate the percentage of plans that will retain
their grandfathered plans was discussed above.
33 EBSA estimates of labor rates include wages,
other benefits, and overhead based on the National
Occupational Employment Survey (May 2008,
Bureau of Labor Statistics) and the Employment
Cost Index June 2009, Bureau of Labor Statistics).
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b. Record-Keeping Requirement
The Departments assume that most of
the documents required to be retained to
satisfy recordkeeping requirement of
these interim final regulations already
are retained by plans for tax purposes,
to satisfy ERISA’s record retention and
statute of limitations requirements, and
for other business reasons. Therefore,
the Departments estimate that the
recordkeeping burden imposed by this
ICR will require five minutes of a legal
professional’s time (with a rate of
$119.03/hour) to determine the relevant
plan documents that must be retained
and ten minutes of clerical staff time
(with a labor rate of $26.14/hour) to
organize and file the required
documents to ensure that they are
accessible to participants, beneficiaries,
and Federal and State governmental
agency officials.
With an estimated 2.2 million
grandfathered plans in 2011, the
Departments estimate an hour burden of
approximately 538,000 hours with
equivalent costs of $30.7 million. The
Departments have estimated this as a
one-time cost incurred in 2011, because
after the first year, the Departments
anticipate that any future costs will be
de minimis.
Overall, for both the grandfathering
notice and the recordkeeping
requirement, the Departments expect
there to be a total hour burden of 1.1
million hours and a cost burden of
$291,000.
The Departments note that persons
are not required to respond to, and
generally are not subject to any penalty
for failing to comply with, an ICR unless
the ICR has a valid OMB control
number.
These paperwork burden estimates
are summarized as follows:
Type of Review: New Collection.
Agencies: Employee Benefits Security
Administration, Department of Labor;
Internal Revenue Service, U.S.
Department of Treasury.
Title: Disclosure and Recordkeeping
Requirements for Grandfathered Health
Plans under the Affordable Care Act.
OMB Number: 1210–0140; 1545–
2178.
Affected Public: Business or other forprofit; not-for-profit institutions.
Total Respondents: 2,151,000.
Total Responses: 56,347,000.
Frequency of Response: One time.
Estimated Total Annual Burden
Hours: 538,000 (Employee Benefits
Security Administration); 538,000
(Internal Revenue Service).
Estimated Total Annual Burden Cost:
$437,000 (Employee Benefits Security
Administration); $437,000 (Internal
Revenue Service).
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2. Department of Health and Human
Services: Affordable Care Act
Grandfathered Plan Disclosure and
Record Retention Requirements
As discussed above in the Department
of Labor and Department of the Treasury
PRA section, these interim final
regulations contain a record retention
and disclosure requirement for
grandfathered health plans. These
requirements are information collection
requirements under the PRA.
emcdonald on DSK2BSOYB1PROD with RULES2
a. Grandfathered Health Plan Disclosure
In order to satisfy the interim final
regulations’ grandfathered health plan
disclosure requirement, the Department
estimates that 98,000 state and local
governmental plans will need to notify
approximately 16.2 million policy
holders of their plans’ status as a
grandfathered health plan. The
following estimates except where noted
are based on the mid-range estimates of
the percent of plans retaining
grandfather status. An estimated 490
insurers providing coverage in the
individual market will need to notify an
estimated 4.3 million policy holders of
their policies’ status as a grandfathered
health plan.34
Because the interim final regulations
provide model language for this
purpose, the Department estimates that
five minute of clerical time (with a labor
rate of $26.14/hour) will be required to
incorporate the required language into
the plan document and ten minutes of
a human resource professional’s time
(with a labor rate of $89.12/hour) will be
required to review the modified
language.35 After plans first satisfy the
grandfathered health plan disclosure
requirement in 2011, any additional
burden should be de minimis if a plan
wants to maintain its grandfather status
in future years. The Department also
expects the cost of removing the notice
from plan documents as plans
relinquish their grandfather status to be
de minimis and therefore is not
estimated. Therefore, the Department
estimates that plans and insurers will
incur a one-time hour burden of 26,000
hours with an equivalent cost of $1.8
34 The Department’s estimate of the number of
state and local governmental health plans was
obtained from the 2007 Census of Governments.
The estimate of the number of policy holders in the
individual market were obtained from the 2009
Current Population Survey. The methodology used
to estimate the percentage of state and local
governmental plans and individual market policies
that will retain their grandfathered health plan
status was discussed above.
35 EBSA estimates of labor rates include wages,
other benefits, and overhead based on the National
Occupational Employment Survey (May 2008,
Bureau of Labor Statistics) and the Employment
Cost Index June 2009, Bureau of Labor Statistics).
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million to meet the disclosure
requirement.
The Department assumes that only
printing and material costs are
associated with the disclosure
requirement, because the interim final
regulations provide model language that
can be incorporated into existing plan
documents, such as an SPD. The
Department estimates that the notice
will require one-half of a page, five
cents per page printing and material
cost will be incurred, and 38 percent of
the notices will be delivered
electronically. This results in a cost
burden of $318,000 ($0.05 per page*1⁄2
pages per notice * 12.7 million
notices*0.62).
b. Record-Keeping Requirement
The Department assumes that most of
the documents required to be retained to
satisfy the Affordable Care Act’s
recordkeeping requirement already are
retained by plans for tax purposes, to
satisfy ERISA’s record retention and
statute of limitations requirements, and
for other business reasons. Therefore,
the Department estimates that the
recordkeeping burden imposed by this
ICR will require five minutes of a legal
professional’s time (with a rate of
$119.03/hour) to determine the relevant
plan documents that must be retained
and ten minutes of clerical staff time
(with a labor rate of $26.14/hour) to
organize and file the required
documents to ensure that they are
accessible to participants, beneficiaries,
and Federal and State governmental
agency officials.
With an estimated 98,000
grandfathered plans and 7,400
grandfathered individual insurance
products 36 in 2011, the Department
estimates an hour burden of
approximately 26,000 hours with
equivalent costs of $1.5 million. The
Department’s have estimated this as a
one-time cost incurred in 2011, because
after the first year, the Department
assumes any future costs will be de
minimis.
Overall, for both the grandfathering
notice and the recordkeeping
requirement, the Department expects
there to be a total hour burden of 53,000
hours and a cost burden of $318,000.
The Department notes that persons
are not required to respond to, and
generally are not subject to any penalty
for failing to comply with, an ICR unless
36 The Department is not certain on the number
of products offered in the individual market and
requests comments. After reviewing the number of
products offered by various insurers in the
individual market the Department used an estimate
of 15 which it believes is a high estimate.
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the ICR has a valid OMB control
number.
These paperwork burden estimates
are summarized as follows:
Type of Review: New collection.
Agency: Department of Health and
Human Services.
Title: Disclosure and Recordkeeping
Requirements for Grandfathered Health
Plans under the Affordable Care Act.
OMB Number: 0938–1093.
Affected Public: Business; State,
Local, or Tribal Governments.
Respondents: 105,000.
Responses: 20,508,000.
Frequency of Response: One-time.
Estimated Total Annual Burden
Hours: 53,000 hours.
Estimated Total Annual Burden Cost:
$318,000.
If you comment on this information
collection and recordkeeping
requirements, please do either of the
following:
1. Submit your comments
electronically as specified in the
ADDRESSES section of this proposed rule;
or
2. Submit your comments to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget,
Attention: OCIIO Desk Officer,
OCIIO–9991–IFC.
Fax: (202) 395–6974; or
E-mail:
OIRA_submission@omb.eop.gov.
F. Congressional Review Act
These interim final regulations are
subject to the Congressional Review Act
provisions of the Small Business
Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and have
been transmitted to Congress and the
Comptroller General for review.
G. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act
of 1995 (Pub. L. 104–4) requires
agencies to prepare several analytic
statements before proposing any rules
that may result in annual expenditures
of $100 million (as adjusted for
inflation) by State, local and tribal
governments or the private sector. These
interim final regulations are not subject
to the Unfunded Mandates Reform Act,
because they are being issued as an
interim final regulation. However,
consistent with the policy embodied in
the Unfunded Mandates Reform Act,
these interim final regulations have
been designed to be the least
burdensome alternative for State, local
and tribal governments, and the private
sector, while achieving the objectives of
the Affordable Care Act.
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Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Rules and Regulations
H. Federalism Statement—Department
of Labor and Department of Health and
Human Services
Executive Order 13132 outlines
fundamental principles of federalism,
and requires the adherence to specific
criteria by Federal agencies in the
process of their formulation and
implementation of policies that have
‘‘substantial direct effects’’ on the States,
the relationship between the national
government and States, or on the
distribution of power and
responsibilities among the various
levels of government. Federal agencies
promulgating regulations that have
these federalism implications must
consult with State and local officials,
and describe the extent of their
consultation and the nature of the
concerns of State and local officials in
the preamble to the regulation.
In the Departments’ view, this
regulation has federalism implications,
because it has direct effects on the
States, the relationship between the
national government and States, or on
the distribution of power and
responsibilities among various levels of
government. However, in the
Departments’ view, the federalism
implications of the regulation is
substantially mitigated because, with
respect to health insurance issuers, the
Departments expect that the majority of
States will enact laws or take other
appropriate action resulting in their
meeting or exceeding the Federal
standard.
In general, through section 514,
ERISA supersedes State laws to the
extent that they relate to any covered
employee benefit plan, and preserves
State laws that regulate insurance,
banking, or securities. While ERISA
prohibits States from regulating a plan
as an insurance or investment company
or bank, the preemption provisions of
ERISA section 731 and PHS Act section
2724 (implemented in 29 CFR
2590.731(a) and 45 CFR 146.143(a))
apply so that the HIPAA requirements
(including those of the Affordable Care
Act) are not to be ‘‘construed to
supersede any provision of State law
which establishes, implements, or
continues in effect any standard or
requirement solely relating to health
insurance issuers in connection with
group health insurance coverage except
to the extent that such standard or
requirement prevents the application of
a requirement’’ of a Federal standard.
The conference report accompanying
HIPAA indicates that this is intended to
be the ‘‘narrowest’’ preemption of State
laws. (See House Conf. Rep. No. 104–
736, at 205, reprinted in 1996 U.S. Code
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Cong. & Admin. News 2018.) States may
continue to apply State law
requirements except to the extent that
such requirements prevent the
application of the Affordable Care Act
requirements that are the subject of this
rulemaking. State insurance laws that
are more stringent than the federal
requirements are unlikely to ‘‘prevent
the application of’’ the Affordable Care
Act, and be preempted. Accordingly,
States have significant latitude to
impose requirements on health
insurance issuers that are more
restrictive than the Federal law.
In compliance with the requirement
of Executive Order 13132 that agencies
examine closely any policies that may
have federalism implications or limit
the policy making discretion of the
States, the Departments have engaged in
efforts to consult with and work
cooperatively with affected State and
local officials, including attending
conferences of the National Association
of Insurance Commissioners and
consulting with State insurance officials
on an individual basis. It is expected
that the Departments will act in a
similar fashion in enforcing the
Affordable Care Act requirements.
Throughout the process of developing
these regulations, to the extent feasible
within the specific preemption
provisions of HIPAA as it applies to the
Affordable Care Act, the Departments
have attempted to balance the States’
interests in regulating health insurance
issuers, and Congress’ intent to provide
uniform minimum protections to
consumers in every State. By doing so,
it is the Departments’ view that they
have complied with the requirements of
Executive Order 13132.
Pursuant to the requirements set forth
in section 8(a) of Executive Order
13132, and by the signatures affixed to
these regulations, the Departments
certify that the Employee Benefits
Security Administration and the Office
of Consumer Information and Insurance
Oversight have complied with the
requirements of Executive Order 13132
for the attached regulation in a
meaningful and timely manner.
V. Statutory Authority
The Department of the Treasury
temporary regulations are adopted
pursuant to the authority contained in
sections 7805 and 9833 of the Code.
The Department of Labor interim final
regulations are adopted pursuant to the
authority contained in 29 U.S.C. 1027,
1059, 1135, 1161–1168, 1169, 1181–
1183, 1181 note, 1185, 1185a, 1185b,
1191, 1191a, 1191b, and 1191c; section
101(g), Public Law 104–191, 110 Stat.
1936; section 401(b), Public Law 105–
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200, 112 Stat. 645 (42 U.S.C. 651 note);
section 512(d), Public Law 110–343, 122
Stat. 3881; section 1001, 1201, and
1562(e), Public Law 111–148, 124 Stat.
119, as amended by Public Law 111–
152, 124 Stat. 1029; Secretary of Labor’s
Order 6–2009, 74 FR 21524 (May 7,
2009).
The Department of Health and Human
Services interim final regulations are
adopted pursuant to the authority
contained in sections 2701 through
2763, 2791, and 2792 of the PHS Act (42
U.S.C. 300gg through 300gg–63, 300gg–
91, and 300gg–92), as amended.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health
insurance, Pensions, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
29 CFR Part 2590
Continuation coverage, Disclosure,
Employee benefit plans, Group health
plans, Health care, Health insurance,
Medical child support, Reporting and
recordkeeping requirements.
45 CFR Part 147
Health care, Health insurance,
Reporting and recordkeeping
requirements, and State regulation of
health insurance.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement, Internal Revenue Service.
Approved: June 10, 2010.
Michael F. Mundaca,
Assistant Secretary of the Treasury (Tax
Policy).
Signed this 4th day of June, 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits
Security Administration, Department of
Labor.
Approved: June 8, 2010.
Jay Angoff,
Director, Office of Consumer Information and
Insurance Oversight.
Approved: June 9, 2010.
Kathleen Sebelius,
Secretary.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Chapter I
Accordingly, 26 CFR parts 54 and 602
are amended as follows:
■
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PART 54—PENSION EXCISE TAXES
1. The authority citation for part 54 is
amended by adding entries for
§§ 54.9815–1251T and 54.9815–2714T
in numerical order to read in part as
follows:
■
Authority: 26 U.S.C. 7805. * * *
Section 54.9815–1251T also issued under
26 U.S.C. 9833.
Section 54.9815–2714T also issued under
26 U.S.C. 9833. * * *
2. Section 54.9815–1251T is added to
read as follows:
■
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§ 54.9815–1251T Preservation of right to
maintain existing coverage (temporary).
(a) Definition of grandfathered health
plan coverage—(1) In general—(i)
Grandfathered health plan coverage
means coverage provided by a group
health plan, or a health insurance
issuer, in which an individual was
enrolled on March 23, 2010 (for as long
as it maintains that status under the
rules of this section). A group health
plan or group health insurance coverage
does not cease to be grandfathered
health plan coverage merely because
one or more (or even all) individuals
enrolled on March 23, 2010 cease to be
covered, provided that the plan or group
health insurance coverage has
continuously covered someone since
March 23, 2010 (not necessarily the
same person, but at all times at least one
person). For purposes of this section, a
plan or health insurance coverage that
provides grandfathered health plan
coverage is referred to as a
grandfathered health plan. The rules of
this section apply separately to each
benefit package made available under a
group health plan or health insurance
coverage.
(ii) Subject to the rules of paragraph
(f) of this section for collectively
bargained plans, if an employer or
employee organization enters into a new
policy, certificate, or contract of
insurance after March 23, 2010
(because, for example, any previous
policy, certificate, or contract of
insurance is not being renewed), then
that policy, certificate, or contract of
insurance is not a grandfathered health
plan with respect to the individuals in
the group health plan.
(2) Disclosure of grandfather status—
(i) To maintain status as a grandfathered
health plan, a plan or health insurance
coverage must include a statement, in
any plan materials provided to a
participant or beneficiary describing the
benefits provided under the plan or
health insurance coverage, that the plan
or coverage believes it is a grandfathered
health plan within the meaning of
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section 1251 of the Patient Protection
and Affordable Care Act and must
provide contact information for
questions and complaints.
(ii) The following model language can
be used to satisfy this disclosure
requirement:
This [group health plan or health insurance
issuer] believes this [plan or coverage] is a
‘‘grandfathered health plan’’ under the Patient
Protection and Affordable Care Act (the
Affordable Care Act). As permitted by the
Affordable Care Act, a grandfathered health
plan can preserve certain basic health
coverage that was already in effect when that
law was enacted. Being a grandfathered
health plan means that your [plan or policy]
may not include certain consumer
protections of the Affordable Care Act that
apply to other plans, for example, the
requirement for the provision of preventive
health services without any cost sharing.
However, grandfathered health plans must
comply with certain other consumer
protections in the Affordable Care Act, for
example, the elimination of lifetime limits on
benefits.
Questions regarding which protections
apply and which protections do not apply to
a grandfathered health plan and what might
cause a plan to change from grandfathered
health plan status can be directed to the plan
administrator at [insert contact information].
[For ERISA plans, insert: You may also
contact the Employee Benefits Security
Administration, U.S. Department of Labor at
1–866–444–3272 or www.dol.gov/ebsa/
healthreform. This website has a table
summarizing which protections do and do
not apply to grandfathered health plans.] [For
individual market policies and nonfederal
governmental plans, insert: You may also
contact the U.S. Department of Health and
Human Services at www.healthreform.gov.]
(3) Documentation of plan or policy
terms on March 23, 2010. To maintain
status as a grandfathered health plan, a
group health plan, or group health
insurance coverage, must, for as long as
the plan or health insurance coverage
takes the position that it is a
grandfathered health plan—
(i) Maintain records documenting the
terms of the plan or health insurance
coverage in connection with the
coverage in effect on March 23, 2010,
and any other documents necessary to
verify, explain, or clarify its status as a
grandfathered health plan; and
(ii) Make such records available for
examination upon request.
(4) Family members enrolling after
March 23, 2010. With respect to an
individual who is enrolled in a group
health plan or health insurance coverage
on March 23, 2010, grandfathered health
plan coverage includes coverage of
family members of the individual who
enroll after March 23, 2010 in the
grandfathered health plan coverage of
the individual.
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(5) Examples. The rules of this
paragraph (a) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
not maintained pursuant to a collective
bargaining agreement provides coverage
through a group health insurance policy from
Issuer X on March 23, 2010. For the plan year
beginning January 1, 2012, the plan enters
into a new policy with Issuer Z.
(ii) Conclusion. In this Example 1, for the
plan year beginning January 1, 2012, the
group health insurance coverage issued by Z
is not a grandfathered health plan under the
rules of paragraph (a)(1)(ii) of this section
because the policy issued by Z did not
provide coverage on March 23, 2010.
Example 2. (i) Facts. A group health plan
not maintained pursuant to a collective
bargaining agreement offers three benefit
packages on March 23, 2010. Option F is a
self-insured option. Options G and H are
insured options. Beginning July 1, 2013, the
plan replaces the issuer for Option H with a
new issuer.
