Grandfathered Group Health Plans and Grandfathered Group Health Insurance Coverage
| Published date | 15 July 2020 |
| Citation | 85 FR 42782 |
| Record Number | 2020-14895 |
| Section | Proposed rules |
| Court | Employee Benefits Security Administration,Internal Revenue Service,Labor Department |
Federal Register, Volume 85 Issue 136 (Wednesday, July 15, 2020)
[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Proposed Rules]
[Pages 42782-42803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14895]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[REG-130081-19]
RIN 1545-BP67
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210-AB89
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 147
[CMS-9923-P]
RIN 0938-AT49
Grandfathered Group Health Plans and Grandfathered Group Health
Insurance Coverage
AGENCY: Internal Revenue Service, Department of the Treasury; Employee
Benefits Security Administration, Department of Labor; Centers for
Medicare & Medicaid Services, Department of Health and Human Services.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document is a notice of proposed rulemaking regarding
grandfathered group health plans and grandfathered group health
insurance coverage that would, if finalized, amend current rules to
provide greater flexibility for certain grandfathered health plans to
make changes to certain types of cost-sharing requirements without
causing a loss of grandfather status.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on August 14, 2020.
ADDRESSES: Written comments may be submitted to the addresses specified
below. Any comment that is submitted will be shared among the
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.
In commenting, refer to file code RIN 1210-AB89. Because of staff
and resource limitations, we cannot accept comments by facsimile (FAX)
transmission.
Comments, including mass comment submissions, must be submitted in
one of the following three 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 ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Office of Health Plan Standards and Compliance
Assistance, Employee Benefits Security Administration, U.S. Department
of Labor, Attention: RIN 1210-AB89, 200 Constitution Avenue NW, Room N-
5653, Washington, DC 20210.
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 Health Plan Standards and
Compliance Assistance, Employee Benefits Security Administration, U.S.
Department of Labor, Attention: RIN 1210-AB89, 200 Constitution Avenue
NW, Room N-5653, Washington, DC 20210.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: William Fischer, Internal Revenue
Service, Department of the Treasury, at (202) 317-5500.
David Sydlik or Frank Kolb, Employee Benefits Security
Administration, Department of Labor, at (202) 693-8335.
Cam Clemmons, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, at (301) 492-4400.
Customer Service Information: Individuals interested in obtaining
information from the Department of Labor (DOL) concerning employment-
based health coverage laws may call the EBSA Toll-Free Hotline at 1-
866-444-EBSA (3272) or visit the DOL's website (www.dol.gov/ebsa). In
addition, information from the Department of
[[Page 42783]]
Health and Human Services (HHS) on private health insurance coverage
and on non-federal governmental group health plans can be found on the
Centers for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio), and information on health care reform can be found at
www.HealthCare.gov.
SUPPLEMENTARY INFORMATION: 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.
Comments received before the close of the comment period are posted on
the following website as soon as possible after they have been
received: http://www.regulations.gov. Follow the search instructions on
that website to view public comments.
I. Background
A. Purpose
On January 20, 2017, the President issued Executive Order 13765,
``Minimizing the Economic Burden of the Patient Protection and
Affordable Care Act Pending Repeal'' (82 FR 8351) ``to minimize the
unwarranted economic and regulatory burdens of the [Patient Protection
and Affordable Care Act (Pub. L. 111-148) and the Health Care and
Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively,
PPACA), as amended].'' To meet these objectives, the President directed
that the executive departments and agencies with authorities and
responsibilities under PPACA, ``to the maximum extent permitted by law
. . . shall exercise all authority and discretion available to them to
waive, defer, grant exemptions from, or delay the implementation of any
provision or requirement of [PPACA] that would impose a fiscal burden
on any State or a cost, fee, tax, penalty, or regulatory burden on
individuals, families, healthcare providers, health insurers, patients,
recipients of healthcare services, purchasers of health insurance, or
makers of medical devices, products, or medications.''
The Departments of Health and Human Services (HHS), Labor, and the
Treasury (collectively, the Departments) share interpretive
jurisdiction over section 1251 of PPACA, which generally provides that
certain group health plans and health insurance coverage existing as of
March 23, 2010, the date of enactment of PPACA (referred to
collectively in the statute as grandfathered health plans), are subject
to only certain provisions of PPACA. Consistent with the objectives of
Executive Order 13765, on February 25, 2019, the Departments issued a
request for information regarding grandfathered group health plans and
grandfathered group health insurance coverage (2019 RFI).\1\ The
purpose of the 2019 RFI was to gather input from the public in order to
better understand the challenges that group health plans and group
health insurance issuers face in avoiding a loss of grandfather status,
and to determine whether there are opportunities for the Departments to
assist such plans and issuers, consistent with the law, in preserving
the grandfather status of group health plans and group health insurance
coverage in ways that would benefit plan participants and
beneficiaries, employers, employee organizations, and other
stakeholders.
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\1\ 84 FR 5969 (Feb. 25, 2019).
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Based on feedback received from stakeholders who submitted comments
in response to the 2019 RFI, the Departments are issuing this notice of
proposed rulemaking that would, if finalized, amend current rules to
provide greater flexibility for certain grandfathered health plans to
make changes to certain types of cost-sharing requirements without
causing a loss of grandfather status. In the Departments' view, these
proposed amendments are appropriate because they would enable these
plans to continue offering affordable coverage while also enhancing
their ability to respond to rising healthcare costs. In some cases, the
proposed amendments would also ensure that the plans are able to comply
with minimum cost-sharing requirements for high deductible health plans
(HDHPs) so enrolled individuals are eligible to contribute to health
savings accounts (HSAs).
These proposed rules would only address the requirements for
grandfathered group health plans and grandfathered group health
insurance coverage, and would not apply to or otherwise change the
current requirements applicable to grandfathered individual health
insurance coverage. With respect to individual health insurance
coverage, it is the Departments' understanding that the number of
individuals with grandfathered individual health insurance coverage has
declined each year since PPACA was enacted. As one commenter noted,
this decline in enrollment in grandfathered individual health insurance
coverage will continue due to the natural churn that occurs, because
most consumers stay in the individual market for less than five
years.\2\ Compared to the number of individuals in grandfathered group
health plans and group health insurance coverage, only a small number
of individuals are enrolled in grandfathered individual health
insurance coverage.\3\ The Departments are therefore of the view that
any amendments to requirements for grandfathered individual health
insurance coverage would be of limited utility.
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\2\ The cause of this churn varies. For example, beginning a new
job that offers group health insurance coverage may result in the
natural transition from the individual market to the group market.
Eligibility for Medicaid or Medicare can also result in a consumer
leaving the individual market.
\3\ HHS estimates that less than seven percent of enrollees in
grandfathered plans have individual market coverage. This estimate
is based on analysis of enrollment data issuers submitted in the HHS
Health Insurance and Oversight System (HIOS) and the CMS External
Data Gathering Environment (EDGE) for the 2018 plan year, as well as
Kaiser Family Foundation estimates regarding the percentage of
enrollees with employer-sponsored coverage that are covered by a
grandfathered health plan.
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B. Grandfathered Group Health Plans and Grandfathered Group Health
Insurance Coverage
Section 1251 of PPACA provides that grandfathered health plans are
subject to certain, but not all, provisions of PPACA for as long as
they maintain their status as grandfathered health plans.\4\ For
example, grandfathered health plans are subject neither to the
requirement to cover certain preventive services without cost sharing
under section 2713 of the Public Health Service Act (PHS Act), enacted
by section 1001 of PPACA, nor to the annual limitation on cost sharing
set forth under section 1302(c) of PPACA and section 2707(b) of the PHS
Act, enacted by section 1201 of PPACA. If a plan were to lose its
grandfather status, it would be required to comply with both
provisions, in addition to several other requirements.
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\4\ For a list of the market reform provisions applicable to
grandfathered health plans under title XXVII of the PHS Act that
PPACA added or amended and were incorporated into the Employee
Retirement Income Security Act of 1974 (ERISA) and the Internal
Revenue Code of 1986 (the Code), visit https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/grandfathered-health-plans-provisions-summary-chart.pdf.
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On June 17, 2010, the Departments issued interim final rules with
request for comments implementing section 1251 of PPACA.\5\ On November
17, 2010, the Departments issued an amendment to the interim final
rules with request for comments to permit certain changes in policies,
certificates,
[[Page 42784]]
or contracts of insurance without a loss of grandfather status.\6\
Also, over the course of 2010 and 2011, the Departments released
Affordable Care Act Implementation Frequently Asked Questions (FAQs)
Parts I, II, IV, V, and VI to answer questions related to maintaining a
plan's status as a grandfathered health plan.\7\ After consideration of
the comments and feedback received from stakeholders, the Departments
issued regulations on November 18, 2015, which finalized the interim
final rules without substantial change and incorporated the
clarifications that the Departments had previously provided in other
guidance (2015 final rules).\8\
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\5\ 75 FR 34538 (June 17, 2010).
\6\ 75 FR 70114 (Nov. 17, 2010).
\7\ See Affordable Care Act Implementation FAQs Part I,
available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-i.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs.html; Affordable Care Act Implementation
FAQs Part II, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-ii.pdf
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs2.html; Affordable Care Act Implementation
FAQs Part IV, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-iv.pdf
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs4.html; Affordable Care Act Implementation
FAQs Part V, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-v.pdf
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html; and Affordable Care Act
Implementation FAQs Part VI, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-vi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs6.html.
\8\ 80 FR 72192 (Nov. 18, 2015), codified at 26 CFR 54.9815-
1251, 29 CFR 2590.715-1251, and 45 CFR 147.140.
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In general, under the 2015 final rules, a group health plan or
group health insurance coverage is considered grandfathered if it has
continuously provided coverage for someone (not necessarily the same
person, but at all times at least one person) since March 23, 2010, and
if the plan (or its sponsor) or issuer has not taken certain actions.
Under the 2015 final rules, certain changes to a group health plan
or coverage do not result in a loss of grandfather status. For example,
new employees and their families may enroll in a group health plan or
group health insurance coverage without causing a loss of grandfather
status. Further, the addition of a new contributing employer or a new
group of employees of an existing contributing employer to a
grandfathered multiemployer health plan will not affect the plan's
grandfather status. Also, grandfather status is determined separately
for each benefit package under a group health plan or coverage; thus,
if any benefit package under the plan or coverage loses its grandfather
status, it will not affect the grandfather status of the other benefit
packages.
The 2015 final rules specify when changes to the terms of a plan or
coverage cause the plan or coverage to cease to be a grandfathered
health plan. Specifically, the regulations outline certain changes to
benefits, cost-sharing requirements, and contribution rates that will
cause a plan or coverage to relinquish its grandfather status. There
are six types of changes (measured from March 23, 2010) that will cause
a group health plan or health insurance coverage to cease to be
grandfathered:
1. The elimination of all or substantially all benefits to diagnose
or treat a particular condition;
2. Any increase in a percentage cost-sharing requirement (such as
coinsurance);
3. Any increase in a fixed-amount cost-sharing requirement (other
than a copayment) (such as a deductible or out-of-pocket maximum) that
exceeds certain thresholds;
4. Any increase in a fixed-amount copayment that exceeds certain
thresholds;
5. A decrease in contribution rate by an employer or employee
organization toward the cost of coverage by more than five percentage
points below the contribution rate for the coverage period that
includes March 23, 2010; or
6. The imposition of annual limits on the dollar value of all
benefits for group health plans and insurance coverage that did not
impose such a limit prior to March 23, 2010.
The 2015 final rules provide different thresholds for the increases
to different types of cost-sharing requirements that will cause a loss
of grandfather status. The nominal dollar amount of a coinsurance
obligation automatically rises when the cost of the healthcare benefit
subject to the coinsurance obligation increases, so changes to the
level of coinsurance (such as modifying a requirement that the patient
pay 20 percent to a requirement that the patient pay 30 percent of
inpatient surgery costs) could significantly alter the financial
obligation of consumers and a plan or health insurance coverage. On the
other hand, fixed-amount cost-sharing requirements (such as copayments
and deductibles) do not automatically rise when healthcare costs
increase. This means that changes to fixed-amount cost-sharing
requirements (for example, modifying a $35 copayment to a $40 copayment
for outpatient doctor visits) may be reasonable to keep pace with the
rising cost of medical items and services. Accordingly, under the 2015
final rules, 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, however, there are two standards for
permitted increases, one for fixed-amount cost-sharing requirements
other than copayments (for example, deductibles and out-of-pocket
maximums) and another for copayments.
With respect to fixed-amount cost-sharing requirements other than
copayments, a plan or coverage ceases to be a grandfathered health plan
if there is an increase, since March 23, 2010, that is greater than the
maximum percentage increase. For fixed-amount copayments, a plan or
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 (1) the maximum percentage increase or (2) five dollars
increased by medical inflation. The 2015 final rules define the maximum
percentage increase as medical inflation (from March 23, 2010) plus 15
percentage points. For this purpose, medical inflation is defined by
reference to the overall medical care component of the Consumer Price
Index for All Urban Consumers, unadjusted (CPI-U), published by the
Department of Labor using the 1982-1984 base of 100.
