Grandfathered Group Health Plans and Grandfathered Group Health Insurance Coverage
| Published date | 15 December 2020 |
| Record Number | 2020-27498 |
| Section | Rules and Regulations |
| Court | Employee Benefits Security Administration |
Federal Register, Volume 85 Issue 241 (Tuesday, December 15, 2020)
[Federal Register Volume 85, Number 241 (Tuesday, December 15, 2020)]
[Rules and Regulations]
[Pages 81097-81122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27498]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[TD 9928]
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-F]
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: Final rules.
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SUMMARY: This document includes final rules regarding grandfathered
group health plans and grandfathered group health insurance coverage
that amend current rules to provide greater flexibility for certain
grandfathered health plans to make changes to certain types of fixed-
amount cost-sharing requirements without causing a loss of grandfather
status under the Patient Protection and Affordable Care Act.
DATES:
Effective Date: These regulations are effective January 14, 2021.
Applicability Date: These regulations are applicable June 15, 2021.
FOR FURTHER INFORMATION CONTACT: William Fischer, Internal Revenue
Service, Department of the Treasury, (202) 317-5500.
Matthew Litton and Chelsea Cerio, Employee Benefits Security
Administration, Department of Labor, (202) 693-8335.
Cam Clemmons, Centers for Medicare & Medicaid Services, Department
of Health and Human Services, (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 Employee Benefits Security Administration (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
Health and Human Services (HHS) regarding private health insurance
coverage and 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 healthcare reform can be found
at www.HealthCare.gov.
SUPPLEMENTARY INFORMATION:
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.''
HHS, DOL, and the Department of 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 issued a notice of
proposed rulemaking on July 15, 2020 (referred to as the 2020 proposed
rules), 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.\2\ After careful consideration of the
comments received, the Departments are issuing final rules that adopt
the proposed amendments without substantive change. In the Departments'
view, these amendments are appropriate because they will enable these
plans to continue offering affordable coverage while also enhancing
their ability to respond to rising healthcare costs. In some cases, the
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).
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\2\ 85 FR 42782 (July 15, 2020)
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The final rules only address the requirements for grandfathered
group health plans and grandfathered group health insurance coverage
and do 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
[[Page 81098]]
insurance coverage has declined each year since PPACA was enacted. As
one comment received in response to the 2019 RFI noted, this decline in
enrollment in grandfathered individual health insurance coverage will
continue due to natural churn, because most consumers stay in the
individual market for less than 5 years.\3\ Moreover, compared to the
number of individuals in grandfathered group health plans and
grandfathered group health insurance coverage, only a small number of
individuals are enrolled in grandfathered individual health insurance
coverage. \4\ 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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\3\ The cause of this churn varies. For example, beginning a new
job that offers group health coverage may result in a transition
from the individual market to group coverage. Eligibility for
Medicaid or Medicare can also result in a consumer leaving the
individual market.
\4\ 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
not subject to certain provisions of PPACA for as long as they maintain
their status as grandfathered health plans.\5\ 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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\5\ 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 that 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.\6\ 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, or contracts of insurance without a loss of grandfather
status.\7\ 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.\8\ After
consideration of 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).\9\
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\6\ 75 FR 34538 (June 17, 2010).
\7\ 75 FR 70114 (Nov. 17, 2010).
\8\ 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.
\9\ 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 was
in existence, and has continuously provided coverage for someone (not
necessarily the same person, but at all times at least one person)
since March 23, 2010, provided the plan (or its sponsor) or issuer has
not taken certain actions resulting in the plan relinquishing
grandfather status.
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 option available 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, provided that any other changes do not
exceed the other standards that cause a plan to relinquish grandfather
status, as explained further in this preamble.
The 2015 final rules specify the circumstances under which 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 of any tier of coverage for
any class of similarly situated individuals by more than five
percentage points below the 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
[[Page 81099]]
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) can significantly alter the balance of
financial obligations between participants and beneficiaries 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. 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 DOL
using the 1982-1984 base of 100.
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 (calculated in the same manner as for fixed amount
cost-sharing requirements other than copayments) or (2) five dollars
(as increased by medical inflation).