(ii) Conclusion. In this Example 2, the
coverage under Option H is not
grandfathered health plan coverage as of July
1, 2013, consistent with the rule in paragraph
(a)(1)(ii) of this section. Whether the coverage
under Options F and G is grandfathered
health plan coverage is determined under the
rules of this section, including paragraph (g)
of this section. If the plan enters into a new
policy, certificate, or contract of insurance for
Option G, Option G’s status as a
grandfathered health plan would cease under
paragraph (a)(1)(ii) of this section.
(b) Allowance for new employees to
join current plan—(1) In general.
Subject to paragraph (b)(2) of this
section, a group health plan (including
health insurance coverage provided in
connection with the group health plan)
that provided coverage on March 23,
2010 and has retained its status as a
grandfathered health plan (consistent
with the rules of this section, including
paragraph (g) of this section) is
grandfathered health plan coverage for
new employees (whether newly hired or
newly enrolled) and their families
enrolling in the plan after March 23,
2010.
(2) Anti-abuse rules—(i) Mergers and
acquisitions. If the principal purpose of
a merger, acquisition, or similar
business restructuring is to cover new
individuals under a grandfathered
health plan, the plan ceases to be a
grandfathered health plan.
(ii) Change in plan eligibility. A group
health plan or health insurance coverage
(including a benefit package under a
group health plan) ceases to be a
grandfathered health plan if—
(A) Employees are transferred into the
plan or health insurance coverage (the
transferee plan) from a plan or health
insurance coverage under which the
employees were covered on March 23,
2010 (the transferor plan);
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(B) Comparing the terms of the
transferee plan with those of the
transferor plan (as in effect on March 23,
2010) and treating the transferee plan as
if it were an amendment of the
transferor plan would cause a loss of
grandfather status under the provisions
of paragraph (g)(1) of this section; and
(C) There was no bona fide
employment-based reason to transfer the
employees into the transferee plan. For
this purpose, changing the terms or cost
of coverage is not a bona fide
employment-based reason.
(3) Examples. The rules of this
paragraph (b) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
offers two benefit packages on March 23,
2010, Options F and G. During a subsequent
open enrollment period, some of the
employees enrolled in Option F on March 23,
2010 switch to Option G.
(ii) Conclusion. In this Example 1, the
group health coverage provided under
Option G remains a grandfathered health
plan under the rules of paragraph (b)(1) of
this section because employees previously
enrolled in Option F are allowed to enroll in
Option G as new employees.
Example 2. (i) Facts. Same facts as
Example 1, except that the plan sponsor
eliminates Option F because of its high cost
and transfers employees covered under
Option F to Option G. If instead of
transferring employees from Option F to
Option G, Option F was amended to match
the terms of Option G, then Option F would
cease to be a grandfathered health plan.
(ii) Conclusion. In this Example 2, the plan
did not have a bona fide employment-based
reason to transfer employees from Option F
to Option G. Therefore, Option G ceases to
be a grandfathered health plan with respect
to all employees. (However, any other benefit
package maintained by the plan sponsor is
analyzed separately under the rules of this
section.)
Example 3. (i) Facts. A group health plan
offers two benefit packages on March 23,
2010, Options H and I. On March 23, 2010,
Option H provides coverage only for
employees in one manufacturing plant.
Subsequently, the plant is closed, and some
employees in the closed plant are moved to
another plant. The employer eliminates
Option H and the employees that are moved
are transferred to Option I. If instead of
transferring employees from Option H to
Option I, Option H was amended to match
the terms of Option I, then Option H would
cease to be a grandfathered health plan.
(ii) Conclusion. In this Example 3, the plan
has a bona fide employment-based reason to
transfer employees from Option H to Option
I. Therefore, Option I does not cease to be a
grandfathered health plan.
(c) General grandfathering rule—(1)
Except as provided in paragraphs (d)
and (e) of this section, subtitles A and
C of title I of the Patient Protection and
Affordable Care Act (and the
amendments made by those subtitles,
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and the incorporation of those
amendments into section 9815 and
ERISA section 715) do not apply to
grandfathered health plan coverage.
Accordingly, the provisions of PHS Act
sections 2701, 2702, 2703, 2705, 2706,
2707, 2709 (relating to coverage for
individuals participating in approved
clinical trials, as added by section 10103
of the Patient Protection and Affordable
Care Act), 2713, 2715A, 2716, 2717,
2719, and 2719A, as added or amended
by the Patient Protection and Affordable
Care Act, do not apply to grandfathered
health plans. (In addition, see 45 CFR
147.140(c), which provides that the
provisions of PHS Act section 2704, and
PHS Act section 2711 insofar as it
relates to annual limits, do not apply to
grandfathered health plans that are
individual health insurance coverage.)
(2) To the extent not inconsistent with
the rules applicable to a grandfathered
health plan, a grandfathered health plan
must comply with the requirements of
the Code, the PHS Act, and ERISA
applicable prior to the changes enacted
by the Patient Protection and Affordable
Care Act.
(d) Provisions applicable to all
grandfathered health plans. The
provisions of PHS Act section 2711
insofar as it relates to lifetime limits,
and the provisions of PHS Act sections
2712, 2714, 2715, and 2718, apply to
grandfathered health plans for plan
years beginning on or after September
23, 2010. The provisions of PHS Act
section 2708 apply to grandfathered
health plans for plan years beginning on
or after January 1, 2014.
(e) Applicability of PHS Act sections
2704, 2711, and 2714 to grandfathered
group health plans and group health
insurance coverage—(1) The provisions
of PHS Act section 2704 as it applies
with respect to enrollees who are under
19 years of age, and the provisions of
PHS Act section 2711 insofar as it
relates to annual limits, apply to
grandfathered health plans that are
group health plans (including group
health insurance coverage) for plan
years beginning on or after September
23, 2010. The provisions of PHS Act
section 2704 apply generally to
grandfathered health plans that are
group health plans (including group
health insurance coverage) for plan
years beginning on or after January 1,
2014.
(2) For plan years beginning before
January 1, 2014, the provisions of PHS
Act section 2714 apply in the case of an
adult child with respect to a
grandfathered health plan that is a
group health plan only if the adult child
is not eligible to enroll in an eligible
employer-sponsored health plan (as
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34559
defined in section 5000A(f)(2)) other
than a grandfathered health plan of a
parent. For plan years beginning on or
after January 1, 2014, the provisions of
PHS Act section 2714 apply with
respect to a grandfathered health plan
that is a group health plan without
regard to whether an adult child is
eligible to enroll in any other coverage.
(f) Effect on collectively bargained
plans—(1) In general. In the case of
health insurance coverage maintained
pursuant to one or more collective
bargaining agreements between
employee representatives and one or
more employers that was ratified before
March 23, 2010, the coverage is
grandfathered health plan coverage at
least until the date on which the last of
the collective bargaining agreements
relating to the coverage that was in
effect on March 23, 2010 terminates.
Any coverage amendment made
pursuant to a collective bargaining
agreement relating to the coverage that
amends the coverage solely to conform
to any requirement added by subtitles A
and C of title I of the Patient Protection
and Affordable Care Act (and the
amendments made by those subtitles,
and the incorporation of those
amendments into section 9815 and
ERISA section 715) is not treated as a
termination of the collective bargaining
agreement. After the date on which the
last of the collective bargaining
agreements relating to the coverage that
was in effect on March 23, 2010
terminates, the determination of
whether health insurance coverage
maintained pursuant to a collective
bargaining agreement is grandfathered
health plan coverage is made under the
rules of this section other than this
paragraph (f) (comparing the terms of
the health insurance coverage after the
date the last collective bargaining
agreement terminates with the terms of
the health insurance coverage that were
in effect on March 23, 2010) and, for any
changes in insurance coverage after the
termination of the collective bargaining
agreement, under the rules of paragraph
(a)(1)(ii) of this section.
(2) Examples. The rules of this
paragraph (f) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
maintained pursuant to a collective
bargaining agreement provides coverage
through a group health insurance policy from
Issuer W on March 23, 2010. The collective
bargaining agreement has not been amended
and will not expire before December 31,
2011. The group health plan enters into a
new group health insurance policy with
Issuer Y for the plan year starting on
January 1, 2011.
(ii) Conclusion. In this Example 1, the
group health plan, and the group health
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insurance policy provided by Y, remains a
grandfathered health plan with respect to
existing employees and new employees and
their families because the coverage is
maintained pursuant to a collective
bargaining agreement ratified prior to
March 23, 2010 that has not terminated.
Example 2. (i) Facts. Same facts as
Example 1, except the coverage with Y is
renewed under a new collective bargaining
agreement effective January 1, 2012, with the
only changes since March 23, 2010 being
changes that do not cause the plan to cease
to be a grandfathered health plan under the
rules of this section, including paragraph (g)
of this section.
(ii) Conclusion. In this Example 2, the
group health plan remains a grandfathered
health plan pursuant to the rules of this
section. Moreover, the group health
insurance policy provided by Y remains a
grandfathered health plan under the rules of
this section, including paragraph (g) of this
section.
(g) Maintenance of grandfather
status—(1) Changes causing cessation of
grandfather status. Subject to paragraph
(g)(2) of this section, the rules of this
paragraph (g)(1) describe situations in
which a group health plan or health
insurance coverage ceases to be a
grandfathered health plan.
(i) Elimination of benefits. The
elimination of all or substantially all
benefits to diagnose or treat a particular
condition causes a group health plan or
health insurance coverage to cease to be
a grandfathered health plan. For this
purpose, the elimination of benefits for
any necessary element to diagnose or
treat a condition is considered the
elimination of all or substantially all
benefits to diagnose or treat a particular
condition.
(ii) Increase in percentage costsharing requirement. Any increase,
measured from March 23, 2010, in a
percentage cost-sharing requirement
(such as an individual’s coinsurance
requirement) causes a group health plan
or health insurance coverage to cease to
be a grandfathered health plan.
(iii) Increase in a fixed-amount costsharing requirement other than a
copayment. Any increase in a fixedamount cost-sharing requirement other
than a copayment (for example,
deductible or out-of-pocket limit),
determined as of the effective date of the
increase, causes a group health plan or
health insurance coverage to cease to be
a grandfathered health plan, if the total
percentage increase in the cost-sharing
requirement measured from March 23,
2010 exceeds the maximum percentage
increase (as defined in paragraph
(g)(3)(ii) of this section).
(iv) Increase in a fixed-amount
copayment. Any increase in a fixedamount copayment, determined as of
the effective date of the increase, causes
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a group health plan or health insurance
coverage to cease to be a grandfathered
health plan, if the total increase in the
copayment measured from March 23,
2010 exceeds the greater of:
(A) An amount equal to $5 increased
by medical inflation, as defined in
paragraph (g)(3)(i) of this section (that
is, $5 times medical inflation, plus $5),
or
(B) The maximum percentage increase
(as defined in paragraph (g)(3)(ii) of this
section), determined by expressing the
total increase in the copayment as a
percentage.
(v) Decrease in contribution rate by
employers and employee
organizations—(A) Contribution rate
based on cost of coverage. A group
health plan or group health insurance
coverage ceases to be a grandfathered
health plan if the employer or employee
organization decreases its contribution
rate based on cost of coverage (as
defined in paragraph (g)(3)(iii)(A) of this
section) towards the cost of any tier of
coverage for any class of similarly
situated individuals (as described in
§ 54.9802–1(d)) by more than 5
percentage points below the
contribution rate for the coverage period
that includes March 23, 2010.
(B) Contribution rate based on a
formula. A group health plan or group
health insurance coverage ceases to be
a grandfathered health plan if the
employer or employee organization
decreases its contribution rate based on
a formula (as defined in paragraph
(g)(3)(iii)(B) of this section) towards the
cost of any tier of coverage for any class
of similarly situated individuals (as
described in § 54.9802–1(d)) by more
than 5 percent below the contribution
rate for the coverage period that
includes March 23, 2010.
(vi) Changes in annual limits—(A)
Addition of an annual limit. A group
health plan, or group health insurance
coverage, that, on March 23, 2010, did
not impose an overall annual or lifetime
limit on the dollar value of all benefits
ceases to be a grandfathered health plan
if the plan or health insurance coverage
imposes an overall annual limit on the
dollar value of benefits.
(B) Decrease in limit for a plan or
coverage with only a lifetime limit. A
group health plan, or group health
insurance coverage, that, on March 23,
2010, imposed an overall lifetime limit
on the dollar value of all benefits but no
overall annual limit on the dollar value
of all benefits ceases to be a
grandfathered health plan if the plan or
health insurance coverage adopts an
overall annual limit at a dollar value
that is lower than the dollar value of the
lifetime limit on March 23, 2010.
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(C) Decrease in limit for a plan or
coverage with an annual limit. A group
health plan, or group health insurance
coverage, that, on March 23, 2010,
imposed an overall annual limit on the
dollar value of all benefits ceases to be
a grandfathered health plan if the plan
or health insurance coverage decreases
the dollar value of the annual limit
(regardless of whether the plan or health
insurance coverage also imposed an
overall lifetime limit on March 23, 2010
on the dollar value of all benefits).
(2) Transitional rules—(i) Changes
made prior to March 23, 2010. If a group
health plan or health insurance issuer
makes the following changes to the
terms of the plan or health insurance
coverage, the changes are considered
part of the terms of the plan or health
insurance coverage on March 23, 2010
even though they were not effective at
that time and such changes do not cause
a plan or health insurance coverage to
cease to be a grandfathered health plan:
(A) Changes effective after March 23,
2010 pursuant to a legally binding
contract entered into on or before
March 23, 2010;
(B) Changes effective after March 23,
2010 pursuant to a filing on or before
March 23, 2010 with a State insurance
department; or
(C) Changes effective after March 23,
2010 pursuant to written amendments
to a plan that were adopted on or before
March 23, 2010.
(ii) Changes made after March 23,
2010 and adopted prior to issuance of
regulations. If, after March 23, 2010, a
group health plan or health insurance
issuer makes changes to the terms of the
plan or health insurance coverage and
the changes are adopted prior to June
14, 2010, the changes will not cause the
plan or health insurance coverage to
cease to be a grandfathered health plan
if the changes are revoked or modified
effective as of the first day of the first
plan year (in the individual market,
policy year) beginning on or after
September 23, 2010, and the terms of
the plan or health insurance coverage on
that date, as modified, would not cause
the plan or coverage to cease to be a
grandfathered health plan under the
rules of this section, including
paragraph (g)(1) of this section. For this
purpose, changes will be considered to
have been adopted prior to June 14,
2010 if:
(A) The changes are effective before
that date;
(B) The changes are effective on or
after that date pursuant to a legally
binding contract entered into before that
date;
(C) The changes are effective on or
after that date pursuant to a filing before
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that date with a State insurance
department; or
(D) The changes are effective on or
after that date pursuant to written
amendments to a plan that were
adopted before that date.
(3) Definitions—(i) Medical inflation
defined. For purposes of this paragraph
(g), the term medical inflation means the
increase since March 2010 in the overall
medical care component of the
Consumer Price Index for All Urban
Consumers (CPI–U) (unadjusted)
published by the Department of Labor
using the 1982–1984 base of 100. For
this purpose, the increase in the overall
medical care component is computed by
subtracting 387.142 (the overall medical
care component of the CPI–U
(unadjusted) published by the
Department of Labor for March 2010,
using the 1982–1984 base of 100) from
the index amount for any month in the
12 months before the new change is to
take effect and then dividing that
amount by 387.142.
(ii) Maximum percentage increase
defined. For purposes of this paragraph
(g), the term maximum percentage
increase means medical inflation (as
defined in paragraph (g)(3)(i) of this
section), expressed as a percentage, plus
15 percentage points.
(iii) Contribution rate defined. For
purposes of paragraph (g)(1)(v) of this
section:
(A) Contribution rate based on cost of
coverage. The term contribution rate
based on cost of coverage means the
amount of contributions made by an
employer or employee organization
compared to the total cost of coverage,
expressed as a percentage. The total cost
of coverage is determined in the same
manner as the applicable premium is
calculated under the COBRA
continuation provisions of section
4980B(f)(4), section 604 of ERISA, and
section 2204 of the PHS Act. In the case
of a self-insured plan, contributions by
an employer or employee organization
are equal to the total cost of coverage
minus the employee contributions
towards the total cost of coverage.
(B) Contribution rate based on a
formula. The term contribution rate
based on a formula means, for plans
that, on March 23, 2010, made
contributions based on a formula (such
as hours worked or tons of coal mined),
the formula.
(4) Examples. The rules of this
paragraph (g) are illustrated by the
following examples:
Example 1. (i) Facts. On March 23, 2010,
a grandfathered health plan has a
coinsurance requirement of 20% for inpatient
surgery. The plan is subsequently amended
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to increase the coinsurance requirement to
25%.
(ii) Conclusion. In this Example 1, the
increase in the coinsurance requirement from
20% to 25% causes the plan to cease to be
a grandfathered health plan.
Example 2. (i) Facts. Before March 23,
2010, the terms of a group health plan
provide benefits for a particular mental
health condition, the treatment for which is
a combination of counseling and prescription
drugs. Subsequently, the plan eliminates
benefits for counseling.
(ii) Conclusion. In this Example 2, the plan
ceases to be a grandfathered health plan
because counseling is an element that is
necessary to treat the condition. Thus the
plan is considered to have eliminated
substantially all benefits for the treatment of
the condition.
Example 3. (i) Facts. On March 23, 2010,
a grandfathered health plan has a copayment
requirement of $30 per office visit for
specialists. The plan is subsequently
amended to increase the copayment
requirement to $40. Within the 12-month
period before the $40 copayment takes effect,
the greatest value of the overall medical care
component of the CPI–U (unadjusted) is 475.
(ii) Conclusion. In this Example 3, the
increase in the copayment from $30 to $40,
expressed as a percentage, is 33.33% (40 ¥
30 = 10; 10 ÷ 30 = 0.3333; 0.3333 = 33.33%).
Medical inflation (as defined in paragraph
(g)(3)(i) of this section) from March 2010 is
0.2269 (475 ¥ 387.142 = 87.858; 87.858 ÷
387.142 = 0.2269). The maximum percentage
increase permitted is 37.69% (0.2269 =
22.69%; 22.69% + 15% = 37.69%). Because
33.33% does not exceed 37.69%, the change
in the copayment requirement at that time
does not cause the plan to cease to be a
grandfathered health plan.
Example 4. (i) Facts. Same facts as
Example 3, except the grandfathered health
plan subsequently increases the $40
copayment requirement to $45 for a later
plan year. Within the 12-month period before
the $45 copayment takes effect, the greatest
value of the overall medical care component
of the CPI–U (unadjusted) is 485.
(ii) Conclusion. In this Example 4, the
increase in the copayment from $30 (the
copayment that was in effect on March 23,
2010) to $45, expressed as a percentage, is
50% (45 ¥ 30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%).
