[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Rules and Regulations]
[Pages 34538-34570]
From the Federal Register Online via the Government Publishing 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
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Department of Labor
Employee Benefits Security Administration
29 CFR Part 2590
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Department of Health and Human Services
45 CFR Part 147
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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]]
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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.
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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: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected].
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 http://www.regulations.gov and http://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 http://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:
http://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: http://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 (http://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 (http://www.cms.hhs.gov/HealthInsReformforConsume/01_Overview.asp) and information on health
reform can be found at http://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.
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\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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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.
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\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.
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\3\ See 64 FR 70164 (December 15, 1999).
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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.
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\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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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
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Application to grandfathered
PHS Act statutory provisions health plans
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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).
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\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.
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\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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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.
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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 final
regulations below. The Departments invite comments on this assessment
and its conclusions.
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.
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 cost-sharing
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
[[Page 34547]]
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.
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) 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\
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\10\ Medical inflation is defined in these interim regulations
by reference to the overall medical care component of the CPI.
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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.
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\11\ Available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf.
[[Page 34548]]
Table 2--Accounting Table
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Benefits
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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 Mid-range High-end Year dollar Discount rate Period covered
estimate estimate estimate
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Annualized.............................................. 22.0 25.6 27.9 2010 7% 2011-2013
Monetized ($millions/year).............................. 21.2 24.7 26.9 2010 3% 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.
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.
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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 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 non-grandfathered 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 short-run 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 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 price-sensitive. 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
[[Page 34549]]
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.
---------------------------------------------------------------------------
\12\ http://www.nber.org/reporter/summer06/buchmueller.html.
``Consumer Demand for Health Insurance'' The National Bureau of
Economic Research (Buchmueller, 2006).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\13\ http://content.healthaffairs.org/cgi/reprint/19/3/158.pdf.
``Health Plan Switching: Choice Or Circumstance?'' (Cunnigham and
Kohn, 2000).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\14\ http://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\ http://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).
---------------------------------------------------------------------------
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 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 little-
concerned about such deductibles. There is also evidence that issuers
use such changes to sort out high-cost enrollees from low-cost
ones.\17\
---------------------------------------------------------------------------
\16\ Erika C. Ziller, Andrew F. Coburn, Timothy D. McBride, and
Courtney Andrews. Patterns of 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.
---------------------------------------------------------------------------
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 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\
---------------------------------------------------------------------------
\18\ Kaiser Family Foundation State Health Facts (2010), http://www.statehealthfacts.org/comparetable.jsp?ind=351&cat=7.
---------------------------------------------------------------------------
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, higher-risk, 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
[[Page 34550]]
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.
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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-of-pocket
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 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
[[Page 34551]]
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.
---------------------------------------------------------------------------
\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/
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.
---------------------------------------------------------------------------
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-
of-pocket 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 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.
---------------------------------------------------------------------------
\23\ The regulation allows plans to increase fixed-amount
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.
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
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\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.
---------------------------------------------------------------------------
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 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
[[Page 34552]]
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 cost-sharing 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 Cost-
Sharing 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 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.
[[Page 34553]]
TABLE 3--Estimates of the Cumulative Percentage of Employer Plans Relinquishing Their Grandfathered Status, 2011-
2013
----------------------------------------------------------------------------------------------------------------
2011 2012 2013
----------------------------------------------------------------------------------------------------------------
Low-end Estimate
Small Employer Plans........................................ 20% 36% 49%
Large Employer Plans........................................ 13% 24% 34%
All Employer Plans.......................................... 15% 28% 39%
Mid-range Estimate
Small Employer Plans........................................ 30% 51% 66%
Large Employer Plans........................................ 18% 33% 45%
All Employer Plans.......................................... 22% 38% 51%
High-end Estimate
Small Employer Plans........................................ 42% 66% 80%
Large Employer Plans........................................ 29% 50% 64%
All Employer Plans.......................................... 33% 55% 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
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 nearly 30 percent maintained policies for more
than three years.\31\
---------------------------------------------------------------------------
\30\ http://content.healthaffairs.org/cgi/content/full/23/6/210#R14. ``Patterns of Individual Health Insurance Coverage'' Health
Affairs (Ziller et al, 2004).