For any change that causes a loss of grandfather status under the
2015 final rules, the plan or coverage will cease to be a grandfathered
plan when the change becomes effective, regardless of when the change
is adopted.
In addition, the 2015 final rules require that a grandfathered plan
or coverage include a statement in any summary of benefits provided
under the plan that it believes the plan or coverage is a grandfathered
health plan, as well as provide contact information for questions and
complaints. Failure to provide this disclosure results in a loss of
grandfather status. The 2015 final rules further provide that, once
grandfather status is relinquished, there is no opportunity to regain
it.
C. 2019 Request for Information
It is the Departments' understanding that the number of
grandfathered group health plans and group health insurance policies
has declined each year since the enactment of PPACA, but many employers
continue to maintain grandfathered group health plans and coverage. The
fact that a significant
[[Page 42785]]
number of grandfathered group health plans and coverage remain
indicates that some employers and issuers have found value in
preserving grandfather status. Accordingly, on February 25, 2019, the
Departments published in the Federal Register the 2019 RFI \9\ to
gather input from the public in order to better understand the
challenges that group health plans and group health insurance issuers
face in avoiding a loss of grandfather status and to determine whether
there are opportunities for the Departments to assist such plans and
issuers, consistent with the law, in preserving the grandfather status
of group health plans and group health insurance coverage in ways that
would benefit plan participants and beneficiaries, employers, employee
organizations, and other stakeholders.
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\9\ 84 FR 5969 (Feb. 25, 2019), available at https://www.federalregister.gov/documents/2019/02/25/2019-03170/request-for-information-regarding-grandfathered-group-health-plans-and-grandfathered-group-health.
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Comments submitted in response to the 2019 RFI provided information
regarding grandfathered health plans that has informed these proposed
rules. Commenters shared data regarding the prevalence of grandfathered
group health plans and grandfathered group health insurance coverage,
insights regarding the impact that grandfathered plans have had in
terms of delivering benefits to participants and beneficiaries at a
lower cost than non-grandfathered plans, and suggestions for potential
amendments to the Departments' 2015 final rules that would provide more
flexibility for a plan or coverage to retain grandfather status.
Several commenters directed the Departments' attention to a Kaiser
Family Foundation survey, which indicates that one out of every five
firms that offered health benefits in 2018 offered at least one
grandfathered health plan, and 16 percent of covered workers were
enrolled in a grandfathered group health plan that year.\10\ One
commenter indicated the incidence of grandfathered plan status differs
by various types of plan sponsors. Another commenter cited survey data
released in 2018 by the International Foundation of Employee Benefit
Plans, which indicated that 57 percent of multiemployer plans are
grandfathered, compared to 20 percent of private-sector plans and 30
percent of public sector plans. However, a professional association
with members who work with employer groups on health plan design and
administration commented that their members have found far fewer
grandfathered plans than survey results suggest are in existence and
suggested that very large employers with self-funded plans may have a
disproportionate share of grandfathered plans, as well as that some
employers that have ``grandmothered'' plans or that previously had
grandfathered plans may unintentionally be reporting incorrectly in
surveys that they still have grandfathered plans.\11\
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\10\ On September 25, 2019, the Kaiser Family Foundation issued
its 2019 report, which showed little change since 2018 with respect
to grandfathered plans. According to survey data, 22 percent of
offering firms report having at least one grandfathered plan in
2019, and 13 percent of covered workers were enrolled in a
grandfathered health plan in 2019. See 2019 Employer Health Benefits
Survey, Kaiser Family Foundation, available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/. See also
2018 Employer Health Benefits Survey, Kaiser Family Foundation,
available at https://www.kff.org/report-section/2018-employer-healthbenefits-survey-section-13-grandfathered-healthplans/.
\11\ ``Grandmothered'' plans, also known as transitional plans,
are certain non-grandfathered health insurance coverage in the small
group and individual market that meet certain conditions. On
November 14, 2013, CMS issued a letter to the State Insurance
Commissioners outlining a policy under which, if permitted by the
state, non-grandfathered small group and individual market health
plans that were in effect on October 1, 2013, would send a notice to
all individuals and small businesses that received or would
otherwise receive a cancellation or termination notice with respect
to the coverage, and the coverage would not be treated as being out
of compliance with certain specified market reforms. CMS has
extended this non-enforcement policy each year, with the most recent
extension in effect until policy years beginning on or before
October 1, 2021, provided that all such coverage comes into
compliance by January 1, 2022. See Insurance Standards Bulletin
Series--INFORMATION--Extension of Limited Non-Enforcement Policy
through 2021 (January 31, 2020), available at https://www.cms.gov/files/document/extension-limited-non-enforcement-policy-through-calendar-year-2021.pdf.
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Some commenters stated that grandfathered health plans are less
comprehensive and provide fewer consumer protections than non-
grandfathered plans; thus, these commenters opined that the Departments
should not amend the 2015 final rules to provide any greater
flexibility for a plan or coverage to maintain grandfather status.
Other commenters noted, however, that grandfathered plans often have
lower premiums and cost-sharing requirements than non-grandfathered
plans. One commenter gave examples of premium increases ranging from 10
percent to 40 percent that grandfathered plan participants would
experience if they transitioned to non-grandfathered group health
plans. Several commenters also argued that grandfathered health plans
do in fact offer comprehensive benefits and in some cases are even more
generous than certain non-grandfathered plans that are subject to all
the requirements of PPACA. Some commenters also stated that they have
found that their grandfathered plans offer more robust provider
networks than other coverage options that are available to them or that
they want to ensure that they are able to keep receiving care from
current in-network providers.
Commenters who supported allowing greater flexibility for
grandfathered health plans offered a range of suggestions on how the
2015 final rules should be amended. For example, several commenters
requested additional flexibility regarding plan or coverage changes
that would constitute an elimination of substantially all benefits to
diagnose or treat a condition, arguing that it is often difficult to
discern what constitutes a benefit reduction given that the regulations
apply a ``facts and circumstances'' standard. Some commenters requested
flexibility to make certain changes so long as the grandfathered plan
or coverage's actuarial value is not affected. Some commenters also
stated that the 2015 final rules should be amended to permit decreases
in contribution rates by employers and employee organizations by more
than five percentage points to account for employers experiencing a
business change or economic downturn and the difficulty issuers face in
gathering necessary information from employers to know that their
contribution rates have not decreased.
Commenters also suggested amendments relating to the permitted
changes in cost-sharing requirements for grandfathered health plans.
These commenters generally argued that the 2015 final rules were too
restrictive. Several commenters stated that relying on the medical care
component of the CPI-U for purposes of those rules to account for
inflation adjustments to the maximum percentage increase was misguided,
and the methodology used to calculate the ``premium adjustment
percentage'' (as defined in 45 CFR 156.130) would be more appropriate
because it is tied to the increase in premiums for health insurance
and, therefore, better reflects the increase in costs for health
coverage. These commenters also noted that relying on the premium
adjustment percentage would be consistent with the methodology used to
adjust the annual limitation on cost sharing under section 1302(c) of
PPACA and section 2707(b) of the PHS Act that applies to non-
grandfathered plans. Additionally, one commenter articulated a concern
that the 2015 final rules eventually may preclude some grandfathered
group health plans or issuers of grandfathered
[[Page 42786]]
group health insurance coverage from being able to make changes to
cost-sharing requirements that are necessary for a plan to maintain its
status as an HDHP within the meaning of section 223 of the Internal
Revenue Code (Code), which would effectively mean that individuals
covered by those plans would no longer be eligible to contribute to an
HSA.
D. The Premium Adjustment Percentage
Section 1302(c)(4) of PPACA directs the Secretary of HHS to
determine an annual premium adjustment percentage, a measure of premium
growth that is used to set the rate of increase for three parameters
detailed in PPACA: (1) The maximum annual limitation on cost sharing
(defined at 45 CFR 156.130(a)); (2) the required contribution
percentage used to determine eligibility for certain exemptions under
Code section 5000A (defined at 45 CFR 155.605(d)(2)); and (3) the
employer shared responsibility payment amounts under Code section
4980H(a) and (b) (see Code section 4980H(c)(5)). Section 1302(c)(4) of
PPACA and 45 CFR 156.130(e) provide that the premium adjustment
percentage is the percentage (if any) by which the average per capita
premium for health insurance coverage for the preceding calendar year
exceeds such average per capita premium for health insurance for 2013,
and 45 CFR 156.130(e) provides that this percentage will be published
in the annual HHS notice of benefit and payment parameters.
To calculate the premium adjustment percentage for a benefit year,
HHS calculates the percentage by which the average per capita premium
for health insurance coverage for the preceding calendar year exceeds
the average per capita premium for health insurance for 2013, and
rounds the resulting percentage to 10 significant digits. The resulting
premium index reflects cumulative, historic growth in premiums from
2013 through the preceding year. HHS calculates the premium adjustment
percentage using as a premium growth measure the most recently
available, at the time of proposal in the annual HHS notice of benefit
and payment parameters proposed rule, National Health Expenditure
Accounts (NHEA) projection of per enrollee premiums for private health
insurance, excluding Medigap and property and casualty insurance, for
2013 and the preceding calendar year.\12\
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\12\ 85 FR 29164, 29228 (May 14, 2020). The series used in the
determinations of the adjustment percentages can be found in Table
17 on the CMS website, which can be accessed by clicking the ``NHE
Projections 2018-2027--Tables'' link located in the Downloads
section at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. A detailed description of the
NHE projection methodology is available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology.pdf.
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E. High Deductible Health Plans and HSA-Compatibility
Section 223 of the Code permits eligible individuals to establish
and contribute to HSAs. HSAs are tax-favored accounts established for
the purpose of providing tax benefits to pay for qualified medical
expenses on behalf of the account beneficiary, his or her spouse, and
any dependents claimed. Among the requirements for an individual to
qualify as an eligible individual under section 223(c)(1) of the Code
(and thus to be eligible to make tax-favored contributions to an HSA)
is the requirement that the individual be covered under an HDHP. An
HDHP is a health plan that satisfies certain requirements with respect
to minimum deductibles and maximum out-of-pocket expenses, which
increase annually with cost-of-living adjustments. Generally, except
for preventive care, an HDHP may not provide benefits for any year
until the deductible for that year is met. Pursuant to section 223(g)
of the Code, the minimum deductible for an HDHP is adjusted annually
for cost-of-living based on changes in the CPI-U.
II. Overview of Proposed Rules
A. Introduction
This notice of proposed rulemaking would, if finalized, amend the
2015 final rules to provide greater flexibility for grandfathered group
health plans and issuers of grandfathered group health insurance
coverage to make certain changes without causing a loss of grandfather
status. However, there is no authority for non-grandfathered plans to
become grandfathered, and therefore these proposed rules would not
provide any opportunity for a plan or coverage that has lost its
grandfather status under the 2015 final rules to regain that status.
In issuing these proposed rules, the Departments considered
comments submitted in response to the 2019 RFI regarding ways that the
2015 final rules should be amended. Many suggestions outlined in the
comments are not being proposed here because, in the Departments' view,
they would allow for such significant changes that the modified plan or
coverage could not reasonably be described as being the same plan or
coverage that was offered on March 23, 2010, for purposes of
grandfather status. However, the commenters' arguments that there are
better means of accounting for inflation in the standard for the
maximum percentage increase that should be permitted to fixed-amount
cost-sharing requirements were persuasive. The Departments also agree
that, as one commenter highlighted, there is an opportunity to clarify
that changes to fixed-amount cost-sharing requirements that are
necessary for a plan to maintain its status as an HDHP should not cause
a loss of grandfather status. Given that the 2015 final rules permit
increases that are meant to account for inflation in healthcare costs
over time, the Departments are of the view that these suggestions are
reasonably narrow and consistent with the intent of the 2015 final
rules to permit adjustments in response to inflation without causing a
loss of grandfather status.
Accordingly, these proposed rules would amend the 2015 final rules
in two ways. First, these proposed rules include a new paragraph (g)(3)
which would specify that grandfathered group health plans and
grandfathered group health insurance coverage that are HDHPs may make
changes to fixed-amount cost-sharing requirements that would otherwise
cause a loss of grandfather status without causing a loss of
grandfather status, but only to the extent those changes are necessary
to comply with the requirements for HDHPs under section 223(c)(2) of
the Code. Second, these proposed rules include a revised definition of
``maximum percentage increase'' in redesignated paragraph (g)(4), which
provides an alternative method of determining that amount based on the
premium adjustment percentage. This alternative method would be
available only for grandfathered group health plans and grandfathered
group health insurance coverage with changes that are effective on or
after the effective date of a final rule.