Medical inflation (as defined in paragraph
(g)(3)(i) of this section) from March 2010 is
0.2527 (485 ¥ 387.142 = 97.858; 97.858 ÷
387.142 = 0.2527). The increase that would
cause a plan to cease to be a grandfathered
health plan under paragraph (g)(1)(iv) of this
section is the greater of the maximum
percentage increase of 40.27% (0.2527 =
25.27%; 25.27% + 15% = 40.27%), or $6.26
($5 × 0.2527 = $1.26; $1.26 + $5 = $6.26).
Because 50% exceeds 40.27% and $15
exceeds $6.26, the change in the copayment
requirement at that time causes the plan to
cease to be a grandfathered health plan.
Example 5. (i) Facts. On March 23, 2010,
a grandfathered health plan has a copayment
of $10 per office visit for primary care
providers. The plan is subsequently amended
to increase the copayment requirement to
$15. Within the 12-month period before the
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$15 copayment takes effect, the greatest value
of the overall medical care component of the
CPI–U (unadjusted) is 415.
(ii) Conclusion. In this Example 5, the
increase in the copayment, expressed as a
percentage, is 50% (15 ¥ 10 = 5; 5 ÷ 10 =
0.5; 0.5 = 50%). Medical inflation (as defined
in paragraph (g)(3) of this section) from
March 2010 is 0.0720 (415.0 ¥ 387.142 =
27.858; 27.858 ÷ 387.142 = 0.0720). The
increase that would cause a plan to cease to
be a grandfathered health plan under
paragraph (g)(1)(iv) of this section is the
greater of the maximum percentage increase
of 22.20% (0.0720 = 7.20%; 7.20% + 15% =
22.20), or $5.36 ($5 × 0.0720 = $0.36; $0.36
+ $5 = $5.36). The $5 increase in copayment
in this Example 5 would not cause the plan
to cease to be a grandfathered health plan
pursuant to paragraph (g)(1)(iv) of this
section, which would permit an increase in
the copayment of up to $5.36.
Example 6. (i) Facts. The same facts as
Example 5, except on March 23, 2010, the
grandfathered health plan has no copayment
($0) for office visits for primary care
providers. The plan is subsequently amended
to increase the copayment requirement to $5.
(ii) Conclusion. In this Example 6, medical
inflation (as defined in paragraph (g)(3)(i) of
this section) from March 2010 is 0.0720
(415.0 ¥ 387.142 = 27.858; 27.858 ÷ 387.142
= 0.0720). The increase that would cause a
plan to cease to be a grandfathered health
plan under paragraph (g)(1)(iv)(A) of this
section is $5.36 ($5 × 0.0720 = $0.36; $0.36
+ $5 = $5.36). The $5 increase in copayment
in this Example 6 is less than the amount
calculated pursuant to paragraph (g)(1)(iv)(A)
of this section of $5.36. Thus, the $5 increase
in copayment does not cause the plan to
cease to be a grandfathered health plan.
Example 7. (i) Facts. On March 23, 2010,
a self-insured group health plan provides two
tiers of coverage—self-only and family. The
employer contributes 80% of the total cost of
coverage for self-only and 60% of the total
cost of coverage for family. Subsequently, the
employer reduces the contribution to 50% for
family coverage, but keeps the same
contribution rate for self-only coverage.
(ii) Conclusion. In this Example 7, the
decrease of 10 percentage points for family
coverage in the contribution rate based on
cost of coverage causes the plan to cease to
be a grandfathered health plan. The fact that
the contribution rate for self-only coverage
remains the same does not change the result.
Example 8. (i) Facts. On March 23, 2010,
a self-insured grandfathered health plan has
a COBRA premium for the 2010 plan year of
$5000 for self-only coverage and $12,000 for
family coverage. The required employee
contribution for the coverage is $1000 for
self-only coverage and $4000 for family
coverage. Thus, the contribution rate based
on cost of coverage for 2010 is 80% ((5000
¥ 1000)/5000) for self-only coverage and
67% ((12,000 ¥ 4000)/12,000) for family
coverage. For a subsequent plan year, the
COBRA premium is $6000 for self-only
coverage and $15,000 for family coverage.
The employee contributions for that plan
year are $1200 for self-only coverage and
$5000 for family coverage. Thus, the
contribution rate based on cost of coverage is
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80% ((6000 ¥ 1200)/6000) for self-only
coverage and 67% ((15,000 ¥ 5000)/15,000)
for family coverage.
(ii) Conclusion. In this Example 8, because
there is no change in the contribution rate
based on cost of coverage, the plan retains its
status as a grandfathered health plan. The
result would be the same if all or part of the
employee contribution was made pre-tax
through a cafeteria plan under section 125 of
the Internal Revenue Code.
Example 9. (i) Facts. Before March 23,
2010, Employer W and Individual B enter
into a legally binding employment contract
that promises B lifetime health coverage
upon termination. Prior to termination, B is
covered by W’s self-insured grandfathered
group health plan. B is terminated after
March 23, 2010 and W purchases a new
health insurance policy providing coverage
to B, consistent with the terms of the
employment contract.
(ii) Conclusion. In this Example 9, because
no individual is enrolled in the health
insurance policy on March 23, 2010, it is not
a grandfathered health plan.
PART 2590—RULES AND
REGULATIONS FOR GROUP HEALTH
PLANS
1. The authority citation for part 2590
continues to read as follows:
■
Authority: 29 U.S.C. 1027, 1059, 1135,
1161–1168, 1169, 1181–1183, 1181 note,
1185, 1185a, 1185b, 1191, 1191a, 1191b, and
1191c; sec. 101(g), Pub. L. 104–191, 110 Stat.
1936; sec. 401(b), Pub. L. 105–200, 112 Stat.
645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
110–343, 122 Stat. 3881; sec. 1001, 1201, and
1562(e), Pub. L. 111–148, 124 Stat. 119, as
amended by Pub. L. 111–152, 124 Stat. 1029;
Secretary of Labor’s Order 6–2009, 74 FR
21524 (May 7, 2009).
2. Section 2590.715–1251 is added to
subpart C to read as follows:
■
§ 2590.715–1251 Preservation of right to
maintain existing coverage.
(a) Definition of grandfathered health
plan coverage—(1) In general—(i)
Grandfathered health plan coverage
(h) Expiration date. This section
means coverage provided by a group
expires on or before June 14, 2013.
health plan, or a health insurance
■ 3. Section 54.9815–2714T is amended
by revising paragraphs (h) and (i) to read issuer, in which an individual was
enrolled on March 23, 2010 (for as long
as follows:
as it maintains that status under the
*
*
*
*
*
rules of this section). A group health
(h) Applicability date. The provisions
plan or group health insurance coverage
of this section apply for plan years
does not cease to be grandfathered
beginning on or after September 23,
health plan coverage merely because
2010. See § 54.9815–1251T for
one or more (or even all) individuals
determining the application of this
enrolled on March 23, 2010 cease to be
section to grandfathered health plans.
covered, provided that the plan or group
(i) Expiration date. This section
health insurance coverage has
expires on or before May 10, 2013.
continuously covered someone since
PART 602—OMB CONTROL NUMBERS March 23, 2010 (not necessarily the
same person, but at all times at least one
UNDER THE PAPERWORK
person). For purposes of this section, a
REDUCTION ACT
plan or health insurance coverage that
■ 4. The authority citation for part 602
provides grandfathered health plan
continues to read in part as follows:
coverage is referred to as a
grandfathered health plan. The rules of
Authority: 26 U.S.C. 7805. * * *
this section apply separately to each
■ 5. Section 602.101(b) is amended by
benefit package made available under a
adding the following entry in numerical group health plan or health insurance
order to the table to read as follows:
coverage.
(ii) Subject to the rules of paragraph
§ 602.101 OMB Control numbers.
(f) of this section for collectively
(b) * * *
bargained plans, if an employer or
employee organization enters into a new
CFR part or section where
Current OMB
policy, certificate, or contract of
identified and described
control No.
insurance after March 23, 2010
(because, for example, any previous
*
*
*
*
*
policy, certificate, or contract of
54.9815–1251T .....................
1545–2178 insurance is not being renewed), then
that policy, certificate, or contract of
*
*
*
*
*
insurance is not a grandfathered health
plan with respect to the individuals in
DEPARTMENT OF LABOR
the group health plan.
(2) Disclosure of grandfather status—
Employee Benefits Security
(i) To maintain status as a grandfathered
Administration
health plan, a plan or health insurance
29 CFR Chapter XXV
coverage must include a statement, in
■ 29 CFR part 2590 is amended as
any plan materials provided to a
follows:
participant or beneficiary describing the
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benefits provided under the plan or
health insurance coverage, that the plan
or coverage believes it is a grandfathered
health plan within the meaning of
section 1251 of the Patient Protection
and Affordable Care Act and must
provide contact information for
questions and complaints.
(ii) The following model language can
be used to satisfy this disclosure
requirement:
This [group health plan or health insurance
issuer] believes this [plan or coverage] is a
‘‘grandfathered health plan’’ under the Patient
Protection and Affordable Care Act (the
Affordable Care Act). As permitted by the
Affordable Care Act, a grandfathered health
plan can preserve certain basic health
coverage that was already in effect when that
law was enacted. Being a grandfathered
health plan means that your [plan or policy]
may not include certain consumer
protections of the Affordable Care Act that
apply to other plans, for example, the
requirement for the provision of preventive
health services without any cost sharing.
However, grandfathered health plans must
comply with certain other consumer
protections in the Affordable Care Act, for
example, the elimination of lifetime limits on
benefits.
Questions regarding which protections
apply and which protections do not apply to
a grandfathered health plan and what might
cause a plan to change from grandfathered
health plan status can be directed to the plan
administrator at [insert contact information].
[For ERISA plans, insert: You may also
contact the Employee Benefits Security
Administration, U.S. Department of Labor at
1–866–444–3272 or www.dol.gov/ebsa/
healthreform. This Web site has a table
summarizing which protections do and do
not apply to grandfathered health plans.] [For
individual market policies and nonfederal
governmental plans, insert: You may also
contact the U.S. Department of Health and
Human Services at www.healthreform.gov.]
(3) Documentation of plan or policy
terms on March 23, 2010. To maintain
status as a grandfathered health plan, a
group health plan, or group health
insurance coverage, must, for as long as
the plan or health insurance coverage
takes the position that it is a
grandfathered health plan—
(i) Maintain records documenting the
terms of the plan or health insurance
coverage in connection with the
coverage in effect on March 23, 2010,
and any other documents necessary to
verify, explain, or clarify its status as a
grandfathered health plan; and
(ii) Make such records available for
examination upon request.
(4) Family members enrolling after
March 23, 2010. With respect to an
individual who is enrolled in a group
health plan or health insurance coverage
on March 23, 2010, grandfathered health
plan coverage includes coverage of
family members of the individual who
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enroll after March 23, 2010 in the
grandfathered health plan coverage of
the individual.
(5) Examples. The rules of this
paragraph (a) are illustrated by the
following examples:
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Example 1. (i) Facts. A group health plan
not maintained pursuant to a collective
bargaining agreement provides coverage
through a group health insurance policy from
Issuer X on March 23, 2010. For the plan year
beginning January 1, 2012, the plan enters
into a new policy with Issuer Z.
(ii) Conclusion. In this Example 1, for the
plan year beginning January 1, 2012, the
group health insurance coverage issued by Z
is not a grandfathered health plan under the
rules of paragraph (a)(1)(ii) of this section
because the policy issued by Z did not
provide coverage on March 23, 2010.
Example 2. (i) Facts. A group health plan
not maintained pursuant to a collective
bargaining agreement offers three benefit
packages on March 23, 2010. Option F is a
self-insured option. Options G and H are
insured options. Beginning July 1, 2013, the
plan replaces the issuer for Option H with a
new issuer.
(ii) Conclusion. In this Example 2, the
coverage under Option H is not
grandfathered health plan coverage as of July
1, 2013, consistent with the rule in paragraph
(a)(1)(ii) of this section. Whether the coverage
under Options F and G is grandfathered
health plan coverage is determined under the
rules of this section, including paragraph (g)
of this section. If the plan enters into a new
policy, certificate, or contract of insurance for
Option G, Option G’s status as a
grandfathered health plan would cease under
paragraph (a)(1)(ii) of this section.
(b) Allowance for new employees to
join current plan—(1) In general.
Subject to paragraph (b)(2) of this
section, a group health plan (including
health insurance coverage provided in
connection with the group health plan)
that provided coverage on March 23,
2010 and has retained its status as a
grandfathered health plan (consistent
with the rules of this section, including
paragraph (g) of this section) is
grandfathered health plan coverage for
new employees (whether newly hired or
newly enrolled) and their families
enrolling in the plan after March 23,
2010.
(2) Anti-abuse rules—(i) Mergers and
acquisitions. If the principal purpose of
a merger, acquisition, or similar
business restructuring is to cover new
individuals under a grandfathered
health plan, the plan ceases to be a
grandfathered health plan.
(ii) Change in plan eligibility. A group
health plan or health insurance coverage
(including a benefit package under a
group health plan) ceases to be a
grandfathered health plan if—
(A) Employees are transferred into the
plan or health insurance coverage (the
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19:39 Jun 16, 2010
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transferee plan) from a plan or health
insurance coverage under which the
employees were covered on March 23,
2010 (the transferor plan);
(B) Comparing the terms of the
transferee plan with those of the
transferor plan (as in effect on March 23,
2010) and treating the transferee plan as
if it were an amendment of the
transferor plan would cause a loss of
grandfather status under the provisions
of paragraph (g)(1) of this section; and
(C) There was no bona fide
employment-based reason to transfer the
employees into the transferee plan. For
this purpose, changing the terms or cost
of coverage is not a bona fide
employment-based reason.
(3) Examples. The rules of this
paragraph (b) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
offers two benefit packages on March 23,
2010, Options F and G. During a subsequent
open enrollment period, some of the
employees enrolled in Option F on March 23,
2010 switch to Option G.
(ii) Conclusion. In this Example 1, the
group health coverage provided under
Option G remains a grandfathered health
plan under the rules of paragraph (b)(1) of
this section because employees previously
enrolled in Option F are allowed to enroll in
Option G as new employees.
Example 2. (i) Facts. Same facts as
Example 1, except that the plan sponsor
eliminates Option F because of its high cost
and transfers employees covered under
Option F to Option G. If instead of
transferring employees from Option F to
Option G, Option F was amended to match
the terms of Option G, then Option F would
cease to be a grandfathered health plan.
(ii) Conclusion. In this Example 2, the plan
did not have a bona fide employment-based
reason to transfer employees from Option F
to Option G. Therefore, Option G ceases to
be a grandfathered health plan with respect
to all employees. (However, any other benefit
package maintained by the plan sponsor is
analyzed separately under the rules of this
section.)
Example 3. (i) Facts. A group health plan
offers two benefit packages on March 23,
2010, Options H and I. On March 23, 2010,
Option H provides coverage only for
employees in one manufacturing plant.
Subsequently, the plant is closed, and some
employees in the closed plant are moved to
another plant. The employer eliminates
Option H and the employees that are moved
are transferred to Option I. If instead of
transferring employees from Option H to
Option I, Option H was amended to match
the terms of Option I, then Option H would
cease to be a grandfathered health plan.
(ii) Conclusion. In this Example 3, the plan
has a bona fide employment-based reason to
transfer employees from Option H to Option
I. Therefore, Option I does not cease to be a
grandfathered health plan.
(c) General grandfathering rule—(1)
Except as provided in paragraphs (d)
PO 00000
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34563
and (e) of this section, subtitles A and
C of title I of the Patient Protection and
Affordable Care Act (and the
amendments made by those subtitles,
and the incorporation of those
amendments into ERISA section 715
and Internal Revenue Code section
9815) do not apply to grandfathered
health plan coverage. Accordingly, the
provisions of PHS Act sections 2701,
2702, 2703, 2705, 2706, 2707, 2709
(relating to coverage for individuals
participating in approved clinical trials,
as added by section 10103 of the Patient
Protection and Affordable Care Act),
2713, 2715A, 2716, 2717, 2719, and
2719A, as added or amended by the
Patient Protection and Affordable Care
Act, do not apply to grandfathered
health plans. (In addition, see 45 CFR
147.140(c), which provides that the
provisions of PHS Act section 2704, and
PHS Act section 2711 insofar as it
relates to annual limits, do not apply to
grandfathered health plans that are
individual health insurance coverage.)
(2) To the extent not inconsistent with
the rules applicable to a grandfathered
health plan, a grandfathered health plan
must comply with the requirements of
the PHS Act, ERISA, and the Internal
Revenue Code applicable prior to the
changes enacted by the Patient
Protection and Affordable Care Act.
(d) Provisions applicable to all
grandfathered health plans. The
provisions of PHS Act section 2711
insofar as it relates to lifetime limits,
and the provisions of PHS Act sections
2712, 2714, 2715, and 2718, apply to
grandfathered health plans for plan
years beginning on or after September
23, 2010. The provisions of PHS Act
section 2708 apply to grandfathered
health plans for plan years beginning on
or after January 1, 2014.
(e) Applicability of PHS Act sections
2704, 2711, and 2714 to grandfathered
group health plans and group health
insurance coverage—(1) The provisions
of PHS Act section 2704 as it applies
with respect to enrollees who are under
19 years of age, and the provisions of
PHS Act section 2711 insofar as it
relates to annual limits, apply to
grandfathered health plans that are
group health plans (including group
health insurance coverage) for plan
years beginning on or after September
23, 2010. The provisions of PHS Act
section 2704 apply generally to
grandfathered health plans that are
group health plans (including group
health insurance coverage) for plan
years beginning on or after January 1,
2014.
(2) For plan years beginning before
January 1, 2014, the provisions of PHS
Act section 2714 apply in the case of an
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adult child with respect to a
grandfathered health plan that is a
group health plan only if the adult child
is not eligible to enroll in an eligible
employer-sponsored health plan (as
defined in section 5000A(f)(2) of the
Internal Revenue Code) other than a
grandfathered health plan of a parent.
For plan years beginning on or after
January 1, 2014, the provisions of PHS
Act section 2714 apply with respect to
a grandfathered health plan that is a
group health plan without regard to
whether an adult child is eligible to
enroll in any other coverage.
(f) Effect on collectively bargained
plans—(1) In general. In the case of
health insurance coverage maintained
pursuant to one or more collective
bargaining agreements between
employee representatives and one or
more employers that was ratified before
March 23, 2010, the coverage is
grandfathered health plan coverage at
least until the date on which the last of
the collective bargaining agreements
relating to the coverage that was in
effect on March 23, 2010 terminates.
Any coverage amendment made
pursuant to a collective bargaining
agreement relating to the coverage that
amends the coverage solely to conform
to any requirement added by subtitles A
and C of title I of the Patient Protection
and Affordable Care Act (and the
amendments made by those subtitles,
and the incorporation of those
amendments into ERISA section 715
and Internal Revenue Code section
9815) is not treated as a termination of
the collective bargaining agreement.