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 both include a statement in any summary of benefits
provided under the plan that it believes the plan or coverage is a
grandfathered health plan and 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 grandfathered 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. That a significant 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 the 2019 RFI 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
the 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.
Comments submitted in response to the 2019 RFI provided information
regarding grandfathered health plans that helped inform the 2020
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 other 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 exist and suggested
that very large employers with self-funded plans may sponsor 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 sponsor grandfathered plans. \11\
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\10\ See 2018 Employer Health Benefits Survey, Kaiser Family
Foundation, available at https://www.kff.org/report-section/2018-employer-healthbenefits-survey-section-13-grandfathered-healthplans.
On October 8, 2020, the Kaiser Family Foundation issued its 2020
report. According to survey data, 16 percent of offering firms
report having at least one grandfathered plan in 2020, and 14
percent of covered workers were enrolled in a grandfathered health
plan in 2020. See 2020 Employer Health Benefits Survey, Kaiser
Family Foundation, available at http://files.kff.org/attachment/Report-Employer-Health-Benefits-2020-Annual-Survey.pdf.
\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, could continue and
would not be treated as being out of compliance with certain
specified PPACA market reforms under certain conditions. CMS has
extended this non-enforcement policy each subsequent 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 greater flexibility
for a plan or coverage to maintain grandfather status. Other commenters
noted, however, that grandfathered
[[Page 81100]]
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 stated 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 their grandfathered plans offer more robust provider networks than
other coverage options that are available to them or that access to a
grandfathered plan ensures 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 regarding how
the Departments should amend the 2015 final rules. 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, stating 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.
Commenters also suggested amendments relating to the permitted
changes in cost-sharing requirements for grandfathered 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 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 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
section 5000A of the Code (defined at 45 CFR 155.605(d)(2)); and (3)
the employer shared responsibility payment amounts under section
4980H(a) and (b) of the Code (see section 4980H(c)(5) of the Code).
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 annually by HHS.
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 National Health Expenditure Accounts (NHEA) projection of per
enrollee premiums for private health insurance (excluding Medigap and
property and casualty insurance) at the time of publication of the
premium adjustment percentage.\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 accumulating funds to pay for qualified medical expenses
on behalf of the account beneficiary, his or her spouse, and any
claimed dependents. In order 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) the individual
must 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
Chained Consumer Price Index for All Urban Consumers (C-CPI-U).\13\
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\13\ The Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat.
2054 (Dec. 22, 2017), amended section 1(f)(3) of the Code to use the
C-CPI-U rather than CPI-U for certain inflation adjustments for tax
years beginning after December 31, 2017.
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F. 2020 Proposed Rules
On July 15, 2020, the Departments issued the 2020 proposed rules
that 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.
Therefore, the 2020 proposed rules did not provide any opportunity for
a plan or coverage that has lost its grandfather status under the 2015
final rules to regain that status.
[[Page 81101]]
In issuing the 2020 proposed rules, the Departments considered
comments submitted in response to the 2019 RFI regarding ways that the
2015 final rules could be amended. The Departments did not include in
the 2020 proposed rules many suggestions outlined in those comments
because, in the Departments' view, those suggestions would have allowed
for such significant changes that the modified plan or coverage could
not reasonably be described as being the same plan or coverage that
existed on March 23, 2010, for purposes of grandfather status. The
Departments were persuaded, however, by commenters' statements 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. The Departments also agreed that, as
one commenter on the 2019 RFI highlighted, there is an opportunity to
specify 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 were of the view that those suggestions were
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, the Departments proposed to amend the 2015 final rules
in two ways. First, the 2020 proposed rules included a new paragraph
(g)(3), which specified 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)(A) of
the Code. Second, the 2020 proposed rules included a revised definition
of ``maximum percentage increase'' at redesignated paragraph (g)(4),
which provided an alternative method of determining that amount based
on the premium adjustment percentage. Under the 2020 proposed rules,
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 applicability date of a
final rule.
The Departments requested comments on all aspects of the 2020
proposed rules, as well as on specific issues related to the 2020
proposed rules where stakeholder feedback would be particularly useful
in evaluating whether to issue final rules, and what the content of any
final rules should be.