The Departments request comments on all aspects of these proposed
rules. In the preamble discussion that follows, the Departments also
solicit comments on specific issues related to the proposed rules where
stakeholder feedback would be particularly useful in evaluating whether
and how to issue final rules.
B. Special Rule for Certain Grandfathered HDHPs
As explained above, paragraph (g)(1) of the 2015 final rules
identifies certain types of changes that will cause a plan or coverage
to cease to be a grandfathered health plan, including
[[Page 42787]]
increases in cost-sharing requirements that exceed certain thresholds.
However, cost-sharing requirements for a grandfathered group health
plan or group health insurance coverage that is an HDHP must satisfy
the minimum annual deductible requirement and maximum out-of-pocket
expenses requirement under section 223(c)(2)(A) of the Code. These
amounts are updated annually to reflect a cost-of-living adjustment and
are published each year by the Internal Revenue Service.
The annual cost-of-living adjustment to the required minimum
deductible for an HDHP has not yet exceeded the maximum percentage
increase that would cause an HDHP to lose grandfather status.\13\
Nevertheless, the Departments are of the view that there is value in
providing assurance to grandfathered plans that if a grandfathered
group health plan or group health insurance coverage that is an HDHP
increases its fixed-amount cost-sharing requirements to meet a future
adjusted minimum annual deductible requirement under section
223(c)(2)(A) of the Code that is greater than the increase that would
be permitted under paragraph (g)(1), such an increase would not cause
the plan or coverage to relinquish its grandfather status. Otherwise,
if such a conflict were to occur, the sponsor of the plan would have to
decide whether to preserve the plan's grandfather status or its status
as an HDHP. This would mean participants and beneficiaries would
experience either substantial changes to their coverage (and likely
premium increases) or a loss of eligibility to contribute to an HSA.
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\13\ For calendar year 2020, a ``high deductible health plan''
is defined under Code Sec. 223(c)(2)(A) as a health plan with an
annual deductible that is not less than $1,400 for self-only
coverage or $2,800 for family coverage, and the annual out-of-pocket
expenses (deductibles, co-payments, and other amounts, but not
premiums) for which do not exceed $6,900 for self-only coverage or
$13,800 for family coverage. Rev. Proc. 2019-25. For calendar year
2021, a ``high deductible health plan'' is defined under Code Sec.
223(c)(2)(A) as a health plan with an annual deductible that is not
less than $1,400 for self-only coverage or $2,800 for family
coverage, and the annual out-of-pocket expenses (deductibles, co-
payments, and other amounts, but not premiums) for which do not
exceed $7,000 for self-only coverage or $14,000 for family coverage.
Rev. Proc. 2020-32.
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To address this potential conflict, these proposed rules include a
new paragraph (g)(3), which provides that, with respect to a
grandfathered group health plan or group health insurance coverage that
is an HDHP, increases to fixed-amount cost-sharing requirements that
otherwise would cause a loss of grandfather status would not cause the
plan or coverage to relinquish its grandfather status, but only to the
extent the increases are necessary to maintain its status as an HDHP
under section 223(c)(2)(A) of the Code.\14\ Thus, increases with
respect to such a plan or coverage that would otherwise cause a loss of
grandfather status and that exceed the amount necessary to satisfy the
minimum annual deductible requirement under section 223(c)(2)(A) of the
Code would still cause a loss of grandfather status. These proposed
rules would also add a new example 11 under paragraph (g)(5) to
illustrate how this special rule would apply.
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\14\ Paragraph (g)(3) of the 2015 final rules would be
renumbered as paragraph (g)(4), and subsequent paragraphs would be
renumbered accordingly. Additionally, the proposed rules include
conforming amendments to other paragraphs in the proposed rules to
update all cross-references to those subparagraphs.
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C. Definition of Maximum Percentage Increase
The Departments agree with stakeholders who submitted comments on
the 2019 RFI stating that the premium adjustment percentage (as defined
at 45 CFR 156.130(e) and published for each year by HHS in the annual
notice of benefit and payment parameters) may be a more appropriate
measurement of changes in healthcare costs over time than medical
inflation, as defined in the 2015 final rules.
Under the 2015 final rules, medical inflation means the increase
since March 2010 in the overall medical care component of the CPI-U
published by the Department of Labor using the 1982-1984 base of 100.
The medical care component of the CPI-U is a measure of the average
change over time in the prices paid by urban consumers for medical
care. Although the Departments continue to believe this is an
appropriate measure for medical inflation in this context, the
Departments recognize that the medical care component of CPI-U reflects
not only changes in price for private insurance, but also for self-pay
patients and Medicare, neither of which are reflected in the underlying
costs for grandfathered group health plans and grandfathered group
health insurance coverage. In contrast, the premium adjustment
percentage reflects the cumulative, historic growth from 2013 through
the preceding calendar year in premiums for only private health
insurance, excluding Medigap and property and casualty insurance.
Therefore, the Departments agree with comments that the premium
adjustment percentage better reflects the increase in underlying costs
for grandfathered group health plans and grandfathered group health
insurance coverage. The Departments acknowledge that the premium
adjustment percentage does not capture premium growth from 2010 to
2013, and that it reflects increases in premiums in the individual
market, which have increased more rapidly than premiums for group
health plans and group health insurance. However, the Departments
believe the premium adjustment percentage is the best existing measure
to reflect the increase in underlying costs for grandfathered group
health plans and grandfathered group health insurance coverage.
Additionally, the Departments believe using a measure with which plans
and issuers are already familiar would increase administrative
simplicity. Nevertheless, the Departments seek comment on alternative
measures that more accurately represent the increase in underlying
costs for grandfathered group health plans and grandfathered group
health insurance coverage.
These proposed rules include an amended definition of the maximum
percentage increase that provides an alternative standard that relies
on the premium adjustment percentage, rather than medical inflation
(which continues to be defined, for purposes of these rules, as the
overall medical care component of the Consumer Price Index for All
Urban Consumers, unadjusted), to account for changes in healthcare
costs over time. This alternative standard would not supplant the
current standard; rather, it would be available to the extent it yields
a greater result than the current standard, and it would apply only
with respect to increases in fixed-amount cost-sharing requirements
that are made effective on or after the effective date of the final
rule. With respect to increases for group health plans and group health
insurance coverage made effective on or after March 23, 2010, and
before the effective date of the final rule, the maximum percentage
increase would still be defined as medical inflation expressed as a
percentage, plus 15 percentage points.\15\
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\15\ The amendments included in these proposed rules would apply
only with respect to grandfathered group health plans and
grandfathered group health insurance coverage. Because HHS
regulations at 45 CFR 147.140 apply to both grandfathered individual
and group health coverage, the amended definition of the maximum
percentage increase in the HHS proposed regulations would also add a
separate provision for individual health insurance coverage to show
that the applicable definition remains unchanged.
---------------------------------------------------------------------------
Thus, under these proposed rules, increases to fixed-amount cost-
sharing requirements for grandfathered group health plans and
grandfathered group health insurance coverage that are made
[[Page 42788]]
effective on or after the effective date of the final rule, would cause
the plan or 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 greater of (1) medical inflation, expressed
as a percentage, plus 15 percentage points; or (2) the portion of the
premium adjustment percentage, as defined in 45 CFR 156.130(e), that
reflects the relative change between 2013 and the calendar year prior
to the effective date of the increase (that is, the premium adjustment
percentage minus 1), expressed as a percentage, plus 15 percentage
points. These proposed rules would also add a new example 5 under
paragraph (g)(5) to demonstrate how this alternative measure for
determining the maximum percentage increase might apply in practice.
Similar to other examples in paragraph (g)(5), the new example 5
includes hypothetical numbers with respect to both the overall medical
care component of the CPI-U and the premium adjustment percentage that
do not relate to any specific time period and are used for illustrative
purposes only. These proposed rules would also renumber examples 5-9 in
paragraph (g)(5) to allow the inclusion of new example 5 and to revise
examples 3-6 to clarify that these examples involve plan changes that
become effective before the effective date of the final rule. These
proposed revisions would ensure that the examples accurately reflect
the other provisions of the rule.
Stakeholders reviewing these proposed rules should look to official
publications from the Bureau of Labor Statistics and HHS to identify
the relevant overall medical care component of the CPI-U amount or
premium adjustment percentage with respect to a change being considered
by a grandfathered health plan.
III. Effective Date
The amendments to the 2015 final rules that are included in these
proposed rules would apply to grandfathered group health plans and
grandfathered group health insurance coverage beginning 30 days after
the publication of any final rules. The Departments solicit comment on
this proposed effective date.
IV. Economic Impact Analysis and Paperwork Burden
A. Summary/Statement of Need
Section 1251 of PPACA provides that certain group health plans and
health insurance coverage existing on March 23, 2010, are not subject
to certain provisions of PPACA as long as they maintain grandfather
status. On February 25, 2019, the Departments published an RFI to
gather information on grandfathered group health plans and
grandfathered group health insurance coverage. Comments received from
stakeholders in response to the 2019 RFI suggest that issuers and plan
sponsors, as well as participants and beneficiaries, continue to value
the option to continue grandfathered group health plan and
grandfathered group health insurance coverage. The Departments are of
the view that these proposed rules would be appropriate to provide
certain grandfathered health plans greater flexibility to make changes
to certain types of cost-sharing requirements without causing a loss of
grandfather status. These changes would allow certain grandfathered
group health plans and grandfathered group health insurance coverage to
continue to be exempt from certain provisions of PPACA and allow those
plans' participants and beneficiaries to maintain their current
coverage.
In drafting these proposed rules, the Departments attempted to
balance a number of competing interests. For example, the Departments
sought to balance providing greater flexibility to grandfathered group
health plans and grandfathered group health insurance coverage that
would enable these plans and coverage to continue offering quality,
affordable coverage to participants and beneficiaries against ensuring
that the proposed policies would not allow for such significant changes
that the plan or coverage could not reasonably be described as being
the same plan or coverage that was offered on March 23, 2010.
Additionally, the Departments sought to allow grandfathered group
health plans and grandfathered group health insurance coverage to
better account for rising healthcare costs, including ensuring that
grandfathered group HDHPs are able to maintain their grandfather
status, while continuing to comply with minimum cost-sharing
requirements for HDHPs, so that the individuals enrolled in the HDHPs
are eligible to contribute to an HSA. In previous rulemaking, the
Departments recognized that many group health plans 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
requirements change, and covered items and services may vary. Without
some flexibility to make adjustments while retaining grandfather
status, the ability of many individuals to maintain their current
coverage would be frustrated, because much of the grandfathered group
health plan coverage would quickly cease to be regarded as the same
health plan or health insurance coverage in existence on March 23,
2010. At the same time, allowing plans to make unfettered changes while
retaining grandfather status would be inconsistent with Congress's
intent in enacting PPACA.\16\
---------------------------------------------------------------------------
\16\ 75 FR 34538, 34546 (June 17, 2010).
---------------------------------------------------------------------------
These proposed rules, if finalized, would amend the 2015 final
rules to provide greater flexibility for grandfathered group health
plans and issuers of grandfathered group health insurance coverage in
two ways. First, the proposed rules would specify that any
grandfathered group health plan and grandfathered group health
insurance coverage that is an HDHP may make changes to fixed-amount
cost-sharing requirements that would otherwise cause a loss of
grandfather status without causing a loss of grandfather status, but
only to the extent those changes are necessary to comply with the
requirements for HDHPs under section 223(c)(2) of the Code. Second,
these proposed rules would include a revised definition of ``maximum
percentage increase,'' which provides an alternative method of
determining that amount that is based on the premium adjustment
percentage.
B. Overall Impact
The Departments have examined the impacts of these proposed rules
as required by Executive Order 12866 on Regulatory Planning and Review
(September 30, 1993), Executive Order 13563 on Improving Regulation and
Regulatory Review (January 18, 2011), the Regulatory Flexibility Act
(RFA) (September 19, 1980, Pub. L. 96-354), section 202 of the Unfunded
Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive
Order 13132 on Federalism (August 4, 1999), the Congressional Review
Act (5 U.S.C. 804(2)), and Executive Order 13771 on Reducing Regulation
and Controlling Regulatory Costs (January 30, 2017).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits,
[[Page 42789]]
reducing costs, harmonizing rules, and promoting flexibility. A
regulatory impact analysis must be prepared for rules with economically
significant effects ($100 million or more in any one year).
Section 3(f) of Executive Order 12866 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. A
regulatory impact analysis must be prepared for major rules with
economically significant effects ($100 million or more in any one
year), and a ``significant'' regulatory action is subject to Office of
Management and Budget (OMB) review. As discussed below regarding their
anticipated effects, these proposals are not likely to have economic
impacts of $100 million or more in any one year, and therefore do not
meet the definition of ``economically significant'' under Executive
Order 12866. OMB has determined, however, that the actions are
significant within the meaning of section 3(f)(4) of the Executive
Order. Therefore, OMB has reviewed these proposed rules and the
Departments have provided the following assessment of their impact.