After the date on which the last of the
collective bargaining agreements
relating to the coverage that was in
effect on March 23, 2010 terminates, the
determination of whether health
insurance coverage maintained pursuant
to a collective bargaining agreement is
grandfathered health plan coverage is
made under the rules of this section
other than this paragraph (f) (comparing
the terms of the health insurance
coverage after the date the last collective
bargaining agreement terminates with
the terms of the health insurance
coverage that were in effect on March
23, 2010) and, for any changes in
insurance coverage after the termination
of the collective bargaining agreement,
under the rules of paragraph (a)(1)(ii) of
this section.
(2) Examples. The rules of this
paragraph (f) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
maintained pursuant to a collective
bargaining agreement provides coverage
through a group health insurance policy from
Issuer W on March 23, 2010. The collective
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bargaining agreement has not been amended
and will not expire before December 31,
2011. The group health plan enters into a
new group health insurance policy with
Issuer Y for the plan year starting on January
1, 2011.
(ii) Conclusion. In this Example 1, the
group health plan, and the group health
insurance policy provided by Y, remains a
grandfathered health plan with respect to
existing employees and new employees and
their families because the coverage is
maintained pursuant to a collective
bargaining agreement ratified prior to March
23, 2010 that has not terminated.
Example 2. (i) Facts. Same facts as
Example 1, except the coverage with Y is
renewed under a new collective bargaining
agreement effective January 1, 2012, with the
only changes since March 23, 2010 being
changes that do not cause the plan to cease
to be a grandfathered health plan under the
rules of this section, including paragraph (g)
of this section.
(ii) Conclusion. In this Example 2, the
group health plan remains a grandfathered
health plan pursuant to the rules of this
section. Moreover, the group health
insurance policy provided by Y remains a
grandfathered health plan under the rules of
this section, including paragraph (g) of this
section.
(g) Maintenance of grandfather
status—(1) Changes causing cessation of
grandfather status. Subject to paragraph
(g)(2) of this section, the rules of this
paragraph (g)(1) describe situations in
which a group health plan or health
insurance coverage ceases to be a
grandfathered health plan.
(i) Elimination of benefits. The
elimination of all or substantially all
benefits to diagnose or treat a particular
condition causes a group health plan or
health insurance coverage to cease to be
a grandfathered health plan. For this
purpose, the elimination of benefits for
any necessary element to diagnose or
treat a condition is considered the
elimination of all or substantially all
benefits to diagnose or treat a particular
condition.
(ii) Increase in percentage costsharing requirement. Any increase,
measured from March 23, 2010, in a
percentage cost-sharing requirement
(such as an individual’s coinsurance
requirement) causes a group health plan
or health insurance coverage to cease to
be a grandfathered health plan.
(iii) Increase in a fixed-amount costsharing requirement other than a
copayment. Any increase in a fixedamount cost-sharing requirement other
than a copayment (for example,
deductible or out-of-pocket limit),
determined as of the effective date of the
increase, causes a group health plan or
health insurance coverage to cease to be
a grandfathered health plan, if the total
percentage increase in the cost-sharing
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requirement measured from March 23,
2010 exceeds the maximum percentage
increase (as defined in paragraph
(g)(3)(ii) of this section).
(iv) Increase in a fixed-amount
copayment. Any increase in a fixedamount copayment, determined as of
the effective date of the increase, causes
a group health plan or health insurance
coverage to cease to be a grandfathered
health plan, if the total increase in the
copayment measured from March 23,
2010 exceeds the greater of:
(A) An amount equal to $5 increased
by medical inflation, as defined in
paragraph (g)(3)(i) of this section (that
is, $5 times medical inflation, plus $5),
or
(B) The maximum percentage increase
(as defined in paragraph (g)(3)(ii) of this
section), determined by expressing the
total increase in the copayment as a
percentage.
(v) Decrease in contribution rate by
employers and employee
organizations—(A) Contribution rate
based on cost of coverage. A group
health plan or group health insurance
coverage ceases to be a grandfathered
health plan if the employer or employee
organization decreases its contribution
rate based on cost of coverage (as
defined in paragraph (g)(3)(iii)(A) of this
section) towards the cost of any tier of
coverage for any class of similarly
situated individuals (as described in
§ 2590.702(d) of this part) by more than
5 percentage points below the
contribution rate for the coverage period
that includes March 23, 2010.
(B) Contribution rate based on a
formula. A group health plan or group
health insurance coverage ceases to be
a grandfathered health plan if the
employer or employee organization
decreases its contribution rate based on
a formula (as defined in paragraph
(g)(3)(iii)(B) of this section) towards the
cost of any tier of coverage for any class
of similarly situated individuals (as
described in section 2590.702(d) of this
part) by more than 5 percent below the
contribution rate for the coverage period
that includes March 23, 2010.
(vi) Changes in annual limits—(A)
Addition of an annual limit. A group
health plan, or group health insurance
coverage, that, on March 23, 2010, did
not impose an overall annual or lifetime
limit on the dollar value of all benefits
ceases to be a grandfathered health plan
if the plan or health insurance coverage
imposes an overall annual limit on the
dollar value of benefits.
(B) Decrease in limit for a plan or
coverage with only a lifetime limit. A
group health plan, or group health
insurance coverage, that, on March 23,
2010, imposed an overall lifetime limit
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on the dollar value of all benefits but no
overall annual limit on the dollar value
of all benefits ceases to be a
grandfathered health plan if the plan or
health insurance coverage adopts an
overall annual limit at a dollar value
that is lower than the dollar value of the
lifetime limit on March 23, 2010.
(C) Decrease in limit for a plan or
coverage with an annual limit. A group
health plan, or group health insurance
coverage, that, on March 23, 2010,
imposed an overall annual limit on the
dollar value of all benefits ceases to be
a grandfathered health plan if the plan
or health insurance coverage decreases
the dollar value of the annual limit
(regardless of whether the plan or health
insurance coverage also imposed an
overall lifetime limit on March 23, 2010
on the dollar value of all benefits).
(2) Transitional rules—(i) Changes
made prior to March 23, 2010. If a group
health plan or health insurance issuer
makes the following changes to the
terms of the plan or health insurance
coverage, the changes are considered
part of the terms of the plan or health
insurance coverage on March 23, 2010
even though they were not effective at
that time and such changes do not cause
a plan or health insurance coverage to
cease to be a grandfathered health plan:
(A) Changes effective after March 23,
2010 pursuant to a legally binding
contract entered into on or before March
23, 2010;
(B) Changes effective after March 23,
2010 pursuant to a filing on or before
March 23, 2010 with a State insurance
department; or
(C) Changes effective after March 23,
2010 pursuant to written amendments
to a plan that were adopted on or before
March 23, 2010.
(ii) Changes made after March 23,
2010 and adopted prior to issuance of
regulations. If, after March 23, 2010, a
group health plan or health insurance
issuer makes changes to the terms of the
plan or health insurance coverage and
the changes are adopted prior to June
14, 2010, the changes will not cause the
plan or health insurance coverage to
cease to be a grandfathered health plan
if the changes are revoked or modified
effective as of the first day of the first
plan year (in the individual market,
policy year) beginning on or after
September 23, 2010, and the terms of
the plan or health insurance coverage on
that date, as modified, would not cause
the plan or coverage to cease to be a
grandfathered health plan under the
rules of this section, including
paragraph (g)(1) of this section. For this
purpose, changes will be considered to
have been adopted prior to June 14,
2010 if:
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(A) The changes are effective before
that date;
(B) The changes are effective on or
after that date pursuant to a legally
binding contract entered into before that
date;
(C) The changes are effective on or
after that date pursuant to a filing before
that date with a State insurance
department; or
(D) The changes are effective on or
after that date pursuant to written
amendments to a plan that were
adopted before that date.
(3) Definitions—(i) Medical inflation
defined. For purposes of this paragraph
(g), the term medical inflation means the
increase since March 2010 in the overall
medical care component of the
Consumer Price Index for All Urban
Consumers (CPI–U) (unadjusted)
published by the Department of Labor
using the 1982–1984 base of 100. For
this purpose, the increase in the overall
medical care component is computed by
subtracting 387.142 (the overall medical
care component of the CPI–U
(unadjusted) published by the
Department of Labor for March 2010,
using the 1982–1984 base of 100) from
the index amount for any month in the
12 months before the new change is to
take effect and then dividing that
amount by 387.142.
(ii) Maximum percentage increase
defined. For purposes of this paragraph
(g), the term maximum percentage
increase means medical inflation (as
defined in paragraph (g)(3)(i) of this
section), expressed as a percentage, plus
15 percentage points.
(iii) Contribution rate defined. For
purposes of paragraph (g)(1)(v) of this
section:
(A) Contribution rate based on cost of
coverage. The term contribution rate
based on cost of coverage means the
amount of contributions made by an
employer or employee organization
compared to the total cost of coverage,
expressed as a percentage. The total cost
of coverage is determined in the same
manner as the applicable premium is
calculated under the COBRA
continuation provisions of section 604
of ERISA, section 4980B(f)(4) of the
Internal Revenue Code, and section
2204 of the PHS Act. In the case of a
self-insured plan, contributions by an
employer or employee organization are
equal to the total cost of coverage minus
the employee contributions towards the
total cost of coverage.
(B) Contribution rate based on a
formula. The term contribution rate
based on a formula means, for plans
that, on March 23, 2010, made
contributions based on a formula (such
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as hours worked or tons of coal mined),
the formula.
(4) Examples. The rules of this
paragraph (g) are illustrated by the
following examples:
Example 1. (i) Facts. On March 23, 2010,
a grandfathered health plan has a
coinsurance requirement of 20% for inpatient
surgery. The plan is subsequently amended
to increase the coinsurance requirement to
25%.
(ii) Conclusion. In this Example 1, the
increase in the coinsurance requirement from
20% to 25% causes the plan to cease to be
a grandfathered health plan.
Example 2. (i) Facts. Before March 23,
2010, the terms of a group health plan
provide benefits for a particular mental
health condition, the treatment for which is
a combination of counseling and prescription
drugs. Subsequently, the plan eliminates
benefits for counseling.
(ii) Conclusion. In this Example 2, the plan
ceases to be a grandfathered health plan
because counseling is an element that is
necessary to treat the condition. Thus the
plan is considered to have eliminated
substantially all benefits for the treatment of
the condition.
Example 3. (i) Facts. On March 23, 2010,
a grandfathered health plan has a copayment
requirement of $30 per office visit for
specialists. The plan is subsequently
amended to increase the copayment
requirement to $40. Within the 12-month
period before the $40 copayment takes effect,
the greatest value of the overall medical care
component of the CPI–U (unadjusted) is 475.
(ii) Conclusion. In this Example 3, the
increase in the copayment from $30 to $40,
expressed as a percentage, is 33.33% (40¥30
= 10; 10 ÷ 30 = 0.3333; 0.3333 = 33.33%).
Medical inflation (as defined in paragraph
(g)(3)(i) of this section) from March 2010 is
0.2269 (475¥387.142 = 87.858; 87.858 ÷
387.142 = 0.2269). The maximum percentage
increase permitted is 37.69% (0.2269 =
22.69%; 22.69% + 15% = 37.69%). Because
33.33% does not exceed 37.69%, the change
in the copayment requirement at that time
does not cause the plan to cease to be a
grandfathered health plan.
Example 4. (i) Facts. Same facts as
Example 3, except the grandfathered health
plan subsequently increases the $40
copayment requirement to $45 for a later
plan year. Within the 12-month period before
the $45 copayment takes effect, the greatest
value of the overall medical care component
of the CPI–U (unadjusted) is 485.
(ii) Conclusion. In this Example 4, the
increase in the copayment from $30 (the
copayment that was in effect on March 23,
2010) to $45, expressed as a percentage, is
50% (45¥30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%).
Medical inflation (as defined in paragraph
(g)(3)(i) of this section) from March 2010 is
0.2527 (485¥387.142 = 97.858; 97.858 ÷
387.142 = 0.2527). The increase that would
cause a plan to cease to be a grandfathered
health plan under paragraph (g)(1)(iv) of this
section is the greater of the maximum
percentage increase of 40.27% (0.2527 =
25.27%; 25.27% + 15% = 40.27%), or $6.26
($5 x 0.2527 = $1.26; $1.26 + $5 = $6.26).
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Because 50% exceeds 40.27% and $15
exceeds $6.26, the change in the copayment
requirement at that time causes the plan to
cease to be a grandfathered health plan.
Example 5. (i) Facts. On March 23, 2010,
a grandfathered health plan has a copayment
of $10 per office visit for primary care
providers. The plan is subsequently amended
to increase the copayment requirement to
$15. Within the 12-month period before the
$15 copayment takes effect, the greatest value
of the overall medical care component of the
CPI–U (unadjusted) is 415.
(ii) Conclusion. In this Example 5, the
increase in the copayment, expressed as a
percentage, is 50% (15¥10 = 5; 5 ÷ 10 = 0.5;
0.5 = 50%). Medical inflation (as defined in
paragraph (g)(3) of this section) from March
2010 is 0.0720 (415.0¥387.142 = 27.858;
27.858 ÷ 387.142 = 0.0720). The increase that
would cause a plan to cease to be a
grandfathered health plan under paragraph
(g)(1)(iv) of this section is the greater of the
maximum percentage increase of 22.20%
(0.0720 = 7.20%; 7.20% + 15% = 22.20), or
$5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 =
$5.36). The $5 increase in copayment in this
Example 5 would not cause the plan to cease
to be a grandfathered health plan pursuant to
paragraph (g)(1)(iv) of this section, which
would permit an increase in the copayment
of up to $5.36.
Example 6. (i) Facts. The same facts as
Example 5, except on March 23, 2010, the
grandfathered health plan has no copayment
($0) for office visits for primary care
providers. The plan is subsequently amended
to increase the copayment requirement to $5.
(ii) Conclusion. In this Example 6, medical
inflation (as defined in paragraph (g)(3)(i) of
this section) from March 2010 is 0.0720
(415.0¥387.142 = 27.858; 27.858 ÷ 387.142
= 0.0720). The increase that would cause a
plan to cease to be a grandfathered health
plan under paragraph (g)(1)(iv)(A) of this
section is $5.36 ($5 x 0.0720 = $0.36; $0.36
+ $5 = $5.36). The $5 increase in copayment
in this Example 6 is less than the amount
calculated pursuant to paragraph (g)(1)(iv)(A)
of this section of $5.36. Thus, the $5 increase
in copayment does not cause the plan to
cease to be a grandfathered health plan.
Example 7. (i) Facts. On March 23, 2010,
a self-insured group health plan provides two
tiers of coverage—self-only and family. The
employer contributes 80% of the total cost of
coverage for self-only and 60% of the total
cost of coverage for family. Subsequently, the
employer reduces the contribution to 50% for
family coverage, but keeps the same
contribution rate for self-only coverage.
(ii) Conclusion. In this Example 7, the
decrease of 10 percentage points for family
coverage in the contribution rate based on
cost of coverage causes the plan to cease to
be a grandfathered health plan. The fact that
the contribution rate for self-only coverage
remains the same does not change the result.
Example 8. (i) Facts. On March 23, 2010,
a self-insured grandfathered health plan has
a COBRA premium for the 2010 plan year of
$5000 for self-only coverage and $12,000 for
family coverage. The required employee
contribution for the coverage is $1000 for
self-only coverage and $4000 for family
coverage. Thus, the contribution rate based
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on cost of coverage for 2010 is 80% ((5000—
1000)/5000) for self-only coverage and 67%
((12,000–4000)/12,000) for family coverage.
For a subsequent plan year, the COBRA
premium is $6000 for self-only coverage and
$15,000 for family coverage. The employee
contributions for that plan year are $1200 for
self-only coverage and $5000 for family
coverage. Thus, the contribution rate based
on cost of coverage is 80% ((6000–1200)/
6000) for self-only coverage and 67%
((15,000–5000)/15,000) for family coverage.
(ii) Conclusion. In this Example 8, because
there is no change in the contribution rate
based on cost of coverage, the plan retains its
status as a grandfathered health plan. The
result would be the same if all or part of the
employee contribution was made pre-tax
through a cafeteria plan under section 125 of
the Internal Revenue Code.
Example 9. (i) Facts. Before March 23,
2010, Employer W and Individual B enter
into a legally binding employment contract
that promises B lifetime health coverage
upon termination. Prior to termination, B is
covered by W’s self-insured grandfathered
group health plan. B is terminated after
March 23, 2010 and W purchases a new
health insurance policy providing coverage
to B, consistent with the terms of the
employment contract.
(ii) Conclusion. In this Example 9, because
no individual is enrolled in the health
insurance policy on March 23, 2010, it is not
a grandfathered health plan.
3. Section 2590.715–2714 is amended
by revising paragraph (h) to read as
follows:
■
§ 2590.715–2714
at least age 26.
Eligibility of children until
*
*
*
*
*
(h) Applicability date. The provisions
of this section apply for plan years
beginning on or after September 23,
2010. See § 2590.715–1251 of this Part
for determining the application of this
section to grandfathered health plans.
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
45 CFR Chapter I
For the reasons stated in the preamble,
the Department of Health and Human
Services amends 45 CFR part 147 as
follows:
■
PART 147—HEALTH INSURANCE
REFORM REQUIREMENTS FOR THE
GROUP AND INDIVIDUAL HEALTH
INSURANCE MARKETS
1. The authority citation for part 147
continues to read as follows:
■
Authority: Secs. 2701 through 2763, 2791,
and 2792 of the Public Health Service Act (42
USC 300gg through 300gg–63, 300gg–91, and
300gg–92), as amended.
2. Section 147.120 is amended by
revising paragraph (h) to read as
follows:
■
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(h) Applicability date. The provisions
of this section apply for plan years (in
the individual market, policy years)
beginning on or after September 23,
2010. See § 147.140 of this part for
determining the application of this
section to grandfathered health plans.
■ 3. Section 147.140 is added to read as
follows:
§ 147.140 Preservation of right to maintain
existing coverage.
(a) Definition of grandfathered health
plan coverage—(1) In general—(i)
Grandfathered health plan coverage
means coverage provided by a group
health plan, or a group or individual
health insurance issuer, in which an
individual was enrolled on March 23,
2010 (for as long as it maintains that
status under the rules of this section). A
group health plan or group health
insurance coverage does not cease to be
grandfathered health plan coverage
merely because one or more (or even all)
individuals enrolled on March 23, 2010
cease to be covered, provided that the
plan or group health insurance coverage
has continuously covered someone
since March 23, 2010 (not necessarily
the same person, but at all times at least
one person). For purposes of this
section, a plan or health insurance
coverage that provides grandfathered
health plan coverage is referred to as a
grandfathered health plan. The rules of
this section apply separately to each
benefit package made available under a
group health plan or health insurance
coverage.