The comment period for the 2020 proposed rules closed on August 14,
2020. The Departments received 13 comments. After careful consideration
of these comments, for the reasons explained further in the preamble,
the Departments are issuing the final rules, which finalize the 2020
proposed rules without substantive change.
II. Overview of the Final Rules
A. General Response to Public Comments on the 2020 Proposed Rules
Some commenters expressed support for the 2020 proposed rules
because the 2020 proposed rules would allow grandfathered group health
plans and issuers offering grandfathered group health insurance
coverage to make certain key changes without causing a loss of
grandfather status. One commenter noted that providing more flexibility
to maintain grandfather status should help both plan sponsors and
participants. This commenter highlighted that plan sponsors could
continue to avoid the costs and burdens associated with compliance with
the additional requirements applicable to non-grandfathered plans while
plan participants and beneficiaries could retain their current coverage
instead of finding alternate coverage and potentially experiencing
greater increases in cost sharing or reductions in benefits.
The final rules will allow grandfathered group health plan sponsors
and issuers of grandfathered group health insurance coverage more
flexibility to make changes to certain types of cost-sharing
requirements without causing a loss of grandfather status. The
Departments view this flexibility as a way to enable plan sponsors and
issuers to continue to offer quality, affordable coverage to their
participants and beneficiaries while appropriately taking into account
rising healthcare costs. The Departments also are of the view that
providing this flexibility will help participants and beneficiaries in
grandfathered group health plans maintain their current coverage,
including their provider and service network(s). Further, the final
rules will provide participants and beneficiaries with the ability to
maintain access to affordable coverage options offered by their
employers or unions by ensuring that employers and other plan sponsors
have the ability to more appropriately account for the rising costs of
healthcare due to inflation.
Several commenters did not support the 2020 proposed rules and
urged the Departments not to finalize them. These commenters generally
stated that finalizing the 2020 proposed rules would allow employers to
continue to offer plans that do not provide comprehensive benefits
while placing an increased financial burden on participants and
beneficiaries. The commenters also noted that grandfathered group
health plans lack certain essential patient protections, and that the
consequences of not having complete information about grandfathered
coverage will be especially detrimental for patients with complex
medical conditions. These commenters further asserted that ensuring
access to robust coverage and benefits such as preventive services and
maternity care is especially important and that, in light of the
ongoing COVID-19 pandemic, now is not an appropriate time to allow
changes that could shift more costs to consumers.
While the Departments appreciate these concerns, the Departments
are of the view that finalizing the 2020 proposed rules strikes a
proper balance between preserving plans', issuers', participants', and
beneficiaries' ability to maintain existing coverage with the goals of
expanding access to and improving the quality of health coverage. The
Departments are also of the view that the final rules appropriately
support the goal of promoting greater choice in coverage, especially in
light of rising healthcare costs. While grandfathered health plans are
not required to comply with all PPACA market reform provisions, there
are many PPACA consumer protections that are applicable to all group
health plans and issuers offering group health insurance coverage,
regardless of grandfather status, including the prohibition on
preexisting condition exclusions, the prohibition on waiting periods
that exceed 90 days, the prohibition on lifetime or annual dollar
limits, the prohibition on rescissions, and the requirement for plans
and issuers that offer dependent coverage of children to do so up to
age 26. Further, grandfathered group health plans and issuers of
grandfathered group health insurance coverage are not prohibited from
providing coverage consistent with any of the PPACA market provisions
that apply to non-grandfathered group health plans and may add that
coverage without relinquishing grandfather
[[Page 81102]]
status, provided these changes are made without exceeding the standards
established by paragraph (g)(1) of the grandfather regulations.
Several commenters urged the Departments to not finalize the 2020
proposed rules due to the ongoing coronavirus disease of 2019 (COVID-
19) pandemic. These commenters highlighted that the COVID-19 pandemic
has created high levels of economic uncertainty for millions of
Americans while also posing risks to their health and safety. The
commenters voiced concern that the 2020 proposed rules could have a
harmful impact on access to care and affordability during the ongoing
COVID-19 pandemic.