C. Impact Estimates of Grandfathered Group Health Plans and
Grandfathered Group Health Insurance Coverage Provisions and Accounting
Table
These proposed rules, if finalized, would amend the 2015 final
rules to provide greater flexibility for grandfathered group health
plan sponsors and issuers of grandfathered group health insurance
coverage to make certain changes to cost-sharing requirements without
causing a loss of grandfather status. The proposed rules would specify
that issuers or sponsors of any grandfathered group health plan and
grandfathered group health insurance coverage that is an HDHP may make
changes to fixed-amount cost-sharing requirements that would otherwise
cause a loss of grandfather status without causing a loss of
grandfather status, but only to the extent those changes are necessary
to comply with the requirements for HDHPs under section 223(c)(2) of
the Code. The proposed rules would also revise the definition of
``maximum percentage increase'' to provide an alternative method of
determining that amount that is based on the premium adjustment
percentage. In accordance with OMB Circular A-4, Table 1 depicts an
accounting statement summarizing the Departments' assessment of the
benefits, costs, and transfers associated with this regulatory action.
The Departments are unable to quantify all benefits, costs, and
transfers of these proposed rules. The effects in Table 1 reflect non-
quantified impacts and estimated direct monetary costs and transfers
resulting from the provisions of these proposed rules for plans,
issuers, participants, and beneficiaries.
Table 1--Accounting Table
------------------------------------------------------------------------
Benefits
-------------------------------------------------------------------------
Non-Quantified:
Allows sponsors of grandfathered group health plans and
grandfathered group health insurance coverage more flexibility to
make changes to certain fixed-amount cost-sharing requirements
without losing grandfather status.
Allows participants and beneficiaries in grandfathered
group health plans and grandfathered group health insurance
coverage to maintain coverage they are familiar with and
potentially provides continuity of care by not requiring them to
change their health plan to one that may not include their current
provider(s).
Ensures plan sponsors are able to comply with minimum cost-
sharing requirements for HDHPs and allows participants and
beneficiaries to maintain their coverage and eligibility to
contribute to an HSA.
Decreases the likelihood that plan sponsors would cease
offering health benefits due to a lack of flexibility to make
changes to certain fixed cost-sharing amounts without losing
grandfather status.
------------------------------------------------------------------------
Primary estimate Discount rate
Costs: (million) Year dollar (percent) Period covered
----------------------------------------------------------------------------------------------------------------
$7.95 2020 7 2021-2025
---------------------------------------------------------------------------
Annualized Monetized ($/year)....... 7.40 million 2020 3 2021-2025
----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------
Quantitative:
Regulatory review costs of $34.9 million, incurred in 2020
only, by grandfathered group health plan coverage sponsors and
issuers.
Non-Quantified:
Potential increase in adverse health outcomes if a
participant or beneficiary would forego treatment because the
necessary services became unaffordable due to an increase in cost
sharing.
Potential increase in adverse health outcomes if there is
an increase in the uninsured rate if participants and beneficiaries
choose to cancel their coverage because of the increases in cost-
sharing requirements associated with grandfathered group health
plans and grandfathered group health insurance coverage.
If an employer would have otherwise switched to a non-
grandfathered plan, potential increase in adverse health outcomes
if a participant or beneficiary foregoes treatment for medical
conditions that are not covered by their grandfathered group health
plan and grandfathered group health insurance coverage but that
would have been covered by non-grandfathered health plan coverage
subject to PPACA.
------------------------------------------------------------------------
[[Page 42790]]
Transfers
------------------------------------------------------------------------
Non-Quantified:
In grandfathered group health plans and grandfathered group
health insurance coverage that utilize the expanded flexibilities to
increase fixed-amount cost-sharing requirements, potential transfers
occur from participants and beneficiaries with resulting higher out-of-
pocket costs to participants and beneficiaries with no or low out-of-
pocket costs and nonparticipants through potentially lower premiums and
correspondingly smaller wage adjustments to pay for the premiums.
If an employer would have otherwise switched to a non-
grandfathered plan with expanded benefits, potential transfers
occur from participants and beneficiaries who would have benefited
from these expanded benefits to others in the plan who would not
have benefited from these expanded benefits through lower premiums
and correspondingly smaller wage adjustments.
------------------------------------------------------------------------
Table 1 provides the anticipated benefits, costs, and transfers
(quantitative and non-quantified) to sponsors and issuers of
grandfathered health plan coverage, participants and beneficiaries
enrolled in grandfathered plans, as well as nonparticipants. The
following section describes the benefits, costs, and transfers to
grandfathered group health plan sponsors, issuers of grandfathered
group health insurance coverage, and those individuals enrolled in such
plans.
These proposed rules propose a new paragraph (g)(3) which would
specify that grandfathered group health plans and grandfathered group
health insurance coverage that are HDHPs may increase fixed-amount
cost-sharing requirements that otherwise would cause a loss of
grandfather status, without causing the plan or coverage to relinquish
its grandfather status, but only to the extent the increases are
necessary to comply with the requirements for HDHPs under section
223(c)(2) of the Code. Additionally, the proposed rules propose a
revised definition of ``maximum percentage increase'' in redesignated
paragraph (g)(4) to provide an alternative method of determining that
amount that is based on the premium adjustment percentage.
Economic Impacts of Retaining or Relinquishing Grandfather Status and
Affected Entities and Individuals
The Departments estimate that there are 2.4 million ERISA-covered
plans offered by private employers that cover an estimated 134.7
million participants and beneficiaries in those private employer-
sponsored plans.\17\ Similarly, the Departments estimate that there are
83,500 state and local governments that offer health coverage to their
employees, with an estimated 42.8 million participants and
beneficiaries in those employer-sponsored plans.\18\
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\17\ The Department of Labor estimates based on the 2018 Medical
Expenditure Panel Survey Insurance Component (MEPS-IC), available at
https://meps.ahrq.gov/data_stats/summ_tables/insr/national/series_1/2018/ic18_ia_g.pdf; Health Insurance Coverage Bulletin: Abstract of
Auxiliary Data for the March 2016 Annual Social and Economic
Supplement to the Current Population Survey, Table 3C, available at
https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf.
\18\ 2017 Census of Governments, Government Organization Report,
available at https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html; 2017 MEPS-IC State and Local Government data,
available for query at https://meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC/startup; Health Insurance Coverage Bulletin: Abstract of
Auxiliary Data for the March 2016 Annual Social and Economic
Supplement to the Current Population Survey, Table 3C, available at
https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf.
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The 2019 Employer Health Benefits Survey reports that 22 percent of
firms offering health benefits have at least one health plan or benefit
package option that is a grandfathered plan, and 13 percent of covered
workers are enrolled in grandfathered plans.\19\ Using the above
information, the Departments estimate that, of those firms offering
health benefits, 527,000 sponsor ERISA-covered plans (2.4 million *
0.22) that are grandfathered (or include a grandfathered benefit
package option) and cover 17.5 million participants and beneficiaries
(134.7 million * 0.13). The Departments further estimate there are
18,400 state and local governments (83,500 * 0.22) offering at least
one grandfathered health plan and 5.6 million participants and
beneficiaries (42.8 million * 0.13) covered by a grandfathered state or
local government plan.
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\19\ The Departments note that comments received in response to
the 2019 RFI and summarized earlier in this preamble described data
obtained from Kaiser Family Foundation 2018 Employer Health Benefits
Survey. See supra note 9. For the purposes of this regulatory impact
analysis, the Departments used more recent data from the same
survey. See Kaiser Family Foundation, ``2019 Employer Health
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/.
---------------------------------------------------------------------------
Although the 2019 Employer Health Benefits Survey reports that 26
percent of firms offering health benefits offered an HDHP and 23
percent of covered workers were enrolled in HDHPs, the Departments
believe the 2010 Employer Health Benefits Survey provides a better
estimate of the prevalence of HDHPs in the grandfathered group market
as it provides an estimate for the number of potential HDHPs that would
have been able to obtain and maintain grandfather status. The 2010
Employer Health Benefits Survey reports that 12 percent of firms
offering health benefits offered an HDHP, and 6 percent of covered
workers were enrolled in HDHPs.\20\
---------------------------------------------------------------------------
\20\ Kaiser Family Foundation, ``2010 Employer Health Benefits
Survey.'' Available at: https://www.kff.org/wp-content/uploads/2013/04/8085.pdf.
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Benefits
The Departments believe that the economic effects of these proposed
rules would ultimately depend on any decisions made by grandfathered
plan sponsors (including sponsors of grandfathered HDHPs) and the
preferences of plan participants and beneficiaries. To determine the
value of retaining a health plan's grandfather status, each group plan
sponsor must determine whether the plan, under the rules applicable to
grandfathered health plan coverage, would continue to be more or less
favorable than the plan, under the rules applicable to non-
grandfathered group health plans. This determination would depend on
such factors as the respective prices of grandfathered and non-
grandfathered health plans, the willingness of grandfathered group
health plans' covered populations to pay for benefits and protections
available under non-grandfathered health plans, and their willingness
to accept any increases in out-of-pocket costs due to changes to
certain types of cost-sharing requirements. The Departments are of the
view that providing the proposed flexibilities to make changes to
certain types of cost-sharing requirements in grandfathered group
health plans and grandfathered group health insurance coverage without
causing a loss of grandfather status would enable plan sponsors and
issuers to continue to offer quality, affordable coverage to their
participants and beneficiaries while taking into account rising health
care costs.
The Departments anticipate that the premium adjustment percentage
index will continue to experience faster growth than medical CPI-U, and
therefore believe that providing the proposed alternative method of
determining the ``maximum percentage
[[Page 42791]]
increase'' would, over time, give grandfathered group health plans and
grandfathered group health insurance coverage the flexibility to make
changes to the plans' fixed-amount cost-sharing requirements (such as
copayments, deductibles, and out-of-pocket limits) that would have
previously resulted in the loss of grandfather status. Thus, the
Departments believe that these proposed rules would allow sponsors of
those grandfathered health plans to continue to provide the coverage
with which their participants and beneficiaries are familiar and
comfortable, without the unnecessary burden of finding other coverage.
As noted previously in the preamble, some commenters suggested that
their grandfathered plans offer more robust provider networks than
other coverage options available to them or that they want to ensure
that participants and beneficiaries are able to keep receiving care
from current in-network providers. The Departments agree that providing
the proposed flexibilities could help participants and beneficiaries
maintain their current provider and service networks. If providers
continue participating in the grandfathered plans' networks, this
continuity offers participants and beneficiaries the ability to
continue current and future care through those providers with whom they
have built relationships.
As discussed previously in the preamble, one commenter on the 2019
RFI articulated a concern that the 2015 final rules may eventually
preclude some sponsors and issuers of grandfathered group health plans
and grandfathered group health insurance coverage from being able to
make changes to fixed-amount cost-sharing requirements necessary to
maintain a plan's HDHP status. For participants and beneficiaries, this
would mean they could experience either substantial changes to their
coverage (and likely premium increases) or a loss of eligibility to
contribute to an HSA. The Departments expect that, under the 2015 final
rules, there may be limited circumstances in which grandfathered group
health plans and grandfathered group health insurance coverage that is
an HDHP (grandfathered HDHP) is unable to simultaneously maintain its
grandfather status and satisfy the requirements for HDHPs under section
223(c)(2) of the Code. To reduce the likelihood of this potential
scenario, these proposed rules would allow a grandfathered HDHP to make
changes to fixed-amount cost-sharing requirements that otherwise could
cause a loss of grandfather status without causing a loss of
grandfather status, but only to the extent the increases are necessary
to comply with the requirements for HDHPs under section 223(c)(2) of
the Code.
The Departments are of the view that providing this flexibility to
grandfathered HDHPs will allow them to preserve their grandfather
status even if they increase their cost-sharing requirements to meet a
future adjusted minimum annual deductible requirement under section
223(c)(2)(A) of the Code beyond the increase that would be permitted
under paragraph (g)(1) of the 2015 final rules. Under section 223(g) of
the Code, the required minimum deductible for an HDHP is adjusted for
cost-of-living based on changes in the overall economy. Historically,
the allowed increases under the 2015 final rules, which are based on
changes in medical care costs (medical CPI-U), have exceeded increases
based on changes in the overall economy (CPI-U), which are used to
adjust the HDHP minimum deductible. Using ten years of projections from
the President's FY 2021 Budget, medical-CPI-U is expected to grow
faster than CPI-U. Further, because the allowed increases under the
2015 final rules are based on the cumulative effect over a period of
years, it is unlikely that using medical CPI-U to index deductibles
would result in lower deductibles than using CPI-U as required under
section 223(g) of the Code. Therefore, the Departments note that, to
the extent these trends continue, it is unlikely that an increase
required under section 223 of the Code for a plan to remain an HDHP
would exceed the allowed increases under the 2015 final rules.