(ii) Subject to the rules of paragraph
(f) of this section for collectively
bargained plans, if an employer or
employee organization enters into a new
policy, certificate, or contract of
insurance after March 23, 2010
(because, for example, any previous
policy, certificate, or contract of
insurance is not being renewed), then
that policy, certificate, or contract of
insurance is not a grandfathered health
plan with respect to the individuals in
the group health plan.
(2) Disclosure of grandfather status—
(i) To maintain status as a grandfathered
health plan, a plan or health insurance
coverage must include a statement, in
any plan materials provided to a
participant or beneficiary (in the
individual market, primary subscriber)
describing the benefits provided under
the plan or health insurance coverage,
that the plan or coverage believes it is
a grandfathered health plan within the
meaning of section 1251 of the Patient
Protection and Affordable Care Act and
must provide contact information for
questions and complaints.
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(ii) The following model language can be
used to satisfy this disclosure requirement:
This [group health plan or health insurance
issuer] believes this [plan or coverage] is a
‘‘grandfathered health plan’’ under the Patient
Protection and Affordable Care Act (the
Affordable Care Act). As permitted by the
Affordable Care Act, a grandfathered health
plan can preserve certain basic health
coverage that was already in effect when that
law was enacted. Being a grandfathered
health plan means that your [plan or policy]
may not include certain consumer
protections of the Affordable Care Act that
apply to other plans, for example, the
requirement for the provision of preventive
health services without any cost sharing.
However, grandfathered health plans must
comply with certain other consumer
protections in the Affordable Care Act, for
example, the elimination of lifetime limits on
benefits.
Questions regarding which protections
apply and which protections do not apply to
a grandfathered health plan and what might
cause a plan to change from grandfathered
health plan status can be directed to the plan
administrator at [insert contact information].
[For ERISA plans, insert: You may also
contact the Employee Benefits Security
Administration, U.S. Department of Labor at
1–866–444–3272 or www.dol.gov/ebsa/
healthreform. This Web site has a table
summarizing which protections do and do
not apply to grandfathered health plans.] [For
individual market policies and nonfederal
governmental plans, insert: You may also
contact the U.S. Department of Health and
Human Services at www.healthreform.gov.]
(3) Documentation of plan or policy
terms on March 23, 2010. To maintain
status as a grandfathered health plan, a
group health plan, or group or
individual health insurance coverage,
must, for as long as the plan or health
insurance coverage takes the position
that it is a grandfathered health plan—
(i) Maintain records documenting the
terms of the plan or health insurance
coverage in connection with the
coverage in effect on March 23, 2010,
and any other documents necessary to
verify, explain, or clarify its status as a
grandfathered health plan; and
(ii) Make such records available for
examination upon request.
(4) Family members enrolling after
March 23, 2010. With respect to an
individual who is enrolled in a group
health plan or health insurance coverage
on March 23, 2010, grandfathered health
plan coverage includes coverage of
family members of the individual who
enroll after March 23, 2010 in the
grandfathered health plan coverage of
the individual.
(5) Examples. The rules of this
paragraph (a) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
not maintained pursuant to a collective
bargaining agreement provides coverage
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through a group health insurance policy from
Issuer X on March 23, 2010. For the plan year
beginning January 1, 2012, the plan enters
into a new policy with Issuer Z.
(ii) Conclusion. In this Example 1, for the
plan year beginning January 1, 2012, the
group health insurance coverage issued by Z
is not a grandfathered health plan under the
rules of paragraph (a)(1)(ii) of this section
because the policy issued by Z did not
provide coverage on March 23, 2010.
Example 2. (i) Facts. A group health plan
not maintained pursuant to a collective
bargaining agreement offers three benefit
packages on March 23, 2010. Option F is a
self-insured option. Options G and H are
insured options. Beginning July 1, 2013, the
plan replaces the issuer for Option H with a
new issuer.
(ii) Conclusion. In this Example 2, the
coverage under Option H is not
grandfathered health plan coverage as of July
1, 2013, consistent with the rule in paragraph
(a)(1)(ii) of this section. Whether the coverage
under Options F and G is grandfathered
health plan coverage is determined under the
rules of this section, including paragraph (g)
of this section. If the plan enters into a new
policy, certificate, or contract of insurance for
Option G, Option G’s status as a
grandfathered health plan would cease under
paragraph (a)(1)(ii) of this section.
(b) Allowance for new employees to
join current plan—(1) In general.
Subject to paragraph (b)(2) of this
section, a group health plan (including
health insurance coverage provided in
connection with the group health plan)
that provided coverage on March 23,
2010 and has retained its status as a
grandfathered health plan (consistent
with the rules of this section, including
paragraph (g) of this section) is
grandfathered health plan coverage for
new employees (whether newly hired or
newly enrolled) and their families
enrolling in the plan after March 23,
2010.
(2) Anti-abuse rules—(i) Mergers and
acquisitions. If the principal purpose of
a merger, acquisition, or similar
business restructuring is to cover new
individuals under a grandfathered
health plan, the plan ceases to be a
grandfathered health plan.
(ii) Change in plan eligibility. A group
health plan or health insurance coverage
(including a benefit package under a
group health plan) ceases to be a
grandfathered health plan if—
(A) Employees are transferred into the
plan or health insurance coverage (the
transferee plan) from a plan or health
insurance coverage under which the
employees were covered on March 23,
2010 (the transferor plan);
(B) Comparing the terms of the
transferee plan with those of the
transferor plan (as in effect on March 23,
2010) and treating the transferee plan as
if it were an amendment of the
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34567
transferor plan would cause a loss of
grandfather status under the provisions
of paragraph (g)(1) of this section; and
(C) There was no bona fide
employment-based reason to transfer the
employees into the transferee plan. For
this purpose, changing the terms or cost
of coverage is not a bona fide
employment-based reason.
(3) Examples. The rules of this
paragraph (b) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
offers two benefit packages on March 23,
2010, Options F and G. During a subsequent
open enrollment period, some of the
employees enrolled in Option F on March 23,
2010 switch to Option G.
(ii) Conclusion. In this Example 1, the
group health coverage provided under
Option G remains a grandfathered health
plan under the rules of paragraph (b)(1) of
this section because employees previously
enrolled in Option F are allowed to enroll in
Option G as new employees.
Example 2. (i) Facts. Same facts as
Example 1, except that the plan sponsor
eliminates Option F because of its high cost
and transfers employees covered under
Option F to Option G. If instead of
transferring employees from Option F to
Option G, Option F was amended to match
the terms of Option G, then Option F would
cease to be a grandfathered health plan.
(ii) Conclusion. In this Example 2, the plan
did not have a bona fide employment-based
reason to transfer employees from Option F
to Option G. Therefore, Option G ceases to
be a grandfathered health plan with respect
to all employees. (However, any other benefit
package maintained by the plan sponsor is
analyzed separately under the rules of this
section.)
Example 3. (i) Facts. A group health plan
offers two benefit packages on March 23,
2010, Options H and I. On March 23, 2010,
Option H provides coverage only for
employees in one manufacturing plant.
Subsequently, the plant is closed, and some
employees in the closed plant are moved to
another plant. The employer eliminates
Option H and the employees that are moved
are transferred to Option I. If instead of
transferring employees from Option H to
Option I, Option H was amended to match
the terms of Option I, then Option H would
cease to be a grandfathered health plan.
(ii) Conclusion. In this Example 3, the plan
has a bona fide employment-based reason to
transfer employees from Option H to Option
I. Therefore, Option I does not cease to be a
grandfathered health plan.
(c) General grandfathering rule—(1)
Except as provided in paragraphs (d)
and (e) of this section, subtitles A and
C of title I of the Patient Protection and
Affordable Care Act (and the
amendments made by those subtitles,
and the incorporation of those
amendments into ERISA section 715
and Internal Revenue Code section
9815) do not apply to grandfathered
health plan coverage. Accordingly, the
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provisions of PHS Act sections 2701,
2702, 2703, 2705, 2706, 2707, 2709
(relating to coverage for individuals
participating in approved clinical trials,
as added by section 10103 of the Patient
Protection and Affordable Care Act),
2713, 2715A, 2716, 2717, 2719, and
2719A, as added or amended by the
Patient Protection and Affordable Care
Act, do not apply to grandfathered
health plans. In addition, the provisions
of PHS Act section 2704, and PHS Act
section 2711 insofar as it relates to
annual limits, do not apply to
grandfathered health plans that are
individual health insurance coverage.
(2) To the extent not inconsistent with
the rules applicable to a grandfathered
health plan, a grandfathered health plan
must comply with the requirements of
the PHS Act, ERISA, and the Internal
Revenue Code applicable prior to the
changes enacted by the Patient
Protection and Affordable Care Act.
(d) Provisions applicable to all
grandfathered health plans. The
provisions of PHS Act section 2711
insofar as it relates to lifetime limits,
and the provisions of PHS Act sections
2712, 2714, 2715, and 2718, apply to
grandfathered health plans for plan
years (in the individual market, policy
years) beginning on or after September
23, 2010. The provisions of PHS Act
section 2708 apply to grandfathered
health plans for plan years (in the
individual market, policy years)
beginning on or after January 1, 2014.
(e) Applicability of PHS Act sections
2704, 2711, and 2714 to grandfathered
group health plans and group health
insurance coverage—(1) The provisions
of PHS Act section 2704 as it applies
with respect to enrollees who are under
19 years of age, and the provisions of
PHS Act section 2711 insofar as it
relates to annual limits, apply to
grandfathered health plans that are
group health plans (including group
health insurance coverage) for plan
years beginning on or after September
23, 2010. The provisions of PHS Act
section 2704 apply generally to
grandfathered health plans that are
group health plans (including group
health insurance coverage) for plan
years beginning on or after January 1,
2014.
(2) For plan years beginning before
January 1, 2014, the provisions of PHS
Act section 2714 apply in the case of an
adult child with respect to a
grandfathered health plan that is a
group health plan only if the adult child
is not eligible to enroll in an eligible
employer-sponsored health plan (as
defined in section 5000A(f)(2) of the
Internal Revenue Code) other than a
grandfathered health plan of a parent.
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For plan years beginning on or after
January 1, 2014, the provisions of PHS
Act section 2714 apply with respect to
a grandfathered health plan that is a
group health plan without regard to
whether an adult child is eligible to
enroll in any other coverage.
(f) Effect on collectively bargained
plans—(1) In general. In the case of
health insurance coverage maintained
pursuant to one or more collective
bargaining agreements between
employee representatives and one or
more employers that was ratified before
March 23, 2010, the coverage is
grandfathered health plan coverage at
least until the date on which the last of
the collective bargaining agreements
relating to the coverage that was in
effect on March 23, 2010 terminates.
Any coverage amendment made
pursuant to a collective bargaining
agreement relating to the coverage that
amends the coverage solely to conform
to any requirement added by subtitles A
and C of title I of the Patient Protection
and Affordable Care Act (and the
amendments made by those subtitles,
and the incorporation of those
amendments into ERISA section 715
and Internal Revenue Code section
9815) is not treated as a termination of
the collective bargaining agreement.
After the date on which the last of the
collective bargaining agreements
relating to the coverage that was in
effect on March 23, 2010 terminates, the
determination of whether health
insurance coverage maintained pursuant
to a collective bargaining agreement is
grandfathered health plan coverage is
made under the rules of this section
other than this paragraph (f) (comparing
the terms of the health insurance
coverage after the date the last collective
bargaining agreement terminates with
the terms of the health insurance
coverage that were in effect on March
23, 2010) and, for any changes in
insurance coverage after the termination
of the collective bargaining agreement,
under the rules of paragraph (a)(1)(ii) of
this section.
(2) Examples. The rules of this
paragraph (f) are illustrated by the
following examples:
Example 1. (i) Facts. A group health plan
maintained pursuant to a collective
bargaining agreement provides coverage
through a group health insurance policy from
Issuer W on March 23, 2010. The collective
bargaining agreement has not been amended
and will not expire before December 31,
2011. The group health plan enters into a
new group health insurance policy with
Issuer Y for the plan year starting on January
1, 2011.
(ii) Conclusion. In this Example 1, the
group health plan, and the group health
insurance policy provided by Y, remains a
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grandfathered health plan with respect to
existing employees and new employees and
their families because the coverage is
maintained pursuant to a collective
bargaining agreement ratified prior to March
23, 2010 that has not terminated.
Example 2. (i) Facts. Same facts as
Example 1, except the coverage with Y is
renewed under a new collective bargaining
agreement effective January 1, 2012, with the
only changes since March 23, 2010 being
changes that do not cause the plan to cease
to be a grandfathered health plan under the
rules of this section, including paragraph (g)
of this section.
(ii) Conclusion. In this Example 2, the
group health plan remains a grandfathered
health plan pursuant to the rules of this
section. Moreover, the group health
insurance policy provided by Y remains a
grandfathered health plan under the rules of
this section, including paragraph (g) of this
section.
(g) Maintenance of grandfather
status—(1) Changes causing cessation of
grandfather status. Subject to paragraph
(g)(2) of this section, the rules of this
paragraph (g)(1) describe situations in
which a group health plan or health
insurance coverage ceases to be a
grandfathered health plan.
(i) Elimination of benefits. The
elimination of all or substantially all
benefits to diagnose or treat a particular
condition causes a group health plan or
health insurance coverage to cease to be
a grandfathered health plan. For this
purpose, the elimination of benefits for
any necessary element to diagnose or
treat a condition is considered the
elimination of all or substantially all
benefits to diagnose or treat a particular
condition.
(ii) Increase in percentage costsharing requirement. Any increase,
measured from March 23, 2010, in a
percentage cost-sharing requirement
(such as an individual’s coinsurance
requirement) causes a group health plan
or health insurance coverage to cease to
be a grandfathered health plan.
(iii) Increase in a fixed-amount costsharing requirement other than a
copayment. Any increase in a fixedamount cost-sharing requirement other
than a copayment (for example,
deductible or out-of-pocket limit),
determined as of the effective date of the
increase, causes a group health plan or
health insurance coverage to cease to be
a grandfathered health plan, if the total
percentage increase in the cost-sharing
requirement measured from March 23,
2010 exceeds the maximum percentage
increase (as defined in paragraph
(g)(3)(ii) of this section).
(iv) Increase in a fixed-amount
copayment. Any increase in a fixedamount copayment, determined as of
the effective date of the increase, causes
a group health plan or health insurance
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coverage to cease to be a grandfathered
health plan, if the total increase in the
copayment measured from March 23,
2010 exceeds the greater of:
(A) An amount equal to $5 increased
by medical inflation, as defined in
paragraph (g)(3)(i) of this section (that
is, $5 times medical inflation, plus $5),
or
(B) The maximum percentage increase
(as defined in paragraph (g)(3)(ii) of this
section), determined by expressing the
total increase in the copayment as a
percentage.
(v) Decrease in contribution rate by
employers and employee
organizations—(A) Contribution rate
based on cost of coverage. A group
health plan or group health insurance
coverage ceases to be a grandfathered
health plan if the employer or employee
organization decreases its contribution
rate based on cost of coverage (as
defined in paragraph (g)(3)(iii)(A) of this
section) towards the cost of any tier of
coverage for any class of similarly
situated individuals (as described in
section 146.121(d) of this subchapter) by
more than 5 percentage points below the
contribution rate for the coverage period
that includes March 23, 2010.
(B) Contribution rate based on a
formula. A group health plan or group
health insurance coverage ceases to be
a grandfathered health plan if the
employer or employee organization
decreases its contribution rate based on
a formula (as defined in paragraph
(g)(3)(iii)(B) of this section) towards the
cost of any tier of coverage for any class
of similarly situated individuals (as
described in section 146.121(d) of this
subchapter) by more than 5 percent
below the contribution rate for the
coverage period that includes March 23,
2010.
(vi) Changes in annual limits—(A)
Addition of an annual limit. A group
health plan, or group or individual
health insurance coverage, that, on
March 23, 2010, did not impose an
overall annual or lifetime limit on the
dollar value of all benefits ceases to be
a grandfathered health plan if the plan
or health insurance coverage imposes an
overall annual limit on the dollar value
of benefits.
(B) Decrease in limit for a plan or
coverage with only a lifetime limit. A
group health plan, or group or
individual health insurance coverage,
that, on March 23, 2010, imposed an
overall lifetime limit on the dollar value
of all benefits but no overall annual
limit on the dollar value of all benefits
ceases to be a grandfathered health plan
if the plan or health insurance coverage
adopts an overall annual limit at a
dollar value that is lower than the dollar
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19:39 Jun 16, 2010
Jkt 220001
value of the lifetime limit on March 23,
2010.
(C) Decrease in limit for a plan or
coverage with an annual limit. A group
health plan, or group or individual
health insurance coverage, that, on
March 23, 2010, imposed an overall
annual limit on the dollar value of all
benefits ceases to be a grandfathered
health plan if the plan or health
insurance coverage decreases the dollar
value of the annual limit (regardless of
whether the plan or health insurance
coverage also imposed an overall
lifetime limit on March 23, 2010 on the
dollar value of all benefits).
(2) Transitional rules—(i) Changes
made prior to March 23, 2010. If a group
health plan or health insurance issuer
makes the following changes to the
terms of the plan or health insurance
coverage, the changes are considered
part of the terms of the plan or health
insurance coverage on March 23, 2010
even though they were not effective at
that time and such changes do not cause
a plan or health insurance coverage to
cease to be a grandfathered health plan:
(A) Changes effective after March 23,
2010 pursuant to a legally binding
contract entered into on or before March
23, 2010;
(B) Changes effective after March 23,
2010 pursuant to a filing on or before
March 23, 2010 with a State insurance
department; or
(C) Changes effective after March 23,
2010 pursuant to written amendments
to a plan that were adopted on or before
March 23, 2010.
(ii) Changes made after March 23,
2010 and adopted prior to issuance of
regulations. If, after March 23, 2010, a
group health plan or health insurance
issuer makes changes to the terms of the
plan or health insurance coverage and
the changes are adopted prior to June
14, 2010, the changes will not cause the
plan or health insurance coverage to
cease to be a grandfathered health plan
if the changes are revoked or modified
effective as of the first day of the first
plan year (in the individual market,
policy year) beginning on or after
September 23, 2010, and the terms of
the plan or health insurance coverage on
that date, as modified, would not cause
the plan or coverage to cease to be a
grandfathered health plan under the
rules of this section, including
paragraph (g)(1) of this section. For this
purpose, changes will be considered to
have been adopted prior to June 14,
2010 if:
(A) The changes are effective before
that date;
(B) The changes are effective on or
after that date pursuant to a legally
PO 00000
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34569
binding contract entered into before that
date;
(C) The changes are effective on or
after that date pursuant to a filing before
that date with a State insurance
department; or
(D) The changes are effective on or
after that date pursuant to written
amendments to a plan that were
adopted before that date.