As evidenced by the Administration's efforts to address the COVID-
19 pandemic, the Departments appreciate that the COVID-19 pandemic has
created a greater need for affordable healthcare options for consumers
and, accordingly, have taken a number of actions to provide relief and
promote increased access to benefits during the COVID-19 pandemic.\14\
For example, the Departments have published regulatory and
subregulatory guidance to assist individuals during the COVID-19
pandemic, including those who have lost their health coverage, and have
extended a number of deadlines so that participants and beneficiaries
in employee benefit plans have additional time to make critical health
coverage decisions affecting their benefits during the COVID-19
pandemic.\15\ The Departments highlight that the final rules provide
flexibility to employers that currently offer health coverage and have
consistently done so since 2010, with the aim that their employees will
have a greater ability to maintain that coverage, should they so
choose. Accordingly, the Departments are of the view that the
flexibility afforded by the final rules is unlikely to exacerbate any
difficulties employees may experience in obtaining access to care
during the COVID-19 pandemic and will potentially enable employers and
employees to maintain more affordable coverage than they may otherwise
be able to maintain. Notwithstanding these considerations, the
Departments are delaying the applicability of the final rules, to be
applicable 6 months after publication in the Federal Register, as
discussed later in this preamble.
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\14\ The Departments continue to work with employers and
individuals to help them understand the new laws and regulatory
relief and to benefit from them, as intended. On April 11, 2020, the
Departments issued FAQs Part 42 regarding implementation of the
Families First Coronavirus Response Act (FFCRA), and the Coronavirus
Aid, Relief, and Economic Security (CARES) Act, and other health
coverage issues related to COVID-19 available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf. In this guidance, the
Departments strongly encourage all group health plans and health
insurance issuers to promote the use of telehealth and other remote
care services. The Departments' guidance also provides enforcement
relief that allows plans and issuer to make changes to increase
telehealth benefits more quickly than is possible under current law.
Specifically, the Departments will not enforce regulations that
generally require plans and issuers to provide 60 days' advance
notice of certain changes to plan terms and prohibit issuers from
making mid-year modifications to health insurance products, with
respect to any change that adds benefits or reduces or eliminates
cost-sharing requirements for telehealth services and other remote
care services. On June 23, 2020, the Departments issued a second
round of FAQs, Part 43, providing further guidance regarding
requirements of the FFCRA and the CARES Act and related issues
available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-43.pdf. In light
of the critical need to minimize the risk of exposure to and
community spread of COVID-19, the FAQs provide a statement of
temporary enforcement relief regarding certain requirements that
would otherwise apply in order to allow large employers to offer
stand-alone telehealth benefits to employees who are not eligible
for the employer's primary group health plan. Furthermore, the
Departments of Labor and the Treasury published a Joint Notice--
Extension of Certain Timeframes for Employee Benefit Plans,
Participants, and Beneficiaries (85 FR 26351) on May 4, 2020,
https://www.govinfo.gov/content/pkg/FR-2020-05-04/pdf/2020-09399.pdf. The Joint Notice extends timeframes for requesting
special enrollment in a group health plan, the COBRA election
period, and COBRA premium due dates, and certain timeframes relating
to benefit claims appeals. On May 14, 2020, HHS published guidance
that announced that HHS concurred with the relief specified in the
Joint Notice and would adopt a temporary policy of relaxed
enforcement to extend similar timeframes otherwise applicable to
non-Federal governmental group health plans and health insurance
issuers offering coverage in connection with a group health plan,
and their participants and beneficiaries, under applicable
provisions of title XXVII of the PHS Act, available at https://www.cms.gov/files/document/Temporary-Relaxed-Enforcement-Of-Group-Market-Timeframes.pdf.
\15\ See e.g., Extension of Certain Timeframes for Employee
Benefit Plans, Participants, and Beneficiaries Affected by the
COVID-19 Outbreak, 85 FR 26351 (May 4, 2020); FAQs About First
Coronavirus Response Act and Coronavirus Aid, Relief, and Economic
Security Act Implementation Part 42 (April 11, 2020) available at
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf and https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf; FAQs About
Families First Coronavirus Response Act and Coronavirus Aid, Relief,
and Economic Security Act Implementation Part 43 (June 23, 2020),
available at https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-43.pdf and https://www.cms.gov/files/document/FFCRA-Part-43-FAQs.pdf.