Furthermore, to the extent that the revised definition of ``maximum
percentage increase'' in these proposed rules would allow the
deductible to grow as fast, or faster, than under the 2015 final rules,
grandfathered HDHPs may not need to avail themselves of the additional
flexibility provided in these proposed rules. Nevertheless, the
Departments are of the view that affording this flexibility would make
the rules more transparent to sponsors of grandfathered HDHPs. Thus,
the proposed regulations would allow participants and beneficiaries
enrolled in those plans to maintain their current coverage, continue
contributing to any existing HSA, and potentially realize any reduction
in premiums that may result from changes in cost-sharing requirements.
Costs and Transfers
The Departments recognize there may be costs associated with these
proposed rules that are difficult to quantify given the lack of
information and data. For example, the Departments do not have data
related to the current annual out-of-pocket costs for participants and
beneficiaries in grandfathered group HDHPs or other grandfathered group
health plans and grandfathered group health insurance coverage. The
Departments recognize that as medical care costs increase, some
participants and beneficiaries in grandfathered health plans could face
higher out-of-pocket costs for services that may be excluded by such
plans, but that would be required or covered by non-grandfathered group
health plans and group health insurance coverage subject to PPACA. It
is possible these increased costs could be (partially) offset by lower
premiums from participation in the grandfathered plans. Further,
participants and beneficiaries who would otherwise be covered by a non-
grandfathered plan could potentially face increases in adverse health
outcomes if they chose to forego treatment because certain services are
not covered by their grandfathered group plan or grandfathered group
health insurance coverage. The Departments cannot accurately predict
the number of grandfathered health plans and group health insurance
coverage that would retain their grandfather status should they choose
to avail themselves of the flexibilities provided in these proposed
rules. The 2019 Employer Health Benefits Survey reports no significant
change from 2018 in the number of firms offering at least one
grandfathered health plan or the number of covered individuals.\21\ A
large change would have indicated that the current rules were too
restrictive and that a relaxation of those rules would have a big
effect. The actual small change suggests the opposite. Therefore, the
Departments do not expect a significant impact on the number of
grandfathered plans or group health insurance coverage as a result of
these proposed rules.
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\21\ Kaiser Family Foundation, ``2019 Employer Health Benefits
Survey,'' available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/.
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For those plans that would continue to maintain their grandfather
status as a result of the flexibilities in these proposed rules, the
participants and beneficiaries would continue to have coverage and may
experience lower premiums when compared to non-grandfathered group
health plans. Although some participants and beneficiaries would pay
higher cost-sharing amounts, these increased costs may be partially
offset by reduced
[[Page 42792]]
employee premiums, and indirectly through wage adjustments that reflect
reduced employer contributions due to the lower premiums. In contrast,
individuals who have low or no medical expenses, along with
nonparticipants, would be unlikely to experience increased cost-sharing
amounts and may benefit from lower employee premiums, and indirectly
through wage adjustments.
The Departments recognize there would be transfers associated with
these proposed rules that are difficult to quantify given the lack of
information and data. The Departments realize that if plan sponsors
avail themselves of the flexibilities in these proposed rules, some
participants and beneficiaries of grandfathered group health plans and
grandfathered group health insurance coverage could potentially see
increases in out-of-pocket costs depending on the changes made to their
plans. Additionally, participants and beneficiaries in a grandfathered
HDHP could face increases in the plan's deductible if plans increase
their fixed-amount cost-sharing requirements to meet a future adjusted
minimum annual deductible requirement beyond the increase that would be
permitted under paragraph (g)(1). Changes in costs associated with
increased deductibles or other cost sharing would be a transfer from
participants and beneficiaries with high out-of-pocket costs to
participants and beneficiaries with low or no out-of-pocket costs and
to nonparticipants, as the related premium reductions could affect
wages.
Due to the overall lack of information and data related to what
plan sponsors would choose to do, the Departments are unable to
accurately determine the overall economic impact, but the Departments
anticipate that the overall impact would be minimal. However, there is
a large degree of uncertainty regarding the effect of the proposed
rules on any potential changes to cost sharing at the plan level so
actual experience could differ.
Revenue Impact of Proposed Rules
This section of the preamble discusses the revenue impact of the
proposed rules, considers a variety of approaches that employers
offering grandfathered health plan coverage might take in the future if
the 2015 final rules are not amended, and compares the revenue impact
of each approach under the 2015 final rules with the revenue impact
under the proposed rules.
a. Employees Who Would Have Remained in Grandfathered Plans and
Coverage Without the Proposed Rules
If the 2015 final rules are not amended, some employers might
choose to continue to maintain their grandfathered health plan
coverage. This subsection discusses the revenue impact that the
proposed rules may have on this group of employers and employees.
Under the proposed rules, grandfathered group health plans and
grandfathered group health insurance coverage would be allowed to
increase fixed-amount cost-sharing requirements (such as copayments,
deductibles, and out-of-pocket limits) at a somewhat higher rate than
under the 2015 final rules, which may result in a premium reduction (or
similar cost reduction for a self-insured plan). Specifically, for
increases in fixed-amount cost sharing on or after the effective date
of these rules, if finalized, grandfathered group health plans and
grandfathered group health insurance coverage could use an alternative
standard for determining the maximum percentage increase that relies on
the premium adjustment percentage, rather than medical inflation, to
the extent that it yields a greater result than the current standard
under the 2015 final rules.
The premium adjustment percentage is estimated to be about three
percentage points higher than medical inflation in 2026, using FY2021
President's Budget projections of medical CPI and National Health
Expenditures premium projections. Therefore, as of that year, fixed-
amount copayments, deductibles, and out-of-pocket limits could be three
percentage points higher under the proposed rules than under the 2015
final rules. However, a plan that increases fixed-amount cost sharing
to the maximum amount allowed under the proposed rules is likely to
realize only a small reduction in premiums. This is because plans incur
most of their costs for a relatively small fraction of participants--
that is, from high-cost individuals. Because high-cost individuals
generally exceed the out-of-pocket limit for the year, they are only
modestly affected by higher out-of-pocket limits. Low-cost individuals
are more likely to be affected by an increase in fixed-amount cost
sharing, but they incur a small portion of the overall costs.
Therefore, the impact of the proposed rules for a particular plan will
depend on the parameters of covered benefits under the plan, as well as
the distribution of expenditures for the plan participants. In
addition, increased cost sharing could result in participants and
beneficiaries making fewer visits to providers (that is, lower
utilization), which could result in lower medical costs for some
individuals, but higher costs for others who delay important visits. If
individuals generally would forgo relatively unimportant visits, but
continue to go to providers when crucial, premiums could decline even
more, but this outcome is uncertain.
Because of the Federal tax exclusion for employer-sponsored
coverage, a premium reduction would increase tax revenues due to
reduced employer contributions and employee pre-tax contributions made
through a cafeteria plan. However, some employees might partially
offset their increases in out-of-pocket payments through increased pre-
tax contributions to health flexible spending arrangements (FSAs) or
HSAs. Those increases in pre-tax contributions to health FSAs and HSAs
would reduce tax revenues. Therefore, the potential increase in tax
revenues from premium reductions is affected by whether employees
increase their contributions to health FSAs and HSAs. To the extent
that employers would have continued to offer a grandfathered plan
without changes to the 2015 final rules, under the proposed rules, tax
revenues would be expected to increase slightly on net as a result of
premium reductions. Further, there would be additional revenue gains to
the extent that higher out-of-pocket payments discourage employees from
continuing participation in the employer's plan.
b. Employees Who Would No Longer Have Been Covered by Grandfathered
Plans or Coverage Without the Proposed Rules
If the 2015 final rules are not amended, some employers might
choose to change their insured grandfathered plans to self-insured,
non-grandfathered plans, rather than continue to comply with the 2015
final rules, which would result in little, if any, revenue change.
Thus, with respect to these employers, the adoption of the proposed
rules would have little, if any, revenue effect.
Alternatively, assuming the 2015 final rules are not amended, an
employer might switch to a fully insured non-grandfathered non-HDHP
plan. With respect to small employers, employees who would transfer to
the non-grandfathered plan could improve the risk pool or make it
worse. An employer with a healthy population might be more likely to
self-insure, whereas a small employer with a less healthy population
might be more likely to join an insurance pool.
Although the type of benefits covered in the new, non-grandfathered
plans
[[Page 42793]]
(whether self-insured or fully insured) would likely be broader in some
ways, such as for preventive care, the share of costs covered by the
plan would likely decrease due to higher cost sharing. Presumably, if
the 2015 final rules are not amended, an employer would not make the
switch from a grandfathered plan to a non-grandfathered plan unless the
overall cost of providing benefits would decrease, which would cause
some revenue gain. (Again, though, the revenue gain could be partially
offset by increases in the employees' pre-tax contributions to health
FSAs or HSAs.) On the other hand, if the proposed rules enabled an
employer that otherwise might switch to a non-grandfathered plan to
retain its grandfathered plan, this revenue gain would not occur,
resulting in a revenue loss compared to the status quo under the 2015
final rules. As a further variation, if the employer retained its
grandfathered plan under the proposed rules, rather than switching to
an HDHP, the revenue loss would be smaller than if the employer had
switched to a non-HDHP. Indeed, this could even result in a revenue
gain depending on the magnitude of tax-preferred contributions that the
employees would have made to HSAs.
Without the change to the 2015 final rules, some employers might
replace their grandfathered plan with an individual coverage health
reimbursement arrangement (individual coverage HRA). If the employer
contributed a similar dollar amount to the individual coverage HRA as
it currently does to the grandfathered plan, the employees' tax
exclusion would be at least roughly the same as for the grandfathered
plan. Moreover, the employees offered the individual coverage HRA would
be as likely to be ``firewalled'' from obtaining a premium tax credit
as if they had continued to participate in the grandfathered plan.
Thus, under this scenario, there would be very little revenue effect
from the proposed rules.
c. Termination of Employer-Sponsored Coverage
If the 2015 final rules are not amended, some employers might drop
health coverage altogether and opt instead to make an employer shared
responsibility payment, if required under section 4980H of the Code,
which may result in an increase in federal revenue. In this case, all
affected employees would qualify for a special enrollment period to
enroll in other group coverage, if available, or individual health
insurance coverage on or off the Exchange. Those employees with
household incomes between 100-400 percent of the federal poverty level
may qualify for financial assistance to help pay for their Exchange
coverage and related healthcare expenses, which would increase federal
outlays, as discussed further below. Others may have household incomes
too high to be eligible for a premium tax credit or might receive a
smaller tax subsidy through the income-related premium tax credit than
through an employer-sponsored health insurance tax exclusion.
Accordingly, if these employers continued their grandfathered plan
under the proposed rules, there may be an associated revenue loss.
Other employees could purchase individual health insurance coverage,
but receive a premium tax credit that is greater than the value of the
tax exclusion for their current employer plans. For this population,
the proposed rules may result in a revenue gain. However, this is
likely a small population for an employer that is currently offering a
grandfathered plan.
Despite the availability of a special enrollment period, some
affected employees might forgo enrolling in alternative health coverage
and become uninsured or might opt instead to purchase short-term,
limited-duration insurance. In this case, these employees would no
longer receive a tax exclusion for the grandfathered plan, which along
with an employer shared responsibility payment, if any, may result in
an increase in federal revenue. However, if these employees were to
remain covered under a grandfathered plan as a result of this proposed
rule, there may be a loss in federal revenue for this group.
Overall, there are a number of potential revenue effects of the
proposed rules, some of which could offset each other. Additionally,
there is a large degree of uncertainty, including uncertainty with
regard to how many plans would continue as grandfathered plans if the
2015 final rules are not amended, what alternatives would be chosen by
the employers who do not keep grandfathered plans, and how many plans
would make plan design changes as a result of the proposed rules. As a
result, it is unclear whether these effects in the aggregate would
result in a revenue gain or revenue loss. Because the employer market
is so large, even a small percentage change to aggregate premiums can
result in large revenue changes. Nevertheless, the Departments are of
the view that overall net effects are likely to be relatively small.
The Departments seek comments on the impact estimates in this analysis.
Regulatory Review Costs
Affected entities will need to understand the requirements of these
proposed rules, if finalized, before they can avail themselves of any
of the proposed flexibilities. Sponsors and issuers of grandfathered
group health plan coverage would be responsible for ensuring compliance
with these proposed rules should they seek to make changes to their
plans' cost-sharing requirements. The Departments estimate the burden
for the regulatory review to be incurred by the 546,234 grandfathered
plan sponsors and issuers of grandfathered group health insurance
coverage.