(3) Definitions—(i) Medical inflation
defined. For purposes of this paragraph
(g), the term medical inflation means the
increase since March 2010 in the overall
medical care component of the
Consumer Price Index for All Urban
Consumers (CPI–U) (unadjusted)
published by the Department of Labor
using the 1982–1984 base of 100. For
this purpose, the increase in the overall
medical care component is computed by
subtracting 387.142 (the overall medical
care component of the CPI–U
(unadjusted) published by the
Department of Labor for March 2010,
using the 1982–1984 base of 100) from
the index amount for any month in the
12 months before the new change is to
take effect and then dividing that
amount by 387.142.
(ii) Maximum percentage increase
defined. For purposes of this paragraph
(g), the term maximum percentage
increase means medical inflation (as
defined in paragraph (g)(3)(i) of this
section), expressed as a percentage, plus
15 percentage points.
(iii) Contribution rate defined. For
purposes of paragraph (g)(1)(v) of this
section:
(A) Contribution rate based on cost of
coverage. The term contribution rate
based on cost of coverage means the
amount of contributions made by an
employer or employee organization
compared to the total cost of coverage,
expressed as a percentage. The total cost
of coverage is determined in the same
manner as the applicable premium is
calculated under the COBRA
continuation provisions of section 604
of ERISA, section 4980B(f)(4) of the
Internal Revenue Code, and section
2204 of the PHS Act. In the case of a
self-insured plan, contributions by an
employer or employee organization are
equal to the total cost of coverage minus
the employee contributions towards the
total cost of coverage.
(B) Contribution rate based on a
formula. The term contribution rate
based on a formula means, for plans
that, on March 23, 2010, made
contributions based on a formula (such
as hours worked or tons of coal mined),
the formula.
(4) Examples. The rules of this
paragraph (g) are illustrated by the
following examples:
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Example 1. (i) Facts. On March 23, 2010,
a grandfathered health plan has a
coinsurance requirement of 20% for inpatient
surgery. The plan is subsequently amended
to increase the coinsurance requirement to
25%.
(ii) Conclusion. In this Example 1, the
increase in the coinsurance requirement from
20% to 25% causes the plan to cease to be
a grandfathered health plan.
Example 2. (i) Facts. Before March 23,
2010, the terms of a group health plan
provide benefits for a particular mental
health condition, the treatment for which is
a combination of counseling and prescription
drugs. Subsequently, the plan eliminates
benefits for counseling.
(ii) Conclusion. In this Example 2, the plan
ceases to be a grandfathered health plan
because counseling is an element that is
necessary to treat the condition. Thus the
plan is considered to have eliminated
substantially all benefits for the treatment of
the condition.
Example 3. (i) Facts. On March 23, 2010,
a grandfathered health plan has a copayment
requirement of $30 per office visit for
specialists. The plan is subsequently
amended to increase the copayment
requirement to $40. Within the 12-month
period before the $40 copayment takes effect,
the greatest value of the overall medical care
component of the CPI–U (unadjusted) is 475.
(ii) Conclusion. In this Example 3, the
increase in the copayment from $30 to $40,
expressed as a percentage, is 33.33% (40 ¥
30 = 10; 10 ÷ 30 = 0.3333; 0.3333 = 33.33%).
Medical inflation (as defined in paragraph
(g)(3)(i) of this section) from March 2010 is
0.2269 (475 ¥ 387.142 = 87.858; 87.858 ÷
387.142 = 0.2269). The maximum percentage
increase permitted is 37.69% (0.2269 =
22.69%; 22.69% + 15% = 37.69%). Because
33.33% does not exceed 37.69%, the change
in the copayment requirement at that time
does not cause the plan to cease to be a
grandfathered health plan.
Example 4. (i) Facts. Same facts as
Example 3, except the grandfathered health
plan subsequently increases the $40
copayment requirement to $45 for a later
plan year. Within the 12-month period before
the $45 copayment takes effect, the greatest
value of the overall medical care component
of the CPI–U (unadjusted) is 485.
(ii) Conclusion. In this Example 4, the
increase in the copayment from $30 (the
copayment that was in effect on March 23,
2010) to $45, expressed as a percentage, is
50% (45 ¥ 30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%).
Medical inflation (as defined in paragraph
(g)(3)(i) of this section) from March 2010 is
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19:39 Jun 16, 2010
Jkt 220001
0.2527 (485 ¥ 387.142 = 97.858; 97.858 ÷
387.142 = 0.2527). The increase that would
cause a plan to cease to be a grandfathered
health plan under paragraph (g)(1)(iv) of this
section is the greater of the maximum
percentage increase of 40.27% (0.2527 =
25.27%; 25.27% + 15% = 40.27%), or $6.26
($5 × 0.2527 = $1.26; $1.26 + $5 = $6.26).
Because 50% exceeds 40.27% and $15
exceeds $6.26, the change in the copayment
requirement at that time causes the plan to
cease to be a grandfathered health plan.
Example 5. (i) Facts. On March 23, 2010,
a grandfathered health plan has a copayment
of $10 per office visit for primary care
providers. The plan is subsequently amended
to increase the copayment requirement to
$15. Within the 12-month period before the
$15 copayment takes effect, the greatest value
of the overall medical care component of the
CPI–U (unadjusted) is 415.
(ii) Conclusion. In this Example 5, the
increase in the copayment, expressed as a
percentage, is 50% (15 ¥ 10 = 5; 5 ÷ 10 =
0.5; 0.5 = 50%). Medical inflation (as defined
in paragraph (g)(3) of this section) from
March 2010 is 0.0720 (415.0 ¥ 387.142 =
27.858; 27.858 ÷ 387.142 = 0.0720). The
increase that would cause a plan to cease to
be a grandfathered health plan under
paragraph (g)(1)(iv) of this section is the
greater of the maximum percentage increase
of 22.20% (0.0720 = 7.20%; 7.20% + 15% =
22.20), or $5.36 ($5 × 0.0720 = $0.36; $0.36
+ $5 = $5.36). The $5 increase in copayment
in this Example 5 would not cause the plan
to cease to be a grandfathered health plan
pursuant to paragraph (g)(1)(iv) this section,
which would permit an increase in the
copayment of up to $5.36.
Example 6. (i) Facts. The same facts as
Example 5, except on March 23, 2010, the
grandfathered health plan has no copayment
($0) for office visits for primary care
providers. The plan is subsequently amended
to increase the copayment requirement to $5.
(ii) Conclusion. In this Example 6, medical
inflation (as defined in paragraph (g)(3)(i) of
this section) from March 2010 is 0.0720
(415.0 ¥ 387.142 = 27.858; 27.858 ÷ 387.142
= 0.0720). The increase that would cause a
plan to cease to be a grandfathered health
plan under paragraph (g)(1)(iv)(A) of this
section is $5.36 ($5 × 0.0720 = $0.36; $0.36
+ $5 = $5.36). The $5 increase in copayment
in this Example 6 is less than the amount
calculated pursuant to paragraph (g)(1)(iv)(A)
of this section of $5.36. Thus, the $5 increase
in copayment does not cause the plan to
cease to be a grandfathered health plan.
Example 7. (i) Facts. On March 23, 2010,
a self-insured group health plan provides two
PO 00000
Frm 00034
Fmt 4701
Sfmt 9990
tiers of coverage—self-only and family. The
employer contributes 80% of the total cost of
coverage for self-only and 60% of the total
cost of coverage for family. Subsequently, the
employer reduces the contribution to 50% for
family coverage, but keeps the same
contribution rate for self-only coverage.
(ii) Conclusion. In this Example 7, the
decrease of 10 percentage points for family
coverage in the contribution rate based on
cost of coverage causes the plan to cease to
be a grandfathered health plan. The fact that
the contribution rate for self-only coverage
remains the same does not change the result.
Example 8. (i) Facts. On March 23, 2010,
a self-insured grandfathered health plan has
a COBRA premium for the 2010 plan year of
$5000 for self-only coverage and $12,000 for
family coverage. The required employee
contribution for the coverage is $1000 for
self-only coverage and $4000 for family
coverage. Thus, the contribution rate based
on cost of coverage for 2010 is 80% ((5000
¥ 1000)/5000) for self-only coverage and
67% ((12,000 ¥ 4000)/12,000) for family
coverage. For a subsequent plan year, the
COBRA premium is $6000 for self-only
coverage and $15,000 for family coverage.
The employee contributions for that plan
year are $1200 for self-only coverage and
$5000 for family coverage. Thus, the
contribution rate based on cost of coverage is
80% ((6000 ¥ 1200)/6000) for self-only
coverage and 67% ((15,000 ¥ 5000)/15,000)
for family coverage.
(ii) Conclusion. In this Example 8, because
there is no change in the contribution rate
based on cost of coverage, the plan retains its
status as a grandfathered health plan. The
result would be the same if all or part of the
employee contribution was made pre-tax
through a cafeteria plan under section 125 of
the Internal Revenue Code.
Example 9. (i) Facts. Before March 23,
2010, Employer W and Individual B enter
into a legally binding employment contract
that promises B lifetime health coverage
upon termination. Prior to termination, B is
covered by W’s self-insured grandfathered
group health plan. B is terminated after
March 23, 2010 and W purchases a new
health insurance policy providing coverage
to B, consistent with the terms of the
employment contract.
(ii) Conclusion. In this Example 9, because
no individual is enrolled in the health
insurance policy on March 23, 2010, it is not
a grandfathered health plan.
[FR Doc. 2010–14488 Filed 6–14–10; 11:15 am]
BILLING CODE 4830–01–P, 4510–29–P, 4120–01–P
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]]>Agencies
[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Rules and Regulations]
[Pages 34538-34570]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-14488]
[[Page 34537]]
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Part II
Department of the Treasury
Internal Revenue Service
26 CFR Parts 54 and 602
-----------------------------------------------------------------------
Department of Labor
Employee Benefits Security Administration
29 CFR Part 2590
-----------------------------------------------------------------------
Department of Health and Human Services
45 CFR Part 147
-----------------------------------------------------------------------
Group Health Plans and Health Insurance Coverage Relating to Status as
a Grandfathered Health Plan Under the Patient Protection and Affordable
Care Act; Interim Final Rule and Proposed Rule
Federal Register / Vol. 75 , No. 116 / Thursday, June 17, 2010 /
Rules and Regulations
[[Page 34538]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
[TD 9489]
RIN 1545-BJ51
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210-AB42
DEPARTMENT OF HEALTH AND HUMAN SERVICES
[OCIIO-9991-IFC]
45 CFR Part 147
RIN 0991-AB68
Interim Final Rules for Group Health Plans and Health Insurance
Coverage Relating to Status as a Grandfathered Health Plan Under the
Patient Protection and Affordable Care Act
AGENCY: Internal Revenue Service, Department of the Treasury; Employee
Benefits Security Administration, Department of Labor; Office of
Consumer Information and Insurance Oversight, Department of Health and
Human Services.
ACTION: Interim final rules with request for comments.
-----------------------------------------------------------------------
SUMMARY: This document contains interim final regulations implementing
the rules for group health plans and health insurance coverage in the
group and individual markets under provisions of the Patient Protection
and Affordable Care Act regarding status as a grandfathered health
plan.
DATES: Effective date. These interim final regulations are effective on
June 14, 2010, except that the amendments to 26 CFR 54.9815-2714T, 29
CFR 2590.715-2714, and 45 CFR 147.120 are effective July 12, 2010.
Comment date. Comments are due on or before August 16, 2010.
ADDRESSES: Written comments may be submitted to any of the addresses
specified below. Any comment that is submitted to any Department will
be shared with the other Departments. Please do not submit duplicates.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments are posted on the
Internet exactly as received, and can be retrieved by most Internet
search engines. No deletions, modifications, or redactions will be made
to the comments received, as they are public records. Comments may be
submitted anonymously.
Department of Labor. Comments to the Department of Labor,
identified by RIN 1210-AB42, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: E-OHPSCA1251.EBSA@dol.gov.
Mail or Hand Delivery: Office of Health Plan Standards and
Compliance Assistance, Employee Benefits Security Administration, Room
N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, Attention: RIN 1210-AB42.
Comments received by the Department of Labor will be posted without
change to https://www.regulations.gov and https://www.dol.gov/ebsa, and
available for public inspection at the Public Disclosure Room, N-1513,
Employee Benefits Security Administration, 200 Constitution Avenue,
NW., Washington, DC 20210.
Department of Health and Human Services. In commenting, please
refer to file code OCIIO-9991-IFC. Because of staff and resource
limitations, the Departments cannot accept comments by facsimile (FAX)
transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to https://www.regulations.gov. Follow the instructions under
the ``More Search Options'' tab.
2. By regular mail. You may mail written comments to the following
address ONLY: Office of Consumer Information and Insurance Oversight,
Department of Health and Human Services, Attention: OCIIO-9991-IFC,
P.O. Box 8016, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Office of Consumer Information and
Insurance Oversight, Department of Health and Human Services,
Attention: OCIIO-9991-IFC, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses:
a. For delivery in Washington, DC--Office of Consumer Information
and Insurance Oversight, Department of Health and Human Services, Room
445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the OCIIO drop slots located in the main lobby of the building. A
stamp-in clock is available for persons wishing to retain a proof of
filing by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call (410) 786-7195 in advance to schedule your arrival with one
of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. The Departments post all
comments received before the close of the comment period on the
following Web site as soon as possible after they have been received:
https://www.regulations.gov. Follow the search instructions on that Web
site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately
three weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. EST. To
[[Page 34539]]
schedule an appointment to view public comments, phone 1-800-743-3951.
Internal Revenue Service. Comments to the IRS, identified by REG-
118412-10, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: CC:PA:LPD:PR (REG-118412-10), room 5205, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC
20044.
Hand or courier delivery: Monday through Friday between
the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-118412-10),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue,
NW., Washington, DC 20224.
All submissions to the IRS will be open to public inspection and
copying in room 1621, 1111 Constitution Avenue, NW., Washington, DC
from 9 a.m. to 4 p.m.
FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the
Treasury, at (202) 622-6080; Jim Mayhew, Office of Consumer Information
and Insurance Oversight, Department of Health and Human Services, at
(410) 786-1565.
Customer Service Information: Individuals interested in obtaining
information from the Department of Labor concerning employment-based
health coverage laws may call the EBSA Toll-Free Hotline at 1-866-444-
EBSA (3272) or visit the Department of Labor's Web site (https://www.dol.gov/ebsa). In addition, information from HHS on private health
insurance for consumers can be found on the Centers for Medicare &
Medicaid Services (CMS) Web site (https://www.cms.hhs.gov/HealthInsReformforConsume/01_Overview.asp) and information on health
reform can be found at https://www.healthreform.gov.
SUPPLEMENTARY INFORMATION:
I. Background
The Patient Protection and Affordable Care Act (the Affordable Care
Act), Public Law 111-148, was enacted on March 23, 2010; the Health
Care and Education Reconciliation Act (the Reconciliation Act), Public
Law 111-152, was enacted on March 30, 2010. The Affordable Care Act and
the Reconciliation Act reorganize, amend, and add to the provisions in
part A of title XXVII of the Public Health Service Act (PHS Act)
relating to group health plans and health insurance issuers in the
group and individual markets. The term ``group health plan'' includes
both insured and self-insured group health plans.\1\ The Affordable
Care Act adds section 715(a)(1) to the Employee Retirement Income
Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue
Code (the Code) to incorporate the provisions of part A of title XXVII
of the PHS Act into ERISA and the Code, and make them applicable to
group health plans, and health insurance issuers providing health
insurance coverage in connection with group health plans. The PHS Act
sections incorporated by this reference are sections 2701 through 2728.
PHS Act sections 2701 through 2719A are substantially new, though they
incorporate some provisions of prior law. PHS Act sections 2722 through
2728 are sections of prior law renumbered, with some, mostly minor,
changes. Section 1251 of the Affordable Care Act, as modified by
section 10103 of the Affordable Care Act and section 2301 of the
Reconciliation Act, specifies that certain plans or coverage existing
as of the date of enactment (that is, grandfathered health plans) are
only subject to certain provisions.
---------------------------------------------------------------------------
\1\ The term ``group health plan'' is used in title XXVII of the
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is
distinct from the term ``health plan'', as used in other provisions
of title I of the Affordable Care Act. The term ``health plan'' does
not include self-insured group health plans.
---------------------------------------------------------------------------
The Affordable Care Act also adds section 715(a)(2) of ERISA, which
provides that, to the extent that any provision of part 7 of ERISA
conflicts with part A of title XXVII of the PHS Act with respect to
group health plans or group health insurance coverage, the PHS Act
provisions apply. Similarly, the Affordable Care Act adds section
9815(a)(2) of the Code, which provides that, to the extent that any
provision of subchapter B of chapter 100 of the Code conflicts with
part A of title XXVII of the PHS Act with respect to group health plans
or group health insurance coverage, the PHS Act provisions apply.
Therefore, although ERISA section 715(a)(1) and Code section 9815(a)(1)
incorporate by reference new provisions, they do not affect preexisting
sections of ERISA or the Code unless they cannot be read consistently
with an incorporated provision of the PHS Act. For example, ERISA
section 732(a) generally provides that part 7 of ERISA--and Code
section 9831(a) generally provides that chapter 100 of the Code--does
not apply to plans with less than two participants who are current
employees (including retiree-only plans that cover less than two
participants who are current employees). Prior to enactment of the
Affordable Care Act, the PHS Act had a parallel provision at section
2721(a). After the Affordable Care Act amended, reorganized, and
renumbered most of title XXVII of the PHS Act, that exception no longer
exists. Similarly, ERISA section 732(b) and (c) generally provides that
the requirements of part 7 of ERISA--and Code section 9831(b) and (c)
generally provides that the requirements of chapter 100 of the Code--do
not apply to excepted benefits.\2\ Prior to enactment of the Affordable
Care Act, the PHS Act had a parallel section 2721(c) and (d) that
indicated that the provisions of subparts 1 through 3 of part A of
title XXVII of the PHS Act did not apply to excepted benefits. After
the Affordable Care Act amended and renumbered PHS Act section 2721(c)
and (d) as section 2722(b) and (c), that exception could be read to be
narrowed so that it applies only with respect to subpart 2 of part A of
title XXVII of the PHS Act, thus, in effect requiring excepted benefits
to comply with subparts I and II of part A.
---------------------------------------------------------------------------
\2\ Excepted benefits generally include dental-only and vision-
only plans, most health flexible spending arrangements, Medigap
policies, and accidental death and dismemberment coverage. For more
information on excepted benefits, see 26 CFR 54.9831-1, 29 CFR
2590.732, 45 CFR 146.145, and 45 CFR 148.220.