\31\ http://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).
---------------------------------------------------------------------------
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 cost-sharing 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 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 employer-sponsored insurance would be in grandfathered
health plans, and that none of their 19-25 year old dependents with
their own offer of employer-sponsored 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 non-grandfathered health
plans. Young adults under 26 with employer-sponsored insurance or with
an offer of such coverage whose parents are in non-grandfathered 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
employer-sponsored 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
[[Page 34554]]
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 non-grandfathered 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 non-grandfathered 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 non-grandfathered 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 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 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
[[Page 34555]]
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 [email protected]. 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: [email protected]. ICRs submitted to OMB also are
available at reginfo.gov (http://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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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 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 $873,000 ($0.05 per page*\1/2\ pages per notice *
34.9 million notices*0.62).
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 for-profit; 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).
[[Page 34556]]
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.
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 million to meet the disclosure requirement.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 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: [email protected].
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.
[[Page 34557]]
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 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 105-200, 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
0
Accordingly, 26 CFR parts 54 and 602 are amended as follows:
[[Page 34558]]
PART 54--PENSION EXCISE TAXES
0
1. The authority citation for part 54 is amended by adding entries for
Sec. Sec. 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. * * *
0
2. Section 54.9815-1251T is added to read as follows:
Sec. 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 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.
(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);
[[Page 34559]]
(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, 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 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
[[Page 34560]]
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 cost-sharing 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 cost-sharing requirement other
than a copayment. Any increase in a fixed-amount 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 fixed-
amount 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 Sec. 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 Sec. 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.
(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
[[Page 34561]]
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 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). 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 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
[[Page 34562]]
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.
(h) Expiration date. This section expires on or before June 14,
2013.
0
3. Section 54.9815-2714T is amended by revising paragraphs (h) and (i)
to read as follows:
* * * * *
(h) Applicability date. The provisions of this section apply for
plan years beginning on or after September 23, 2010. See Sec. 54.9815-
1251T for determining the application of this section to grandfathered
health plans.
(i) Expiration date. This section expires on or before May 10,
2013.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
4. The authority citation for part 602 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. * * *
0
5. Section 602.101(b) is amended by adding the following entry in
numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
54.9815-1251T........................................... 1545-2178
* * * * *
------------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Chapter XXV
0
29 CFR part 2590 is amended as follows:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS
0
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).
0
2. Section 2590.715-1251 is added to subpart C to read as follows:
Sec. 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 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 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
[[Page 34563]]
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
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 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 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
[[Page 34564]]
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 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 cost-sharing 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 cost-sharing requirement other
than a copayment. Any increase in a fixed-amount 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 fixed-
amount 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 Sec. 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
[[Page 34565]]
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:
(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 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).
[[Page 34566]]
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 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.
0
3. Section 2590.715-2714 is amended by revising paragraph (h) to read
as follows:
Sec. 2590.715-2714 Eligibility of children until at least age 26.
* * * * *
(h) Applicability date. The provisions of this section apply for
plan years beginning on or after September 23, 2010. See Sec.
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
0
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
0
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.
0
2. Section 147.120 is amended by revising paragraph (h) to read as
follows:
(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 Sec. 147.140 of this part for
determining the application of this section to grandfathered health
plans.
0
3. Section 147.140 is added to read as follows:
Sec. 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.
[[Page 34567]]
(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
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 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
[[Page 34568]]
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. 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
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 cost-sharing 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 cost-sharing requirement other
than a copayment. Any increase in a fixed-amount 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 fixed-
amount copayment, determined as of the effective date of the increase,
causes a group health plan or health insurance
[[Page 34569]]
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 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 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:
[[Page 34570]]
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). 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) 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 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