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One commenter raised concerns that the continued availability of
grandfathered plans might contribute to segmentation of the small-group
market, causing adverse selection and, in turn, higher premiums for
small businesses that offer or want to offer plans subject to the PPACA
market reforms. This commenter noted that, because the non-
grandfathered small-group market is subject to modified community
rating and a ``single risk pool,'' firms with younger or healthier-
than-average employees have incentives to opt out of the small group
market single risk pool, at the expense of other firms that may
therefore face higher premiums. Commenters also claimed that the
Departments do not have sufficient information and data to accurately
predict the financial effect that the 2020 proposed rules would have on
consumers.
The Departments acknowledge that the existence of grandfathered
group health plans potentially creates market segmentation and adverse
selection in the small group market. However, the Departments do not
anticipate that the additional flexibilities provided in the final
rules will materially increase market segmentation, or adverse
selection, as the final rules do not provide a mechanism for non-
grandfathered plans to become grandfathered. For this reason, the
Departments are of the view that the changes allowed by the final rules
will not have a measurable impact on premiums for small businesses that
offer or want to offer non-grandfathered group health insurance
coverage. Moreover, the Departments do not expect the number of plans
that maintain grandfather status because of the final rules to be so
significant as to exacerbate any market segmentation that may already
exist.
The Departments also received comments stating that consumers risk
being confused or having difficulty with the term ``grandfathered.''
One commenter noted it may be difficult to know whether grandfathered
plan participants and beneficiaries are actively choosing to remain in
such plans, whether they typically have other non-grandfathered options
that they could select, whether they even know a plan is grandfathered,
or whether they understand which PPACA consumer protections might be
missing when they enroll in grandfathered coverage. Other commenters
suggested the addition of greater transparency requirements for
employers that offer grandfathered plans as a means to avoid confusion.
The Departments note that these concerns relate to grandfathered
plans generally and are not specific to the limited changes made in the
proposed or final rules. Under the 2015 final rules, to maintain status
as a grandfathered plan, a group health plan or health insurance
coverage must include a statement in any summary of benefits that the
plan or coverage believes it is a grandfathered plan. It
[[Page 81103]]
must also provide contact information for questions and complaints. The
2015 final rules provide model language that the plan or coverage can
use to satisfy the disclosure requirement. That language specifically
highlights that grandfathered plans are subject to some, but not all,
of the PPACA consumer protections that apply to non-grandfathered
plans, such as not being subject to the requirement to provide certain
preventive health services without cost sharing. This required
disclosure of grandfather status is intended to alleviate confusion
consumers may face regarding the term ``grandfathered'' and what
benefits and protections are offered under such coverage. The
disclosure language is model language, and plans and issuers may
include additional disclosure elements, such as the entire list of
market reform provisions that do not apply to the specific
grandfathered health plan.
Moreover, group health plans, including grandfathered plans, are
subject to a number of disclosure requirements under which participants
and beneficiaries are entitled to comprehensive information about their
benefits. For example, group health plans that are subject to ERISA are
required to distribute a summary plan description (SPD) to participants
and beneficiaries that provides a comprehensive description of the
benefits offered by the plan.\16\ In addition, group health plans and
issuers of group health insurance coverage, including grandfathered
plans, are required to provide a summary of benefits and coverage (SBC)
that provides information about benefits and cost sharing in connection
with enrollment and renewal.\17\ Furthermore, typically, if a plan or
issuer makes a material modification to any term that affects the
content of the SBC and that is not reflected in the most recently
provided SBC, and that occurs other than in connection with a renewal
or reissuance of coverage, notice of the change must be provided no
later than 60 days prior to the date the modification is effective.\18\
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\16\ ERISA Section 102.
\17\ 26 CFR 54.9815-2715, 29 CFR 2590.715-2715, 45 CFR 147.200.
\18\ 26 CFR 54.9815-2715(b), 29 CFR 2590.715-2715(b), 45 CFR
147.200(b).