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The absence of an express provision in part A of title XXVII of the
PHS Act does not create a conflict with the relevant requirements of
ERISA and the Code. Accordingly, the exceptions of ERISA section 732
and Code section 9831 for very small plans and certain retiree-only
health plans, and for excepted benefits, remain in effect and, thus,
ERISA section 715 and Code section 9815, as added by the Affordable
Care Act, do not apply to such plans or excepted benefits.
Moreover, there is no express indication in the legislative history
of an intent to treat issuers of group health insurance coverage or
nonfederal governmental plans (that are subject to the PHS Act) any
differently in this respect from plans subject to ERISA and the Code.
The Departments of Health and Human Services, Labor, and the Treasury
(the Departments) operate under a Memorandum of Understanding (MOU) \3\
that implements section 104 of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), enacted on August 21, 1996, and
subsequent amendments, and provides that requirements over which two or
more Secretaries have responsibility (``shared provisions'') must be
administered so as to have the same effect at all times. HIPAA section
104
[[Page 34540]]
also requires the coordination of policies relating to enforcing the
shared provisions in order to avoid duplication of enforcement efforts
and to assign priorities in enforcement.
---------------------------------------------------------------------------
\3\ See 64 FR 70164 (December 15, 1999).
---------------------------------------------------------------------------
There is no express statement of intent that nonfederal
governmental retiree-only plans should be treated differently from
private sector plans or that excepted benefits offered by nonfederal
governmental plans should be treated differently from excepted benefits
offered by private sector plans. Because treating nonfederal
governmental retiree-only plans and excepted benefits provided by
nonfederal governmental plans differently would create confusion with
respect to the obligations of issuers that do not distinguish whether a
group health plan is subject to ERISA or the PHS Act, and in light of
the MOU, the Department of Health and Human Services (HHS) does not
intend to use its resources to enforce the requirements of HIPAA or the
Affordable Care Act with respect to nonfederal governmental retiree-
only plans or with respect to excepted benefits provided by nonfederal
governmental plans.
PHS Act section 2723(a)(2) (formerly section 2722(a)(2)) gives the
States primary authority to enforce the PHS Act group and individual
market provisions over group and individual health insurance issuers.
HHS enforces these provisions with respect to issuers only if it
determines that the State has ``failed to substantially enforce'' one
of the Federal provisions. Furthermore, the PHS Act preemption
provisions allow States to impose requirements on issuers in the group
and individual markets that are more protective than the Federal
provisions. However, HHS is encouraging States not to apply the
provisions of title XXVII of the PHS Act to issuers of retiree-only
plans or of excepted benefits. HHS advises States that if they do not
apply these provisions to the issuers of retiree-only plans or of
excepted benefits, HHS will not cite a State for failing to
substantially enforce the provisions of part A of title XXVII of the
PHS Act in these situations.
Subtitles A and C of title I of the Affordable Care Act amend the
requirements of title XXVII of the PHS Act (changes to which are
incorporated into ERISA section 715). The preemption provisions of
ERISA section 731 and PHS Act section 2724 \4\ (implemented in 29 CFR
2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements of
part 7 of ERISA and title XXVII of PHS Act, as amended by the
Affordable Care Act, are not to be ``construed to supersede any
provision of State law which establishes, implements, or continues in
effect any standard or requirement solely relating to health insurance
issuers in connection with group or individual health insurance
coverage except to the extent that such standard or requirement
prevents the application of a requirement'' of the Affordable Care Act.
Accordingly, State laws that impose on health insurance issuers
requirements that are stricter than the requirements imposed by the
Affordable Care Act will not be superseded by the Affordable Care Act.
---------------------------------------------------------------------------
\4\ Code section 9815 incorporates the preemption provisions of
PHS Act section 2724. Prior to the Affordable Care Act, there were
no express preemption provisions in chapter 100 of the Code.
---------------------------------------------------------------------------
The Departments are issuing regulations implementing the revised
PHS Act sections 2701 through 2719A in several phases. The first
publication in this series was a Request for Information relating to
the medical loss ratio provisions of PHS Act section 2718, published in
the Federal Register on April 14, 2010 (75 FR 19297). The second
publication was interim final regulations implementing PHS Act section
2714 (requiring dependent coverage of children to age 26), published in
the Federal Register on May 13, 2010 (75 FR 27122). This document
contains interim final regulations implementing section 1251 of the
Affordable Care Act (relating to grandfathered health plans), as well
as adding a cross-reference to these interim final regulations in the
regulations implementing PHS Act section 2714. The implementation of
other provisions in PHS Act sections 2701 through 2719A will be
addressed in future regulations.
II. Overview of the Regulations: Section 1251 of the Affordable Care
Act, Preservation of Right To Maintain Existing Coverage (26 CFR
54.9815-1251T, 29 CFR 2590.715-1251, and 45 CFR 147.140)
A. Introduction
Section 1251 of the Affordable Care Act, as modified by section
10103 of the Affordable Care Act and section 2301 of the Reconciliation
Act, provides that certain group health plans and health insurance
coverage existing as of March 23, 2010 (the date of enactment of the
Affordable Care Act), are subject only to certain provisions of the
Affordable Care Act. The statute and these interim final regulations
refer to these plans and health insurance coverage as grandfathered
health plans.
The Affordable Care Act balances the objective of preserving the
ability of individuals to maintain their existing coverage with the
goals of ensuring access to affordable essential coverage and improving
the quality of coverage. Section 1251 provides that nothing in the
Affordable Care Act requires an individual to terminate the coverage in
which the individual was enrolled on March 23, 2010. It also generally
provides that, with respect to group health plans or health insurance
coverage in which an individual was enrolled on March 23, 2010, various
requirements of the Act shall not apply to such plan or coverage,
regardless of whether the individual renews such coverage after March
23, 2010. However, to ensure access to coverage with certain
particularly significant protections, Congress required grandfathered
health plans to comply with a subset of the Affordable Care Act's
health reform provisions. Thus, for example, grandfathered health plans
must comply with the prohibition on rescissions of coverage except in
the case of fraud or intentional misrepresentation and the elimination
of lifetime limits (both of which apply for plan years, or in the
individual market, policy years, beginning on or after September 23,
2010). On the other hand, grandfathered health plans are not required
to comply with certain other requirements of the Affordable Care Act;
for example, the requirement that preventive health services be covered
without any cost sharing (which otherwise becomes generally applicable
for plan years, or in the individual market, policy years, beginning on
or after September 23, 2010).
A number of additional reforms apply for plan years (in the
individual market, policy years) beginning on or after January 1, 2014.
As with the requirements effective for plan years (in the individual
market, policy years) beginning on or after September 23, 2010,
grandfathered health plans must then comply with some, but not all of
these reforms. See Table 1 in section II.D of this preamble for a list
of various requirements that apply to grandfathered health plans.
In making grandfathered health plans subject to some but not all of
the health reforms contained in the Affordable Care Act, the statute
balances its objective of preserving the ability to maintain existing
coverage with the goals of expanding access to and improving the
quality of health coverage. The statute does not, however, address at
what point changes to a group health plan or health insurance coverage
in which an individual was
[[Page 34541]]
enrolled on March 23, 2010 are significant enough to cause the plan or
health insurance coverage to cease to be a grandfathered health plan,
leaving that question to be addressed by regulatory guidance.
These interim final regulations are designed to ease the transition
of the healthcare industry into the reforms established by the
Affordable Care Act by allowing for gradual implementation of reforms
through a reasonable grandfathering rule. A more detailed description
of the basis for these interim final regulations and other regulatory
alternatives considered is included in section IV.B later in this
preamble.
B. Definition of Grandfathered Health Plan Coverage in Paragraph (a) of
26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45 CFR 147.140 of These
Interim Final Regulations
Under the statute and these interim final regulations, a group
health plan or group or individual health insurance coverage is a
grandfathered health plan with respect to individuals enrolled on March
23, 2010. Paragraph (a)(1) of 26 CFR 54.9815-1251T, 29 CFR 2590.715-
1251, and 45 CFR 147.140 of these interim final regulations provides
that a group health plan or group health insurance coverage does not
cease to be grandfathered health plan coverage merely because one or
more (or even all) individuals enrolled on March 23, 2010 cease to be
covered, provided that the plan or group health insurance coverage has
continuously covered someone since March 23, 2010 (not necessarily the
same person, but at all times at least one person). The determination
under the rules of these interim final regulations is made separately
with respect to each benefit package made available under a group
health plan or health insurance coverage.
Moreover, these interim final regulations provide that, subject to
the rules of paragraph (f) of 26 CFR 54.9815-1251T, 29 CFR 2590.715-
1251, and 45 CFR 147.140 for collectively bargained plans, if an
employer or employee organization enters into a new policy,
certificate, or contract of insurance after March 23, 2010 (because,
for example, any previous policy, certificate, or contract of insurance
is not being renewed), then that policy, certificate, or contract of
insurance is not a grandfathered health plan with respect to the
individuals in the group health plan. Any policies sold in the group
and individual health insurance markets to new entities or individuals
after March 23, 2010 will not be grandfathered health plans even if the
health insurance products sold to those subscribers were offered in the
group or individual market before March 23, 2010.
To maintain status as a grandfathered health plan, a plan or health
insurance coverage (1) must include a statement, in any plan materials
provided to participants or beneficiaries (in the individual market,
primary subscribers) describing the benefits provided under the plan or
health insurance coverage, that the plan or health insurance coverage
believes that it is a grandfathered health plan within the meaning of
section 1251 of the Affordable Care Act and (2) must provide contact
information for questions and complaints.
Model language is provided in these interim final regulations that
can be used to satisfy this disclosure requirement. Comments are
invited on possible improvements to the model language of grandfathered
health plan status. Some have suggested, for example, that each
grandfathered health plan be required to list and describe the various
consumer protections that do not apply to the plan or health insurance
coverage because it is grandfathered, together with their effective
dates. The Departments intend to consider any comments regarding
possible improvements to the model language in the near term; any
changes to the model language that may result from such comments could
be published in additional administrative guidance other than in the
form of regulations.
Similarly, under these interim final regulations, to maintain
status as a grandfathered health plan, a plan or issuer must also
maintain records documenting the terms of the plan or health insurance
coverage that were in effect on March 23, 2010, and any other documents
necessary to verify, explain, or clarify its status as a grandfathered
health plan. Such documents could include intervening and current plan
documents, health insurance policies, certificates or contracts of
insurance, summary plan descriptions, documentation of premiums or the
cost of coverage, and documentation of required employee contribution
rates. In addition, the plan or issuer must make such records available
for examination. Accordingly, a participant, beneficiary, individual
policy subscriber, or State or Federal agency official would be able to
inspect such documents to verify the status of the plan or health
insurance coverage as a grandfathered health plan. The plan or issuer
must maintain such records and make them available for examination for
as long as the plan or issuer takes the position that the plan or
health insurance coverage is a grandfathered health plan.
Under the statute and these interim final regulations, if family
members of an individual who is enrolled in a grandfathered health plan
as of March 23, 2010 enroll in the plan after March 23, 2010, the plan
or health insurance coverage is also a grandfathered health plan with
respect to the family members.
C. Adding New Employees in Paragraph (b) of 26 CFR 54.9815-1251T, 29
CFR 2590.715-1251, and 45 CFR 147.140 of These Interim Final
Regulations
These interim final regulations at 26 CFR 54.9815-1251T, 29 CFR
2590.715-1251, and 45 CFR 147.140 provide that a group health plan that
provided coverage on March 23, 2010 generally is also a grandfathered
health plan with respect to new employees (whether newly hired or newly
enrolled) and their families who enroll in the grandfathered health
plan after March 23, 2010. These interim final regulations clarify that
in such cases, any health insurance coverage provided under the group
health plan in which an individual was enrolled on March 23, 2010 is
also a grandfathered health plan. To prevent abuse, these interim final
regulations provide that if the principal purpose of a merger,
acquisition, or similar business restructuring is to cover new
individuals under a grandfathered health plan, the plan ceases to be a
grandfathered health plan. The goal of this rule is to prevent
grandfather status from being bought and sold as a commodity in
commercial transactions. These interim final regulations also contain a
second anti-abuse rule designed to prevent a plan or issuer from
circumventing the limits on changes that cause a plan or health
insurance coverage to cease to be a grandfathered health plan under
paragraph (g) (described more fully in section II.F of this preamble).
This rule in paragraph (b)(2)(ii) addresses a situation under which
employees who previously were covered by a grandfathered health plan
are transferred to another grandfathered health plan. This rule is
intended to prevent efforts to retain grandfather status by indirectly
making changes that would result in loss of that status if those
changes were made directly.
[[Page 34542]]
D. Applicability of Part A of Title XXVII of the PHS Act to
Grandfathered Health Plans Paragraphs (c), (d), and (e) of 26 CFR
54.9815-1251T, 29 CFR 2590.715-1251, and 45 CFR 147.140 of These
Interim Final Regulations
A grandfathered health plan generally is not subject to subtitles A
and C of title I of the Affordable Care Act, except as specifically
provided by the statute and these interim final regulations. The
statute and these interim final regulations provide that some
provisions of subtitles A and C of title I of the Affordable Care Act
continue to apply to all grandfathered health plans and some provisions
continue to apply only to grandfathered health plans that are group
health plans. These interim final regulations clarify that a
grandfathered health plan must continue to comply with the requirements
of the PHS Act, ERISA, and the Code that were applicable prior to the
changes enacted by the Affordable Care Act, except to the extent
supplanted by changes made by the Affordable Care Act. Therefore, the
HIPAA portability and nondiscrimination requirements and the Genetic
Information Nondiscrimination Act requirements applicable prior to the
effective date of the Affordable Care Act continue to apply to
grandfathered health plans. In addition, the mental health parity
provisions, the Newborns' and Mothers' Health Protection Act
provisions, the Women's Health and Cancer Rights Act, and Michelle's
Law continue to apply to grandfathered health plans. The following
table lists the new health coverage reforms in part A of title XXVII of
the PHS Act (as amended by the Affordable Care Act) that apply to
grandfathered health plans:
Table 1--List of the New Health Reform Provisions of Part A of Title
XXVII of the PHS Act That Apply to Grandfathered Health Plans
------------------------------------------------------------------------
Application to grandfathered
PHS Act statutory provisions health plans
------------------------------------------------------------------------
Sec. 2704 Prohibition of preexisting Applicable to grandfathered
condition exclusion or other group health plans and group
discrimination based on health status. health insurance coverage.
Not applicable to grandfathered
individual health insurance
coverage.
Sec. 2708 Prohibition on excessive Applicable.
waiting periods.
Sec. 2711 No lifetime or annual Lifetime limits: Applicable.
limits.
Annual limits: Applicable to
grandfathered group health
plans and group health
insurance coverage; not
applicable to grandfathered
individual health insurance
coverage.
Sec. 2712 Prohibition on rescissions. Applicable.
Sec. 2714 Extension of dependent Applicable \5\.
coverage until age 26.
Sec. 2715 Development and utilization Applicable.
of uniform explanation of coverage
documents and standardized definitions.
Sec. 2718 Bringing down cost of Applicable to insured
health care coverage (for insured grandfathered health plans.
coverage).
------------------------------------------------------------------------
\5\ For a group health plan or group health insurance coverage that is a
grandfathered health plan for plan years beginning before January 1,
2014, PHS Act section 2714 is applicable in the case of an adult child
only if the adult child is not eligible for other employer-sponsored
health plan coverage. The interim final regulations relating to PHS
Act section 2714, published in 75 FR 27122 (May 13, 2010), and these
interim final regulations clarify that, in the case of an adult child
who is eligible for coverage under the employer-sponsored plans of
both parents, neither parent's plan may exclude the adult child from
coverage based on the fact that the adult child is eligible to enroll
in the other parent's employer-sponsored plan.
E. Health Insurance Coverage Maintained Pursuant to a Collective
Bargaining Agreement of Paragraph (f) of 26 CFR 54.9815-1251T, 29 CFR
2590.715-1251, and 45 CFR 147.140 of These Interim Final Regulations
In paragraph (f) of 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and
45 CFR 147.140, these interim final regulations provide that in the
case of health insurance coverage maintained pursuant to one or more
collective bargaining agreements ratified before March 23, 2010, the
coverage is a grandfathered health plan at least until the date on
which the last agreement relating to the coverage that was in effect on
March 23, 2010 terminates. Thus, before the last of the applicable
collective bargaining agreement terminates, any health insurance
coverage provided pursuant to the collective bargaining agreements is a
grandfathered health plan, even if there is a change in issuers (or any
other change described in paragraph (g)(1) of 26 CFR 54.9815-1251T, 29
CFR 2590.715-1251, and 45 CFR 147.140 of these interim final
regulations) during the period of the agreement. The statutory language
of the provision refers solely to ``health insurance coverage'' and
does not refer to a group health plan; therefore, these interim final
regulations apply this provision only to insured plans maintained
pursuant to a collective bargaining agreement and not to self-insured
plans. After the date on which the last of the collective bargaining
agreements terminates, the determination of whether health insurance
coverage maintained pursuant to a collective bargaining agreement is
grandfathered health plan coverage is made under the rules of paragraph
(g). This determination is made by comparing the terms of the coverage
on the date of determination with the terms of the coverage that were
in effect on March 23, 2010. A change in issuers during the period of
the agreement, by itself, would not cause the plan to cease to be a
grandfathered health plan at the termination of the agreement. However,
for a change in issuers after the termination of the agreement, the
rules of paragraph (a)(1)(ii) of 26 CFR 54.9815-1251T, 29 CFR 2590.715-
1251, and 45 CFR 147.140 of these interim final regulations apply.
Similar language to section 1251(d) in related bills that were not
enacted would have provided a delayed effective date for collectively
bargained plans with respect to the Affordable Care Act requirements.
Questions have arisen as to whether section 1251(d) as enacted in the
Affordable Care Act similarly operated to delay the application of the
Affordable Care Act's requirements to collectively bargained plans--
specifically, whether the provision of section 1251(d) that exempts
collectively bargained plans from requirements for the duration of the
agreement effectively provides the plans with a delayed effective date
with respect to all new PHS Act requirements (in contrast to the rules
for
[[Page 34543]]
grandfathered health plans which provide that specified PHS Act
provisions apply to all plans, including grandfathered health plans).
However, the statutory language that applies only to collectively
bargained plans, as signed into law as part of the Affordable Care Act,
provides that insured collectively bargained plans in which individuals
were enrolled on the date of enactment are included in the definition
of a grandfathered health plan. Therefore, collectively bargained plans
(both insured and self-insured) that are grandfathered health plans are
subject to the same requirements as other grandfathered health plans,
and are not provided with a delayed effective date for PHS Act
provisions with which other grandfathered health plans must comply.
Thus, the provisions that apply to grandfathered health plans apply to
collectively bargained plans before and after termination of the last
of the applicable collective bargaining agreement.