If regulations impose administrative costs on private entities,
such as the time needed to read and interpret these proposed rules, if
finalized, the Departments should estimate the cost associated with
regulatory review. Due to the uncertainty involved with accurately
quantifying the number of entities that will review and interpret these
proposed rules, the Departments assume that the total number of
grandfathered group health plan coverage sponsors and issuers that
would be able to avail themselves and comply with these proposed rules
would be a fair estimate of the number of entities affected.
The Departments acknowledge that this assumption may understate or
overstate the costs of reviewing these proposed rules. It is possible
that not all affected entities will review these rules, if finalized,
in detail, and that others may seek the assistance of outside counsel
to read and interpret the rules. For example, firms providing or
sponsoring a grandfathered plan may not read the rules, if finalized,
but might rely upon the issuer or a third-party administrator (TPA), if
self-funded, to read and interpret the rules. For these reasons, the
Departments are of the view that the number of grandfathered group
health plan coverage sponsors and issuers would be a fair estimate of
the number of reviewers of these proposed rules. The Departments
welcome any comments on the approach in estimating the number of
affected entities that will review and interpret these proposed rules,
if finalized.
Using the wage information from the Bureau of Labor and Statistics
(BLS) for a Compensation and Benefits Manager (Code 11-3141), the
Departments estimate that the cost of reviewing this rule is $127.74
per hour, including overhead and fringe benefits.\22\
[[Page 42794]]
Assuming an average reading speed, the Departments estimate that it
would take approximately 0.5 hour for the staff to review and interpret
these proposed rules, if finalized; therefore, the Departments estimate
that the cost of reviewing and interpreting these proposed rules, if
finalized, for each grandfathered group health plan coverage sponsor
and issuer is approximately $63.87. Thus, the Departments estimate that
the overall cost for the estimated 546,234 grandfathered group health
plan coverage sponsors and issuers would be $34,887,965.58 ($63.87
*546,234 total number of estimated grandfathered plan sponsors and
issuers).\23\
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\22\ Wage information is available at https://www.bls.gov/oes/current/oes_nat.htm. Hourly wage rate is determining by multiplying
the mean hourly wage by 100 percent to account for overhead and
fringe benefits. The mean hourly wage for a Compensation and Benefit
Manager (Code 11-3141) is $63.38, when multiplied by 100 percent
results in a total adjusted hourly wage of $127.74.
\23\ Total number of grandfathered plan sponsors and issuers of
grandfathered group health insurance coverage, discussed earlier in
the preamble, was derived from the total number of ERISA covered
plan sponsors multiplied by the percentage of entities offering
grandfathered health plans (2.4 million * 0.22 = 527,000), the
number of state and local governments multiplied by the percentage
of entities offering grandfathered health plans (83,500 * 0.22 =
18,400), and the 834 issuers offering at least one grandfathered
health plan (527,000 + 18,400 + 843 = 546,234).
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D. Regulatory Alternatives Considered
In developing the policies contained in these proposed rules, the
Departments considered alternatives to the presented proposals. In the
following paragraphs, the Departments discuss the key regulatory
alternatives considered.
The Departments considered whether to modify each of the six types
of changes, measured from March 23, 2010, that cause a group health
plan or health insurance coverage to cease to be grandfathered. To
provide more flexibility regarding changes to fixed cost-sharing
requirements, the Departments considered revising the definition of
maximum percentage increase to increase the allowed percentage points
that are added to medical inflation. However, the Departments are of
the view that the proposed policy allows for the desired flexibility,
while better reflecting underlying costs for grandfathered group health
plans and group health insurance coverage. The Departments acknowledge
that the premium adjustment percentage, which the Departments propose
to incorporate into the definition of ``maximum percentage increase,''
reflects the changes in premiums in both the individual and group
market, and that individual market premiums have increased faster than
premiums in the group market. Due to the comparative sizes of the
individual and group markets, however, the historically faster growth
in the individual market has had a minimal impact on the premium
adjustment percentage index. Therefore, the Departments believe that
the premium adjustment percentage is an appropriate measure to
incorporate into the definition of ``maximum percentage increase.''
Another option the Departments considered was allowing a decrease
in contribution rates by an employer or employee organization without
triggering a loss of grandfather status. Under the 2015 final rules, an
employer or employee organization cannot decrease contribution rates
based on cost of coverage toward the cost of any tier of coverage for
any class of similarly situated individuals by more than five
percentage points below the contribution rate for the coverage period
that included March 23, 2010 without losing grandfather status. The
Departments considered permitting group health plans and health
insurance coverage with grandfather status to decrease the contribution
rates by more than five percentage points. This would increase employer
flexibility, but the Departments were concerned that a decrease in the
contribution rate could change the plan or coverage to such an extent
that the plan or coverage could not reasonably be described as being
the same plan or coverage that was offered on March 23, 2010. As a
result, this option was not included in the proposed rules.
Another option the Departments considered was allowing a change to
annual dollar limits for a group health plan or health insurance
coverage without triggering a loss of grandfather status. Under the
2015 final rules, a group health plan or group health insurance
coverage that did not have an annual dollar limit on March 23, 2010,
may not establish an annual dollar limit for any individual, whether
provided in-network or out-of-network, without relinquishing
grandfather status. If the plan or coverage had an annual dollar limit
on March 23, 2010, it may not decrease the limit. Although for plan
years beginning on or after January 1, 2014, group health plans and
health insurance issuers generally may no longer impose annual or
lifetime dollar limits on essential health benefits, permitting changes
to annual dollar limits on benefits that are not essential health
benefits may still represent a significant change to participants and
beneficiaries who need the benefits on which a limit is applied.
Therefore, this option was not included in the proposed rules.
The Departments considered options to offset cost-sharing
requirement changes by allowing sponsors of group health plans and
issuers of group health insurance coverage to increase different types
of cost-sharing requirements as long as any increase is offset by
lowering another cost-sharing requirement to preserve the plan's
actuarial value. As discussed in previous rulemaking, however, an
actuarial equivalency standard would allow a plan or coverage to make
fundamental changes to the benefit design, potentially conflicting with
the goal of allowing participants and beneficiaries to retain health
plans they like, and still retain grandfather status.\24\ There would
also be significant complexity involved in defining and determining
actuarial value for these purposes, as well as significant burdens
associated with administering and ensuring compliance with such rules.
Therefore, the Departments did not include this option in the proposed
rules.
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\24\ 75 FR 34538, 34547 (June 17, 2010).
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The Departments considered changing the date of measurement for
calculating whether changes to group health plans or health insurance
coverage will cause a loss of grandfather status. For example, instead
of looking at the cumulative change from March 23, 2010, the rules
could measure the annual increases, starting from the effective date of
the proposed rules, if finalized. However, the Departments concluded
that this option could limit flexibility for some employers. For
example, some employers might want to keep the terms of the plan the
same for a few years and then make a more significant change later.
The Departments also considered making changes to the 2015 final
rules to encourage more cost-effective care. One option the Departments
considered to encourage cost-effective care was allowing greater cost
sharing for brand name drugs if a generic becomes available. However,
the Departments decided not to make this change because allowing
greater cost-sharing for brand name drugs when a generic becomes
available does not result in loss of grandfather status under the 2015
final rules.\25\ Another option the Departments considered was allowing
unlimited changes to cost sharing for out-of-network benefits. However,
the Departments are concerned that unlimited discretion to change cost-
[[Page 42795]]
sharing requirements for out-of-network benefits could result in
changes to plans of such a magnitude that they no longer resemble the
plan as it existed as of March 23, 2010. Additionally, the Departments
decided that the proposal to change the applicable index for medical
inflation provides sufficient flexibility for fixed cost-sharing
requirements. This option would give flexibility to grandfathered plans
with respect to all fixed-amount cost-sharing requirements, including
for out-of-network benefits.
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\25\ 80 FR 72192, 72197, 72198 (Nov. 18, 2015).
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E. Collection of Information Requirements
These proposed rules do not impose new information collection
requirements; that is, reporting, recordkeeping, or third-party
disclosure requirements. Consequently, there is no need for OMB review
under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.). Though the proposed rules do not contain any new
information collection requirements, the Departments are continuing the
current requirements that grandfathered plans maintain records
documenting the terms of the plan in effect on March 23, 2010, include
a statement in any summary of benefits that the plan or coverage
believes it is grandfathered health plan coverage and provide contact
information for participants to direct questions and complaints.
Additionally, the Departments are continuing the requirement that a
grandfathered group health plan that is changing health insurance
issuers is required to provide the succeeding health insurance issuer
documentation of plan terms under the prior health insurance coverage
sufficient to make a determination whether the standards of paragraph
26 CFR 54.9815-1251(g)(1), 29 CFR 2590.715-1251(g)(1) and 45 CFR
147.140(g)(1) are exceeded and that insured group health plans (or
multiemployer plans) that are grandfathered plans are required to
notify the issuer (or multiemployer plan) if the contribution rate
changes at any point during the plan year. The Departments do not
anticipate that the proposed provisions would make a substantive or
material modification to the collections currently approved under the
collection of information OMB control number 0938-1093 (CMS-10325), OMB
control number 1210-0140 (DOL), and OMB control number 1545-2178
(Department of the Treasury).
F. Regulatory Flexibility Act
The Regulatory Flexibility Act, (5 U.S.C. 601, et seq.), requires
agencies to prepare an initial regulatory flexibility analysis to
describe the impact of proposed rules on small entities, unless the
head of the agency can certify that the rules would not have a
significant economic impact on a substantial number of small entities.
The RFA generally defines a ``small entity'' as (1) a proprietary firm
meeting the size standards of the Small Business Administration (SBA),
(2) a not-for-profit organization that is not dominant in its field, or
(3) a small government jurisdiction with a population of less than
50,000. States and individuals are not included in the definition of
``small entity.'' HHS uses a change in revenues of more than three to
five percent as its measure of significant economic impact on a
substantial number of small entities.
These proposed rules would amend the 2015 final rules to allow
greater flexibility for grandfathered group health plans and issuers of
grandfathered group health insurance coverage. Specifically, the
proposed rules would specify that grandfathered group health plans that
are HDHPs may make changes to fixed-amount cost-sharing requirements
that would otherwise cause a loss of grandfather status without causing
a loss of grandfather status, but only to the extent those changes are
necessary to comply with the requirements for being HDHPs under section
223(c)(2) of the Code. The proposed rules would also include a revised
definition of ``maximum percentage increase'' that would provide an
alternative method of determining the ``maximum percentage increase''
that is based on the premium adjustment percentage.
G. Impact of Regulations on Small Business--Department of Health and
Human Services and the Department of Labor
The Departments are of the view that health insurance issuers would
be classified under the North American Industry Classification System
code 524114 (Direct Health and Medical Insurance Carriers). According
to SBA size standards, entities with average annual receipts of $41.5
million or less would be considered small entities for these North
American Industry Classification System codes. Issuers could possibly
be classified in 621491 (HMO Medical Centers) and, if this is the case,
the SBA size standard would be $35 million or less.\26\ Few, if any,
insurance companies underwriting comprehensive health insurance
policies (in contrast, for example, to travel insurance policies or
dental discount policies) fall below these size thresholds. Based on
data from MLR annual report submissions for the 2018 MLR reporting
year, approximately 84 out of 498 issuers of health insurance coverage
nationwide had total premium revenue of $41.5 million or less.\27\ This
estimate may overstate the actual number of small health insurance
companies that may be affected, since over 72 percent of these small
companies belong to larger holding groups. Most, if not all, of these
small companies are likely to have non-health lines of business that
will result in their revenues exceeding $41.5 million, and it is likely
not all of these companies offer grandfathered plans. The Departments
do not expect any of these 84 potentially small entities to experience
a change in revenues of more than three to five percent as a result of
these proposed rules. Therefore, the Departments do not expect the
provisions of these proposed rules to affect a substantial number of
small entities. Due to the lack of knowledge regarding what small
entities may decide to do with regard to the provisions proposed in
these proposed rules, the Departments are not able to accurately
ascertain the economic effects on small entities. However, the
Departments believe that the flexibilities provided for in these
proposed rules would result in overall benefits for small entities by
allowing them to make changes to certain cost-sharing requirements
within limits and maintain their current grandfathered group health
plans. The Departments seek comment on ways that the proposed rules may
impose additional costs and burdens on small entities.
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\26\ ``Table of Small Business Size Standards Matched to North
American Industry Classification System Codes.'' U.S. Small Business
Administration, available at https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf.