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The Departments have concluded that existing disclosure
requirements are sufficient to ensure that participants and
beneficiaries have access to relevant information, including
information regarding cost sharing, to help them understand the
implications of grandfathered coverage. The information included in the
model grandfather notice--in particular the language highlighting that
certain consumer protections under PPACA do not apply to grandfathered
coverage, alongside the information available to individuals in their
plan's SPD and SBC--provides ample disclosure to participants and
beneficiaries regarding their benefits to help them decide whether to
enroll or remain in such a plan. Therefore, the Departments are
declining to include any additional disclosure requirements in the
final rules.
a. 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 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 in order to
remain an HDHP. The Internal Revenue Service updates these amounts
annually to reflect a cost-of-living adjustment.
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.\19\
Nevertheless, the Departments are of the view that there is value in
specifying 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) of the 2015 final rules, such an increase would not cause the
plan or coverage to relinquish its grandfather status. Otherwise, if
such a conflict were to occur, the plan sponsor or issuer would have to
decide whether to preserve the plan's grandfather status or its status
as an HDHP, potentially causing participants and beneficiaries to
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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\19\ For calendar year 2020, a ``high deductible health plan''
is defined under Code section 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 (2019-22 I.R.B.
1261). For calendar year 2021, a ``high deductible health plan'' is
defined under Code section 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 (2020-24 I.R.B.
930).
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To address this potential conflict, the 2020 proposed rules
included a new paragraph (g)(3), which provided 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.\20\ 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. The 2020 proposed
rules also added a new example 11 under paragraph (g)(5) to illustrate
how this special rule would apply.
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\20\ Paragraph (g)(3) of the 2015 final rules would be
renumbered as paragraph (g)(4), and subsequent paragraphs would be
renumbered accordingly. Additionally, the 2020 proposed rules
included conforming amendments to other paragraphs to update all
cross-references to those subparagraphs.
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Several commenters supported the 2020 proposed rules to allow a
grandfathered HDHP to make changes to fixed-amount cost-sharing
requirements without causing a loss of grandfather status to the extent
the increases are necessary to maintain the plan's status as an HDHP.
One commenter highlighted that without this regulatory change, HDHPs
could be forced out of their grandfather status if the annual cost-of-
living adjustment to the required minimum deductible for an HDHP
exceeds the maximum percentage increase allowed under the 2015 final
rules. Another commenter articulated that without this provision,
participants and beneficiaries who are covered under a grandfathered
HDHP and eligible to contribute to an HSA may lose their eligibility to
contribute to an HSA if their plan chooses to relinquish its HDHP
status to maintain its grandfather
[[Page 81104]]
status. The commenter also raised the concern of facing substantial
premium increases as a result of having to choose other health coverage
in the event of an HDHP failing to maintain its HDHP status.
The Departments agree that the special rule for grandfathered HDHPs
could help participants and beneficiaries enrolled in these plans. The
Departments are of the view that there is value in specifying that
grandfathered HDHPs will not be forced to choose whether to preserve
their grandfather status or their status as an HDHP and that they can
continue to provide the coverage with which their participants and
beneficiaries are familiar and comfortable. The Departments also agree
that this special rule will help ensure that plans are able to comply
with minimum cost-sharing requirements for HDHPs so participants and
beneficiaries covered under HDHPs can continue to be eligible to
contribute to HSAs. In adopting the final rules, the Departments
specifically intend to ensure that participants and beneficiaries
enrolled in HDHPs with grandfather status are able to maintain their
eligibility to contribute to HSAs.
Other commenters expressed concerns that allowing grandfathered
HDHPs to preserve both their grandfather status and HDHP status by
implementing fixed dollar cost-sharing increases that exceed the
standards established under the 2015 final rules might result in
increased costs for consumers enrolled in HDHPs. These commenters
stated that the proposed changes would further exacerbate existing
affordability issues, in particular by raising deductibles to
potentially unaffordable levels and subjecting consumers to increased
cost sharing. Several commenters noted that increased cost sharing for
HDHPs may discourage consumers from seeking medical care or cause
consumers to forego treatment if the necessary services became
unaffordable. Moreover, commenters noted that high out-of-pocket costs
for medical care related to the diagnosis and/or treatment of COVID-19
may deter individuals from seeking care, potentially contributing to
increased transmission of COVID-19.