F. Maintenance of Grandfather Status of Paragraph (g) of 26 CFR
54.9815-1251T, 29 CFR 2590.715-1251, and 45 CFR 147.140 of These
Interim Final Regulations)
Questions have arisen regarding the extent to which changes can be
made to a plan or health insurance coverage and still have the plan or
coverage considered the same as that in existence on March 23, 2010, so
as to maintain status as a grandfathered health plan. Some have
suggested that any change would cause a plan or health insurance
coverage to be considered different and thus cease to be a
grandfathered health plan. Others have suggested that any degree of
change, no matter how large, is irrelevant provided the plan or health
insurance coverage can trace some continuous legal relationship to the
plan or health insurance coverage that was in existence on March 23,
2010.
In paragraph (g)(1) of 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251,
and 45 CFR 147.140 of these interim final regulations, coordinated
rules are set forth for determining when changes to the terms of a plan
or health insurance coverage cause the plan or coverage to cease to be
a grandfathered health plan. The first of those rules (in paragraph
(g)(1)(i)) constrains the extent to which the scope of benefits can be
reduced. It provides that the elimination of all or substantially all
benefits to diagnose or treat a particular condition causes a plan or
health insurance coverage to cease to be a grandfathered health plan.
If, for example, a plan eliminates all benefits for cystic fibrosis,
the plan ceases to be a grandfathered health plan (even though this
condition may affect relatively few individuals covered under the
plan). Moreover, for purposes of paragraph (g)(1)(i), the elimination
of benefits for any necessary element to diagnose or treat a condition
is considered the elimination of all or substantially all benefits to
diagnose or treat a particular condition. An example in these interim
final regulations illustrates that if a plan provides benefits for a
particular mental health condition, the treatment for which is a
combination of counseling and prescription drugs, and subsequently
eliminates benefits for counseling, the plan is treated as having
eliminated all or substantially all benefits for that mental health
condition.
A second set of rules (in paragraphs (g)(1)(ii) through (g)(1)(iv))
limits the extent to which plans and issuers can increase the fixed-
amount and the percentage cost-sharing requirements that are imposed
with respect to individuals for covered items and services. Plans and
issuers can choose to make larger increases to fixed-amount or
percentage cost-sharing requirements than permissible under these
interim final regulations, but at that point the individual's plan or
health insurance coverage would cease to be grandfathered health plan
coverage. A more detailed description of the basis for the cost-sharing
requirements in these interim final regulations is included in section
IV.B later in this preamble.
These interim final regulations provide different standards with
respect to coinsurance and fixed-amount cost sharing. Coinsurance
automatically rises with medical inflation. Therefore, changes to the
level of coinsurance (such as moving from a requirement that the
patient pay 20 percent to a requirement that the patient pay 30 percent
of inpatient surgery costs) would significantly alter the level of
benefits provided. On the other hand, fixed-amount cost-sharing
requirements (such as copayments and deductibles) do not take into
account medical inflation. Therefore, changes to fixed-amount cost-
sharing requirements (for example, moving from a $35 copayment to a $40
copayment for outpatient doctor visits) may be reasonable to keep up
with the rising cost of medical items and services. Accordingly,
paragraph (g)(1)(ii) provides that any increase in a percentage cost-
sharing requirement (such as coinsurance) causes a plan or health
insurance coverage to cease to be a grandfathered health plan.
With respect to fixed-amount cost-sharing requirements, paragraph
(g)(1)(iii) provides two rules: a rule for cost-sharing requirements
other than copayments and a rule for copayments. Fixed-amount cost-
sharing requirements include, for example, a $500 deductible, a $30
copayment, or a $2,500 out-of-pocket limit. With respect to fixed-
amount cost-sharing requirements other than copayments, a plan or
health insurance coverage ceases to be a grandfathered health plan if
there is an increase, since March 23, 2010, in a fixed-amount cost-
sharing requirement that is greater than the maximum percentage
increase. The maximum percentage increase is defined as medical
inflation (from March 23, 2010) plus 15 percentage points. For this
purpose, medical inflation is defined in these interim final
regulations by reference to the overall medical care component of the
Consumer Price Index for All Urban Consumers, unadjusted (CPI),
published by the Department of Labor. For fixed-amount copayments, a
plan or health insurance coverage ceases to be a grandfathered health
plan if there is an increase since March 23, 2010 in the copayment that
exceeds the greater of (A) the maximum percentage increase or (B) five
dollars increased by medical inflation. A more detailed description of
the basis for these rules relating to cost-sharing requirements is
included in section IV.B later in this preamble.
With respect to employer contributions, these interim final
regulations include a standard for changes that would result in
cessation of grandfather status. Specifically, paragraph (g)(1)(v)
limits the ability of an employer or employee organization to decrease
its contribution rate for coverage under a group health plan or group
health insurance coverage. Two different situations are addressed.
First, if the contribution rate is based on the cost of coverage, a
group health plan or group health insurance coverage ceases to be a
grandfathered health plan if the employer or employee organization
decreases its contribution rate towards the cost of any tier of
coverage for any class of similarly situated individuals \6\ by more
than 5 percentage points below the contribution rate on March 23, 2010.
For this purpose, contribution rate is defined as the amount of
contributions made by an employer or employee organization compared to
the total cost of coverage, expressed as a percentage. These interim
final regulations provide that total cost of coverage is determined in
the same manner as the applicable
[[Page 34544]]
premium is calculated under the COBRA continuation provisions of
section 604 of ERISA, section 4980B(f)(4) of the Code, and section 2204
of the PHS Act. In the case of a self-insured plan, contributions by an
employer or employee organization are calculated by subtracting the
employee contributions towards the total cost of coverage from the
total cost of coverage. Second, if the contribution rate is based on a
formula, such as hours worked or tons of coal mined, a group health
plan or group health insurance coverage ceases to be a grandfathered
health plan if the employer or employee organization decreases its
contribution rate towards the cost of any tier of coverage for any
class of similarly situated individuals by more than 5 percent below
the contribution rate on March 23, 2010.
---------------------------------------------------------------------------
\6\ Similarly situated individuals are described in the HIPAA
nondiscrimination regulations at 26 CFR 54.9802-1(d), 29 CFR
2590.702(d), and 45 CFR 146.121(d).
---------------------------------------------------------------------------
Finally, paragraph (g)(1)(vi) addresses the imposition of a new or
modified annual limit by a plan, or group or individual health
insurance coverage.\7\ Three different situations are addressed:
---------------------------------------------------------------------------
\7\ Independent of these rules regarding the impact on
grandfather status of newly adopted or reduced annual limits, group
health plans and group or individual health insurance coverage
(other than individual health insurance policies that are
grandfathered health plans) are required to comply with PHS Act
section 2711, which permits restricted annual limits (as defined in
regulations) until 2014. The Departments expect to publish
regulations regarding restricted annual limits in the very near
future.
---------------------------------------------------------------------------
A plan or health insurance coverage that, on March 23,
2010, did not impose an overall annual or lifetime limit on the dollar
value of all benefits ceases to be a grandfathered health plan if the
plan or health insurance coverage imposes an overall annual limit on
the dollar value of benefits.
A plan or health insurance coverage, that, on March 23,
2010, imposed an overall lifetime limit on the dollar value of all
benefits but no overall annual limit on the dollar value of all
benefits ceases to be a grandfathered health plan if the plan or health
insurance coverage adopts an overall annual limit at a dollar value
that is lower than the dollar value of the lifetime limit on March 23,
2010.
A plan or health insurance coverage that, on March 23,
2010, imposed an overall annual limit on the dollar value of all
benefits ceases to be a grandfathered health plan if the plan or health
insurance coverage decreases the dollar value of the annual limit
(regardless of whether the plan or health insurance coverage also
imposed an overall lifetime limit on March 23, 2010 on the dollar value
of all benefits).
Under these interim final regulations, changes other than the
changes described in 26 CFR 54.9815-1251T(g)(1), 29 CFR 2590.715-
1251(g)(1), and 45 CFR 147.140(g)(1) will not cause a plan or coverage
to cease to be a grandfathered health plan. Examples include changes to
premiums, changes to comply with Federal or State legal requirements,
changes to voluntarily comply with provisions of the Affordable Care
Act, and changing third party administrators, provided these changes
are made without exceeding the standards established by paragraph
(g)(1).
These interim final regulations provide transitional rules for
plans and issuers that made changes after the enactment of the
Affordable Care Act pursuant to a legally binding contract entered into
prior to enactment, made changes to the terms of health insurance
coverage pursuant to a filing before March 23, 2010 with a State
insurance department, or made changes pursuant to written amendments to
a plan that were adopted prior to March 23, 2010. If a plan or issuer
makes changes in any of these situations, the changes are effectively
considered part of the plan terms on March 23, 2010 even though they
are not then effective. Therefore, such changes are not taken into
account in considering whether the plan or health insurance coverage
remains a grandfathered health plan.
Because status as a grandfathered health plan under section 1251 of
the Affordable Care Act is determined in relation to coverage on March
23, 2010, the date of enactment of the Affordable Care Act, the
Departments considered whether they should provide a good-faith
compliance period from Departmental enforcement until guidance
regarding the standards for maintaining grandfather status was made
available to the public. Group health plans and health insurance
issuers often make routine changes from year to year, and some plans
and issuers may have needed to implement such changes prior to the
issuance of these interim final regulations.
Accordingly, for purposes of enforcement, the Departments will take
into account good-faith efforts to comply with a reasonable
interpretation of the statutory requirements and may disregard changes
to plan and policy terms that only modestly exceed those changes
described in paragraph (g)(1) of 26 CFR 54.9815-1251T, 29 CFR 2590.715-
1251, and 45 CFR 147.140 and that are adopted before June 14, 2010, the
date the regulations were made publicly available.
In addition, these interim final regulations provide employers and
issuers with a grace period within which to revoke or modify any
changes adopted prior to June 14, 2010, where the changes might
otherwise cause the plan or health insurance coverage to cease to be a
grandfathered health plan. Under this rule, grandfather status is
preserved if the changes are revoked, and the plan or health insurance
coverage is modified, effective as of the first day of the first plan
or policy year beginning on or after September 23, 2010 to bring the
terms within the limits for retaining grandfather status in these
interim final regulations. For this purpose, and for purposes of the
reasonable good faith standard changes will be considered to have been
adopted before these interim final regulations are publicly available
if the changes are effective before that date, the changes are
effective on or after that date pursuant to a legally binding contract
entered into before that date, the changes are effective on or after
that date pursuant to a filing before that date with a State insurance
department, or the changes are effective on or after that date pursuant
to written amendments to a plan that were adopted before that date.
While the Departments have determined that the changes identified
in paragraph (g)(1) of these interim final regulations would cause a
group health plan or health insurance coverage to cease to be a
grandfathered health plan, the Departments invite comments from the
public on whether this list of changes is appropriate and what other
changes, if any, should be added to this list. Specifically, the
Departments invite comments on whether the following changes should
result in cessation of grandfathered health plan status for a plan or
health insurance coverage: (1) Changes to plan structure (such as
switching from a health reimbursement arrangement to major medical
coverage or from an insured product to a self-insured product); (2)
changes in a network plan's provider network, and if so, what magnitude
of changes would have to be made; (3) changes to a prescription drug
formulary, and if so, what magnitude of changes would have to be made;
or (4) any other substantial change to the overall benefit design. In
addition, the Departments invite comments on the specific standards
included in these interim final regulations on benefits, cost sharing,
and employer contributions. The Departments specifically invite
comments on whether these standards should be drawn differently in
light of the fact that changes made by the Affordable Care Act may
alter plan or issuer practices in the next several
[[Page 34545]]
years. Any new standards published in the final regulations that are
more restrictive than these interim final regulations would only apply
prospectively to changes to plans or health insurance coverage after
the publication of the final rules.
Moreover, the Departments may issue, as appropriate, additional
administrative guidance other than in the form of regulations to
clarify or interpret the rules contained in these interim final
regulations for maintaining grandfathered health plan status prior to
the issuance of final regulations. The ability to issue prompt,
clarifying guidance is especially important given the uncertainty as to
how plans or issuers will alter their plans or policies in response to
these rules. This guidance can address unanticipated changes by plans
and issuers to ensure that individuals benefit from the Affordable Care
Act's new health care protections while preserving the ability to
maintain the coverage individuals had on the date of enactment.
III. Interim Final Regulations and Request for Comments
Section 9833 of the Code, section 734 of ERISA, and section 2792 of
the PHS Act authorize the Secretaries of the Treasury, Labor, and HHS
(collectively, the Secretaries) to promulgate any interim final rules
that they determine are appropriate to carry out the provisions of
chapter 100 of the Code, part 7 of subtitle B of title I of ERISA, and
part A of title XXVII of the PHS Act, which include PHS Act sections
2701 through 2728 and the incorporation of those sections into ERISA
section 715 and Code section 9815. The rules set forth in these interim
final regulations govern the applicability of the requirements in these
sections and are therefore appropriate to carry them out. Therefore,
the foregoing interim final rule authority applies to these interim
final regulations.
In addition, under Section 553(b) of the Administrative Procedure
Act (APA) (5 U.S.C. 551 et seq.) a general notice of proposed
rulemaking is not required when an agency, for good cause, finds that
notice and public comment thereon are impracticable, unnecessary, or
contrary to the public interest. The provisions of the APA that
ordinarily require a notice of proposed rulemaking do not apply here
because of the specific authority granted by section 9833 of the Code,
section 734 of ERISA, and section 2792 of the PHS Act. However, even if
the APA were applicable, the Secretaries have determined that it would
be impracticable and contrary to the public interest to delay putting
the provisions in these interim final regulations in place until a full
public notice and comment process was completed. As noted above,
numerous provisions of the Affordable Care Act are applicable for plan
years (in the individual market, policy years) beginning on or after
September 23, 2010, six months after date of enactment. Grandfathered
health plans are exempt from many of these provisions while group
health plans and group and individual health insurance coverage that
are not grandfathered health plans must comply with them. The
determination of whether a plan or health insurance coverage is a
grandfathered health plan therefore could substantially affect the
design of the plan or health insurance coverage.
The six-month period between the enactment of the Affordable Care
Act and the applicability of many of the provisions affected by
grandfather status would not allow sufficient time for the Departments
to draft and publish proposed regulations, receive and consider
comments, and draft and publish final regulations. Moreover,
regulations are needed well in advance of the effective date of the
requirements of the Affordable Care Act. Many group health plans and
health insurance coverage that are not grandfathered health plans must
make significant changes in their provisions to comply with the
requirements of the Affordable Care Act. Moreover, plans and issuers
considering other modifications to their terms need to know whether
those modifications will affect their status as grandfathered health
plans. Accordingly, in order to allow plans and health insurance
coverage to be designed and implemented on a timely basis, regulations
must be published and available to the public well in advance of the
effective date of the requirements of the Affordable Care Act. It is
not possible to have a full notice and comment process and to publish
final regulations in the brief time between enactment of the Affordable
Care Act and the date regulations are needed.
The Secretaries further find that issuance of proposed regulations
would not be sufficient because the provisions of the Affordable Care
Act protect significant rights of plan participants and beneficiaries
and individuals covered by individual health insurance policies and it
is essential that participants, beneficiaries, insureds, plan sponsors,
and issuers have certainty about their rights and responsibilities.
Proposed regulations are not binding and cannot provide the necessary
certainty. By contrast, the interim final regulations provide the
public with an opportunity for comment, but without delaying the
effective date of the regulations.
For the foregoing reasons, the Departments have determined that it
is impracticable and contrary to the public interest to engage in full
notice and comment rulemaking before putting these regulations into
effect, and that it is in the public interest to promulgate interim
final regulations.
IV. Economic Impact and Paperwork Burden
A. Overview--Department of Labor and Department of Health and Human
Services
As stated earlier in this preamble, these interim final regulations
implement section 1251 of the Affordable Care Act, as modified by
section 10103 of the Affordable Care Act and section 2301 of the
Reconciliation Act. Pursuant to section 1251, certain provisions of the
Affordable Care Act do not apply to a group health plan or health
insurance coverage in which an individual was enrolled on March 23,
2010 (a grandfathered health plan).\8\ The statute and these interim
final regulations allow family members of individuals already enrolled
in a grandfathered health plan to enroll in the plan after March 23,
2010; in such cases, the plan or coverage is also a grandfathered
health plan with respect to the family members. New employees (whether
newly hired or newly enrolled) and their families can enroll in a
grandfathered group health plan after March 23, 2010 without affecting
status as a grandfathered health plan.\9\
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\8\ The Affordable Care Act adds section 715(a)(1) to ERISA and
section 9815(a)(1) to the Code to incorporate the provisions of part
A of title XXVII of the PHS Act into ERISA and the Code, and make
them applicable to group health plans, and health insurance issuers
providing health insurance coverage in connection with group health
plans. The PHS Act sections incorporated by this reference are
sections 2701 through 2728. PHS Act sections 2701 through 2719A are
substantially new, though they incorporate some provisions of prior
law. PHS Act sections 2722 through 2728 are sections of prior law
renumbered, with some, mostly minor, changes. Section 1251 of the
Affordable Care Act, as modified by section 10103 of the Affordable
Care Act and section 2301 of the Reconciliation Act, specifies that
certain plans or coverage existing as of the date of enactment (that
is, grandfathered health plans) are only subject to certain
provisions.
\9\ For individuals who have coverage through an insured group
health plans subject to a collective bargaining agreement ratified
before March 23, 2010, an individual's coverage is grandfathered at
least until the date on which the last agreement relating to the
coverage that was in effect on March 23, 2010, terminates. These
collectively bargained plans may make any permissible changes to the
benefit structure before the agreement terminates and remain
grandfathered. After the termination date, grandfather status will
be determined by comparing the plan, as it existed on March 23, 2010
to the changes that the plan made before termination under the rules
established by these interim final regulations.
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[[Page 34546]]
As addressed earlier in this preamble, and further discussed below,
these interim final regulations include rules for determining whether
changes to the terms of a grandfathered health plan made by issuers and
plan sponsors allow the plan or health insurance coverage to remain a
grandfathered health plan. These rules are the primary focus of this
regulatory impact analysis.
The Departments have quantified the effects where possible and
provided a qualitative discussion of the economic effects and some of
the transfers and costs that may result from these interim final
regulations.
B. Executive Order 12866--Department of Labor and Department of Health
and Human Services
Under Executive Order 12866 (58 FR 51735), ``significant''
regulatory actions are subject to review by the Office of Management
and Budget (OMB). Section 3(f) of the Executive Order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more in any one year, or adversely and materially affecting a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating a
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order. OMB has
determined that this regulation is economically significant within the
meaning of section 3(f)(1) of the Executive Order, because it is likely
to have an annual effect on the economy of $100 million in any one
year. Accordingly, OMB has reviewed these rules pursuant to the
Executive Order. The Departments provide an assessment of the potential
costs, benefits, and transfers associated with these interim fin