\27\ ``Medical Loss Ratio Data and System Resources.'' CCIIO,
available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
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For purposes of analysis under the RFA, the Employee Benefits
Security Administration (EBSA) continues to consider a small entity to
be an employee benefit plan with fewer than 100 participants.\28\ The
basis of this definition is found in section 104(a)(2)
[[Page 42796]]
of ERISA, which permits the Secretary of Labor to prescribe simplified
annual reports for pension plans that cover fewer than 100
participants. Under section 104(a)(3), the Secretary of Labor may also
provide for exemptions or simplified annual reporting and disclosure
for welfare benefit plans. Pursuant to the authority of section
104(a)(3), the Department of Labor has previously issued at 29 CFR
2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10
certain simplified reporting provisions and limited exemptions from
reporting and disclosure requirements for small plans, including
unfunded or insured welfare plans covering fewer than 100 participants
and satisfying certain other requirements. Further, while some large
employers may have small plans, in general small employers maintain
most small plans. Thus, EBSA believes that assessing the impact of
these proposed rules on small plans is an appropriate substitute for
evaluating the effect on small entities. The definition of small entity
considered appropriate for this purpose differs, however, from a
definition of small business that is based on size standards
promulgated by the Small Business Administration (SBA) (13 CFR 121.201)
pursuant to the Small Business Act (15 U.S.C. 631 et seq.). Therefore,
EBSA requests comments on the appropriateness of the size standard used
in evaluating the impact of these proposed rules on small entities.
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\28\ The Department of Labor consulted with the Small Business
Administration in making this determination as required by 5 U.S.C.
603(c) and 13 CFR 121.903(c).
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H. Impact of Regulations on Small Business--Department of the Treasury
Pursuant to section 7805(f) of the Code, these proposed rules have
been submitted to the Chief Counsel for Advocacy of the SBA for comment
on their impact on small business.
I. Effects on Small Rural Hospitals
Section 1102(b) of the Social Security Act (SSA) (42 U.S.C. 1302)
requires agencies to prepare a regulatory impact analysis if a rule may
have a significant impact on the operations of a substantial number of
small rural hospitals. This analysis must conform to the provisions of
section 603 of the RFA. For purposes of section 1102(b) of the SSA, the
HHS defines a small rural hospital as a hospital that is located
outside of a metropolitan statistical area and has fewer than 100 beds.
These proposed rules would not affect small rural hospitals. Therefore,
the Departments have determined that these proposed rules would not
have a significant impact on the operations of a substantial number of
small rural hospitals.
J. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain actions before issuing a proposed rule that includes any
federal mandate that may result in expenditures in any one year by
state, local, or tribal governments, in the aggregate, or by the
private sector, of $100 million in 1995 dollars, updated annually for
inflation. In 2020, that threshold is approximately $156 million.
While the Departments recognize that some state, local, and tribal
governments may sponsor grandfathered health plan coverage, the
Departments do not expect any state, local, or tribal government to
incur any additional costs associated with these proposed rules, if
finalized. The Departments estimate that any costs associated with the
proposed rules if finalized would not exceed the $156 million
threshold. Thus, the Departments conclude that these proposed rules
would not impose an unfunded mandate on state, local, or tribal
governments or the private sector.
K. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule that imposes
substantial direct costs on state and local governments, preempts state
law, or otherwise has federalism implications. Federal agencies
promulgating regulations that have 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, these proposed rules do not have any
federalism implications. They simply provide grandfathered plan
sponsors and issuers more flexibility to increase fixed-amount cost-
sharing requirements and to make changes to fixed-amount cost-sharing
requirements in grandfathered group health plans and grandfathered
group health insurance coverage that are HDHPs to the extent those
changes are necessary to comply with the requirements for HDHPs under
section 223(c)(2) of the Code, without causing the plan or coverage to
relinquish its grandfather status. The Departments recognize that some
state, local, and tribal governments may sponsor grandfathered health
plan coverage. The proposed rules would provide these entities with
additional flexibility.
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 section 731 of
ERISA and section 2724 of the PHS Act (implemented in 29 CFR
2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements in
title XXVII of the PHS Act (including those enacted by PPACA) 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
states 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 to health insurance issuers except to the extent
that such requirements prevent the application of PHS Act requirements
that are the subject of this rulemaking. 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 states, including participating in
conference calls with and attending conferences of the National
Association of Insurance Commissioners, and consulting with state
insurance officials on an individual basis. While developing these
proposed rules, the Departments attempted to balance the states'
interests in regulating health insurance issuers with 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 proposed rules, the
Departments certify that the Department of Treasury,
[[Page 42797]]
Employee Benefits Security Administration, and the Centers for Medicare
& Medicaid Services have complied with the requirements of Executive
Order 13132 for the attached proposed rules in a meaningful and timely
manner.
L. Reducing Regulation and Controlling Regulatory Costs
Executive Order 13771, entitled ``Reducing Regulation and
Controlling Regulatory Costs,'' was issued on January 30, 2017, and
requires that the costs associated with significant new regulations
``shall, to the extent permitted by law, be offset by the elimination
of existing costs associated with at least two prior regulations.'' The
designation of these proposed rules under Executive Order 13771--as a
regulatory action, a deregulatory action, or neither--will be informed
by comments received.
V. Statutory Authority
The Department of the Treasury regulations are proposed to be
adopted pursuant to the authority contained in sections 7805 and 9833
of the Code.
The Department of Labor regulations are proposed to be 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 regulations are
proposed to be 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.
Sunita Lough,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.
Signed at Washington DC, this 6th day of July, 2020.
Jeanne Klinefelter Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration,
U.S. Department of Labor.
Dated: July 1, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 6, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
Amendments to the Regulations
Accordingly, the Internal Revenue Service, Department of the
Treasury, proposes to amend 26 CFR part 54 as follows:
PART 54--PENSION EXCISE TAXES
0
Paragraph 1. The authority citation for part 54 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805.
* * * * *
0
Par. 2. Section 54.9815-1251, as amended:
0
a. By revising the first sentence of paragraph (g)(1) introductory
text;
0
b. By revising paragraphs (g)(1)(iii), (g)(1)(iv)(A) and (B), and
(g)(1)(v);
0
c. By redesignating paragraphs (g)(3) and (4) as paragraphs (g)(4) and
(5);
0
d. By adding a new paragraph (g)(3);
0
e. By revising newly redesignated paragraphs (g)(4)(i) and (ii);
0
f. In newly redesignated paragraph (g)(5), by revising Examples 3 and
4;
0
g. In newly redesignated paragraph (g)(5), by redesignating Examples 5
through 9 as Examples 6 through 10;
0
h. In newly redesignated paragraph (g)(5), by adding a new Example 5;
0
i. In newly redesignated paragraph (g)(5), by revising newly
redesignated Examples 6 through 10;
0
j. In newly redesignated paragraph (g)(5), by adding Example 11.
The revisions and additions read as follows:
Sec. 54.9815-1251 Preservation of right to maintain existing
coverage.
* * * * *
(g) * * *
(1) * * * Subject to paragraphs (g)(2) and (3) 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. * * *
* * * * *
(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)(4)(ii) of this
section).
(iv) * * *
(A) An amount equal to $5 increased by medical inflation, as
defined in paragraph (g)(4)(i) of this section (that is, $5 times
medical inflation, plus $5), or
(B) The maximum percentage increase (as defined in paragraph
(g)(4)(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)(4)(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(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)(4)(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(d)) by more than 5 percent below the contribution rate
for the coverage period that includes March 23, 2010.
* * * * *
[[Page 42798]]
(3) Special rule for certain grandfathered high deductible health
plans. With respect to a grandfathered group health plan or group
health insurance coverage that is a high deductible health plan within
the meaning of section 223(c)(2), increases to fixed-amount cost-
sharing requirements that otherwise would cause a loss of grandfather
status will not cause the plan or coverage to relinquish its
grandfather status, but only to the extent such increases are necessary
to maintain its status as a high deductible health plan under section
223(c)(2)(A).
(4) * * *
(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:
(A) With respect to increases for a group health plan and group
health insurance coverage made effective on or after March 23, 2010,
and before [the effective date of final rule], medical inflation (as
defined in paragraph (g)(4)(i) of this section), expressed as a
percentage, plus 15 percentage points; and
(B) With respect to increases for a group health plan and group
health insurance coverage made effective on or after [effective date of
final rule], the greater of:
(1) Medical inflation (as defined in paragraph (g)(4)(i) of this
section), expressed as a percentage, plus 15 percentage points; or
(2) The portion of the premium adjustment percentage, as defined in
45 CFR 156.130(e), that reflects the relative change between 2013 and
the calendar year prior to the effective date of the increase (that is,
the premium adjustment percentage minus 1), expressed as a percentage,
plus 15 percentage points.
* * * * *
(5) * * *
Example 3. (i) Facts. On March 23, 2010, a grandfathered group
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, effective before [effective date of final rule].
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)(4)(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 group health plan subsequently increases the $40
copayment requirement to $45 for a later plan year, effective before
[effective date of final rule]. 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)(4)(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. Same facts as Example 4, except the
grandfathered group health plan increases the copayment requirement to
$45, effective after [effective date of final rule]. The greatest value
of the overall medical care component of the CPI-U (unadjusted) in the
preceding 12-month period is still 485. In the calendar year that
includes the effective date of the increase, the applicable portion of
the premium adjustment percentage is 36%.
(ii) Conclusion. In this Example 5, the grandfathered health plan
may increase the copayment by the greater of: Medical inflation,
expressed as a percentage, plus 15 percentage points; or the applicable
portion of the premium adjustment percentage for the calendar year that
includes the effective date of the increase, plus 15 percentage points.
The latter amount is greater because it results in a 51% maximum
percentage increase (36% + 15% = 51%) and, as demonstrated in Example
4, determining the maximum percentage increase using medical inflation
yields a result of 40.27%. The increase in the copayment, expressed as
a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 50%). Because
the 50% increase in the copayment is less than the 51% maximum
percentage increase, the change in the copayment requirement at that
time does not cause the plan to cease to be a grandfathered health
plan.
Example 6. (i) Facts. On March 23, 2010, a grandfathered group
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, effective before [effective date of final rule].
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 6, 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)(4)(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 group 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 6 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 7. (i) Facts. The same facts as Example 6, except on March
23, 2010, the grandfathered health plan has no copayment ($0) for
office visits for primary care providers. The plan is
[[Page 42799]]
subsequently, amended to increase the copayment requirement to $5,
effective before [effective date of final rule].
(ii) Conclusion. In this Example 7, medical inflation (as defined
in paragraph (g)(4)(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 7 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 8. (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 8, 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 9. (i) Facts. On March 23, 2010, a self-insured
grandfathered health plan has a COBRA premium for the 2010 plan year of
$5,000 for self-only coverage and $12,000 for family coverage. The
required employee contribution for the coverage is $1,000 for self-only
coverage and $4,000 for family coverage. Thus, the contribution rate
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage.
For a subsequent plan year, the COBRA premium is $6,000 for self-only
coverage and $15,000 for family coverage. The employee contributions
for that plan year are $1,200 for self-only coverage and $5,000 for
family coverage. Thus, the contribution rate based on cost of coverage
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
(ii) Conclusion. In this Example 9, 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.
Example 10. (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 increases coinsurance
under Option H from 10% to 15%.
(ii) Conclusion. In this Example 10, the coverage under Option H is
not grandfathered health plan coverage as of July 1, 2013, consistent
with the rule in paragraph (g)(1)(ii) of this section. Whether the
coverage under Options F and G is grandfathered health plan coverage is
determined separately under the rules of this paragraph (g).
Example 11. (i) Facts. A group health plan that is a grandfathered
health plan and also a high deductible health plan within the meaning
of section 223(c)(2) had a $2,400 deductible for family coverage on
March 23, 2010. The plan is subsequently amended after [effective date
of final rule] to increase the deductible limit by the amount that is
necessary to comply with the requirements for a plan to qualify as a
high deductible health plan under section 223(c)(2)(A), but that
exceeds the maximum percentage increase.
(ii) Conclusion. In this Example 11, the increase in the deductible
at that time does not cause the plan to cease to be a grandfathered
health plan because the increase was necessary for the plan to continue
to satisfy the definition of a high deductible health plan under
section 223(c)(2)(A).
DEPARTMENT OF LABOR
Employee Benefits Security Administration
Accordingly, the Department of Labor proposes to amend 29 CFR part
2590 as follows:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS.
0
3. 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;
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
0
4. Amend Sec. 2590.715-1251:
0
a. By revising the first sentence of paragraph (g)(1) introductory
text;
0
b. By revising paragraphs (g)(1)(iii), (g)(1)(iv)(A) and (B), and
(g)(1)(v);
0
c. By redesignating paragraphs (g)(3) and (4) as paragraphs (g)(4) and
(5);
0
d. By adding a new paragraph (g)(3);
0
e. By revising newly redesignated paragraphs (g)(4)(i) and (ii);
0
f. In newly redesignated paragraph (g)(5), by revising Examples 3 and
4;
0
g. In newly redesignated paragraph (g)(5), by redesignating Examples 5
through 9 as Examples 6 through 10;
0
h. In newly redesignated paragraph (g)(5), by adding a new Example 5;
0
i. In newly redesignated paragraph (g)(5), by revising newly
redesignated Examples 6 through 10;
0
j. In newly redesignated paragraph (g)(5), by adding Example 11.