The Departments acknowledge commenters' concerns related to
potential increased cost and affordability issues, but the Departments
do not anticipate significant cost increases for consumers enrolled in
grandfathered HDHPs. In addition, this special rule is narrowly
tailored, as it permits flexibility only to the extent necessary to
maintain a plan's status as an HDHP under section 223(c)(2)(A) of the
Code. Without this regulatory change, grandfathered HDHPs could be
forced to choose between maintaining grandfather status and remaining
HDHPs. The flexibility offered by the special rule for grandfathered
HDHPs will benefit participants and beneficiaries covered under these
plans as it balances potential affordability issues with safeguards.
Specifically, the final rules allow plan sponsors to continue offering
grandfathered coverage, thereby enabling participants and beneficiaries
to maintain existing coverage, while only permitting plan sponsors to
make certain cost-sharing increases to the extent necessary to maintain
HDHP status. Moreover, the Departments expect that the impact of the
special rule will be modest: Sponsors of grandfathered HDHPs will have
greater flexibility to continue offering their plans as grandfathered,
protecting those enrolled in these plans from the disruption and
potentially increased out-of-pocket costs associated with changing to a
different plan or coverage that may not be an HDHP or grandfathered.
This consideration carries particular weight because of the COVID-19
pandemic, during which losing access to a plan or coverage, potentially
including losing access to a specific provider network, could be
particularly disruptive.
b. Definition of Maximum Percentage Increase
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 DOL 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 be of the view that 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 agreed with comments received in response to the 2019 RFI
that the premium adjustment percentage may better reflect the increase
in underlying costs for grandfathered group health plans and
grandfathered group health insurance coverage.\21\
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\21\ The Departments acknowledge that the premium adjustment
percentage does not capture premium growth from 2010 to 2013, and
that it reflects increases in premiums not only in the group market,
but also in the individual market, which have increased more rapidly
than premiums for group health plans and group health insurance.
However, the Departments have concluded that the premium adjustment
percentage may be the best alternative existing measure to reflect
the increase in underlying costs for grandfathered group health
plans and grandfathered group health insurance coverage.
Additionally, the Departments are of the view that using a measure
with which plans and issuers are already familiar will promote
administrative simplicity.
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Accordingly, the 2020 proposed rules included an amended definition
of the maximum percentage increase with 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 CPI-U, unadjusted), to
account for changes in healthcare costs over time. Under the 2020
proposed rules, this alternative standard would not supplant the
current standard; rather, it would be available to the extent it yields
a higher-dollar value 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 applicability date
of the final rules. With respect to increases for group health plans
and group health insurance coverage made effective on or after March
23, 2010, but before the applicability date of the final rules, the
maximum percentage increase would still be defined as medical inflation
expressed as a percentage, plus 15 percentage points.\22\
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\22\ The amendments included in the 2020 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 rules would also add a
separate provision for individual health insurance coverage to make
clear that the definition applicable to individual coverage remains
unchanged.
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Thus, under the 2020 proposed rules, increases to fixed-amount
cost-sharing requirements for grandfathered group health plans and
grandfathered group health insurance coverage that are made applicable
on or after the applicability date of the final rules 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,
[[Page 81105]]
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.\23\ The 2020 proposed rules also added 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 proposed new example
5 included 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. The 2020 proposed rules also renumbered
examples 5 through 9 in paragraph (g)(5) to allow the inclusion of new
example 5 and revised examples 3 through 6 to clarify that these
examples involve plan changes that became effective before the
applicability date of these final rules. These proposed revisions would
ensure that the examples accurately reflect the other provisions of the
2015 final rules.
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\23\ Stakeholders 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.
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In support of this provision in the 2020 proposed rules, one
commenter pointed out that the ability to use a premium adjustment
percentage for permitted changes in fixed cost-sharing amounts would be
helpful to multiemployer plan sponsors wishing to maintain grandfather
status. Another commenter said that the premium adjustment percentage
is an amount very familiar to group health plan sponsors, and it is
based on factors related to group plan premiums, making it a natural
complement to the grandfathered plan cost-sharing requirements.