The revisions and additions read as follows:
Sec. 2590.715-1251 Preservation of right to maintain existing
coverage.
* * * * *
(g) * * *
(1) * * * Subject to paragraphs (g)(2) and (3) 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. * * *
* * * * *
(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)(4)(ii) of this
section).
(iv) * * *
(A) An amount equal to $5 increased by medical inflation, as
defined in paragraph (g)(4)(i) of this section (that is, $5 times
medical inflation, plus $5), or
(B) The maximum percentage increase (as defined in paragraph
(g)(4)(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
[[Page 42800]]
rate based on cost of coverage (as defined in paragraph (g)(4)(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))
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)(4)(iii)(B) 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)) by more than 5 percent below the contribution
rate for the coverage period that includes March 23, 2010.
* * * * *
(3) Special rule for certain grandfathered high deductible health
plans. With respect to a grandfathered group health plan or group
health insurance coverage that is a high deductible health plan within
the meaning of section 223(c)(2) of the Internal Revenue Code,
increases to fixed-amount cost-sharing requirements that otherwise
would cause a loss of grandfather status will not cause the plan or
coverage to relinquish its grandfather status, but only to the extent
such increases are necessary to maintain its status as a high
deductible health plan under section 223(c)(2)(A) of the Internal
Revenue Code.
(4) * * *
(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:
(A) With respect to increases for a group health plan and group
health insurance coverage made effective on or after March 23, 2010,
and before [the effective date of final rule], medical inflation (as
defined in paragraph (g)(4)(i) of this section), expressed as a
percentage, plus 15 percentage points; and
(B) With respect to increases for a group health plan and group
health insurance coverage made effective on or after [effective date of
final rule], the greater of:
(1) Medical inflation (as defined in paragraph (g)(4)(i) of this
section), expressed as a percentage, plus 15 percentage points; or
(2) The portion of the premium adjustment percentage, as defined in
45 CFR 156.130(e), that reflects the relative change between 2013 and
the calendar year prior to the effective date of the increase (that is,
the premium adjustment percentage minus 1), expressed as a percentage,
plus 15 percentage points.
* * * * *
(5) * * *
Example 3. (i) Facts. On March 23, 2010, a grandfathered group
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, effective before [effective date of final rule].
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)(4)(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 group health plan subsequently increases the $40
copayment requirement to $45 for a later plan year, effective before
[effective date of final rule]. 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)(4)(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. Same facts as Example 4, except the
grandfathered group health plan increases the copayment requirement to
$45, effective after [effective date of final rule]. The greatest value
of the overall medical care component of the CPI-U (unadjusted) in the
preceding 12-month period is still 485. In the calendar year that
includes the effective date of the increase, the applicable portion of
the premium adjustment percentage is 36%.
(ii) Conclusion. In this Example 5, the grandfathered health plan
may increase the copayment by the greater of: Medical inflation,
expressed as a percentage, plus 15 percentage points; or the applicable
portion of the premium adjustment percentage for the calendar year that
includes the effective date of the increase, plus 15 percentage points.
The latter amount is greater because it results in a 51% maximum
percentage increase (36% + 15% = 51%) and, as demonstrated in Example
4, determining the maximum percentage increase using medical inflation
yields a result of 40.27%. The increase in the copayment, expressed as
a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 50%). Because
the 50% increase in the copayment is less than the 51% maximum
percentage increase, the change in the copayment requirement at that
time does not cause the plan to cease to be a grandfathered health
plan.
Example 6. (i) Facts. On March 23, 2010, a grandfathered group
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, effective before [effective date of final rule].
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 6, the increase in the copayment,
expressed as
[[Page 42801]]
a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). Medical
inflation (as defined in paragraph (g)(4)(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 group 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 6 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 7. (i) Facts. The same facts as Example 6, 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, effective before
[effective date of final rule].
(ii) Conclusion. In this Example 7, medical inflation (as defined
in paragraph (g)(4)(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 7 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 8. (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 8, 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 9. (i) Facts. On March 23, 2010, a self-insured
grandfathered health plan has a COBRA premium for the 2010 plan year of
$5,000 for self-only coverage and $12,000 for family coverage. The
required employee contribution for the coverage is $1,000 for self-only
coverage and $4,000 for family coverage. Thus, the contribution rate
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage.
For a subsequent plan year, the COBRA premium is $6,000 for self-only
coverage and $15,000 for family coverage. The employee contributions
for that plan year are $1,200 for self-only coverage and $5,000 for
family coverage. Thus, the contribution rate based on cost of coverage
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
(ii) Conclusion. In this Example 9, 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 10. (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 increases coinsurance
under Option H from 10% to 15%.
(ii) Conclusion. In this Example 10, the coverage under Option H is
not grandfathered health plan coverage as of July 1, 2013, consistent
with the rule in paragraph (g)(1)(ii) of this section. Whether the
coverage under Options F and G is grandfathered health plan coverage is
determined separately under the rules of this paragraph (g).
Example 11. (i) Facts. A group health plan that is a grandfathered
health plan and also a high deductible health plan within the meaning
of section 223(c)(2) of the Internal Revenue Code had a $2,400
deductible for family coverage on March 23, 2010. The plan is
subsequently amended after [effective date of final rule] to increase
the deductible limit by the amount that is necessary to comply with the
requirements for a plan to qualify as a high deductible health plan
under section 223(c)(2)(A) of the Internal Revenue Code, but that
exceeds the maximum percentage increase.
(ii) Conclusion. In this Example 11, the increase in the deductible
at that time does not cause the plan to cease to be a grandfathered
health plan because the increase was necessary for the plan to continue
to satisfy the definition of a high deductible health plan under
section 223(c)(2)(A) of the Internal Revenue Code.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
For the reasons stated in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR part 147 as set forth
below:
PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND
INDIVIDUAL HEALTH INSURANCE MARKETS
0
5. The authority citation for part 147 continues to read as follows:
Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, and
300gg-92, as amended.
0
6. Section 147.140 is amended:
0
a. By revising the first sentence of paragraph (g)(1) introductory
text;
0
b. By revising paragraphs (g)(1)(iii), (g)(1)(iv)(A) and (B), and
(g)(1)(v);
0
c. By redesignating paragraphs (g)(3) and (4) as paragraphs (g)(4) and
(5);
0
d. By adding a new paragraph (g)(3);
0
e. By revising newly redesignated paragraphs (g)(4)(i) and (ii);
0
f. In newly redesignated paragraph (g)(5), by revising Examples 3 and
4;
0
g. In newly redesignated paragraph (g)(5), by redesignating Examples 5
through 9 as Examples 6 through 10;
0
h. In newly redesignated paragraph (g)(5), by adding a new Example 5;
0
i. In newly redesignated paragraph (g)(5), by revising newly
redesignated Examples 6 through 10; and
0
j. In newly redesignated paragraph (g)(5), by adding Example 11.
The revisions and additions read as follows:
Sec. 147.140 Preservation of right to maintain existing coverage.
* * * * *
(g) * * *
(1) * * * Subject to paragraphs (g)(2) and (3) 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. * * *
* * * * *
(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
[[Page 42802]]
increase (as defined in paragraph (g)(4)(ii) of this section).
(iv) * * *
(A) An amount equal to $5 increased by medical inflation, as
defined in paragraph (g)(4)(i) of this section (that is, $5 times
medical inflation, plus $5), or
(B) The maximum percentage increase (as defined in paragraph
(g)(4)(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)(4)(iii)(A) of this section) towards the cost of any
tier of coverage for any class of similarly situated individuals (as
described in Sec. 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)(4)(iii)(B) of this section) towards the cost of any tier of
coverage for any class of similarly situated individuals (as described
in Sec. 146.121(d) of this subchapter) by more than 5 percent below
the contribution rate for the coverage period that includes March 23,
2010.
* * * * *
(3) Special rule for certain grandfathered high deductible health
plans. With respect to a grandfathered group health plan or group
health insurance coverage that is a high deductible health plan within
the meaning of section 223(c)(2) of the Internal Revenue Code,
increases to fixed-amount cost-sharing requirements that otherwise
would cause a loss of grandfather status will not cause the plan or
coverage to relinquish its grandfather status, but only to the extent
such increases are necessary to maintain its status as a high
deductible health plan under section 223(c)(2)(A) of the Internal
Revenue Code.
(4) * * *
(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:
(A) With respect to increases for a group health plan and group
health insurance coverage made effective on or after March 23, 2010,
and before [the effective date of final rule], medical inflation (as
defined in paragraph (g)(4)(i) of this section), expressed as a
percentage, plus 15 percentage points;
(B) With respect to increases for a group health plan and group
health insurance coverage made effective on or after [effective date of
final rule], the greater of:
(1) Medical inflation (as defined in paragraph (g)(4)(i) of this
section), expressed as a percentage, plus 15 percentage points; or
(2) The portion of the premium adjustment percentage, as defined in
Sec. 156.130(e) of this subchapter, that reflects the relative change
between 2013 and the calendar year prior to the effective date of the
increase (that is, the premium adjustment percentage minus 1),
expressed as a percentage, plus 15 percentage points; and
(C) With respect to increases for individual health insurance
coverage, medical inflation (as defined in paragraph (g)(4)(i) of this
section), expressed as a percentage, plus 15 percentage points.
* * * * *
(5) * * *
Example 3. (i) Facts. On March 23, 2010, a grandfathered group
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, effective before [effective date of final rule].
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)(4)(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 group health plan subsequently increases the $40
copayment requirement to $45 for a later plan year, effective before
[effective date of final rule]. 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)(4)(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. Same facts as Example 4, except the
grandfathered group health plan increases the copayment requirement to
$45, effective after [effective date of final rule]. The greatest value
of the overall medical care component of the CPI-U (unadjusted) in the
preceding 12-month period is still 485. In the calendar year that
includes the effective date of the increase, the applicable portion of
the premium adjustment percentage is 36%.
(ii) Conclusion. In this Example 5, the grandfathered health plan
may increase the copayment by the greater of: Medical inflation,
expressed as a percentage, plus 15 percentage points; or the applicable
portion of the premium adjustment percentage for the calendar year that
includes the effective date of the increase, plus 15 percentage points.
The latter amount is greater because it results in a 51% maximum
[[Page 42803]]
percentage increase (36% + 15% = 51%) and, as demonstrated in Example
4, determining the maximum percentage increase using medical inflation
yields a result of 40.27%. The increase in the copayment, expressed as
a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 50%). Because
the 50% increase in the copayment is less than the 51% maximum
percentage increase, the change in the copayment requirement at that
time does not cause the plan to cease to be a grandfathered health
plan.
Example 6. (i) Facts. On March 23, 2010, a grandfathered group
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, effective before [effective date of final rule].
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 6, 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)(4)(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 group 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 6 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 7. (i) Facts. The same facts as Example 6, 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, effective before
[effective date of final rule].
(ii) Conclusion. In this Example 7, medical inflation (as defined
in paragraph (g)(4)(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 7 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 8. (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 8, 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 9. (i) Facts. On March 23, 2010, a self-insured
grandfathered health plan has a COBRA premium for the 2010 plan year of
$5,000 for self-only coverage and $12,000 for family coverage. The
required employee contribution for the coverage is $1,000 for self-only
coverage and $4,000 for family coverage. Thus, the contribution rate
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage.
For a subsequent plan year, the COBRA premium is $6,000 for self-only
coverage and $15,000 for family coverage. The employee contributions
for that plan year are $1,200 for self-only coverage and $5,000 for
family coverage. Thus, the contribution rate based on cost of coverage
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
(ii) Conclusion. In this Example 9, 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 10. (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 increases coinsurance
under Option H from 10% to 15%.
(ii) Conclusion. In this Example 10, the coverage under Option H is
not grandfathered health plan coverage as of July 1, 2013, consistent
with the rule in paragraph (g)(1)(ii) of this section. Whether the
coverage under Options F and G is grandfathered health plan coverage is
determined separately under the rules of this paragraph (g).
Example 11. (i) Facts. A group health plan that is a grandfathered
health plan and also a high deductible health plan within the meaning
of section 223(c)(2) of the Internal Revenue Code had a $2,400
deductible for family coverage on March 23, 2010. The plan is
subsequently amended after [effective date of final rule] to increase
the deductible limit by the amount that is necessary to comply with the
requirements for a plan to qualify as a high deductible health plan
under section 223(c)(2)(A) of the Internal Revenue Code, but that
exceeds the maximum percentage increase.
(ii) Conclusion. In this Example 11, the increase in the deductible
at that time does not cause the plan to cease to be a grandfathered
health plan because the increase was necessary for the plan to continue
to satisfy the definition of a high deductible health plan under
section 223(c)(2)(A) of the Internal Revenue Code.
[FR Doc. 2020-14895 Filed 7-10-20; 8:45 am]
BILLING CODE P