Some commenters stated that the 2020 proposed rules should have
provided even greater flexibility. One commenter suggested that instead
of examining changes to healthcare costs over cumulative years since
March 23, 2010, the Departments should consider allowing a set
percentage of allowable increase annually. Another commenter urged the
Departments to make additional changes in the final rules to provide
more flexibility, allowing plan design changes specifically to
encourage cost-effective quality care, such as greater ability to
change cost sharing for brand drugs and out-of-network benefits.
One commenter stated that the Departments' intent to allow
grandfathered plans to increase out-of-pocket costs at a rate that is
the greater of the medical inflation adjustment or the premium
adjustment percentage adjustment (plus 15 percentage points) would, by
design, result in increased out-of-pocket costs for participants and
beneficiaries. This commenter stated that using the premium adjustment
percentage for this calculation would leave patients vulnerable to
financial hardship. Another commenter asserted that the proposed
amendment to the definition of maximum percentage increase would likely
result in increased cost sharing, and in turn, less favorable coverage
for individuals enrolled in grandfathered coverage, to the detriment of
many consumers who rely on employment-based health coverage and who may
not have an option to enroll in coverage that complies with the
generally applicable market reforms made by PPACA.
As stated earlier in this preamble, the Departments have concluded
that the proposed and final rules strike the right balance between
allowing grandfathered health plans the flexibility to design their
health plans to meet their changing needs and ensuring that affordable
healthcare options for participants and beneficiaries remain available.
The Departments are unpersuaded that the final rules will result in
significant financial hardship due to the additional permitted
increases in out-of-pocket costs for participants and beneficiaries. As
noted earlier in this preamble, providing an alternative inflation
adjustment for fixed-amount cost-sharing increases will help plans and
issuers better account for changes in the costs of health coverage over
time, potentially allowing them to maintain the grandfathered coverage
for those participants and beneficiaries. Therefore, the Departments
are of the view that allowing plans and issuers to use this measure is
appropriate and it may capture changes in healthcare costs at least as
accurately as the medical inflation standard. Accordingly, the
Departments are finalizing this change, as proposed.
III. Effective Date
In the 2020 proposed rules, the Departments proposed an effective
date of 30 days after publication of the final rules. The Departments
are finalizing as proposed an effective date of 30 days after
publication of the final rules, which would be January 14, 2021.
However, in response to comments, the Departments are including an
applicability date which will make the final rules applicable to
grandfathered group health plans and grandfathered group health
insurance coverage beginning on June 15, 2021. While the Departments
did not receive any comments specifically requesting that the
applicability date of the final rules be delayed to 6 months after
publication, the Departments did receive a number of comments related
to the COVID-19 pandemic and the timing of the final rules, as
discussed earlier in this preamble. Commenters expressed concern that
it is not appropriate to potentially place a greater financial burden
related to healthcare on patients while the COVID-19 pandemic is
ongoing.
As explained above, in the Departments' view, the final rules will
allow employers to continue to offer affordable coverage to those who
are eligible for grandfathered employer-sponsored plans. However, the
Departments acknowledge commenters' reasonable concerns regarding the
timing of the final rules and the uncertainty created by the COVID-19
pandemic. The Departments are therefore delaying the applicability date
of the final rules to 6 months after publication in the Federal
Register. The Departments are of the view that this delay is
appropriate, as the Departments do not expect the delay to have a
significant short-term impact on plans' and issuers' ability to make
use of the cost-sharing flexibilities afforded under the final rules;
instead, a short delay will reduce uncertainty by allowing plans,
issuers, and those covered by grandfathered plans more time to
understand and plan for the increased flexibility provided by the final
rules.
IV. Economic Impact Analysis and Paperwork Burden
A. Summary/Statement of Need
Section 1251 of PPACA generally 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 suggested that issuers and
plan sponsors, as well as participants and
[[Page 81106]]
beneficiaries, continue to value grandfathered group health plan and
grandfathered group health insurance coverage. The Departments issued a
notice of proposed rulemaking on July 15, 2020, to amend the 2015 final
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. The Departments are of
the view that these final rules are appropriate to provide certain
grandfathered health plans greater flexibility while appropriately
taking into account rising healthcare costs. Additionally, the final
rules will ensure that grandfathered plans are able to make changes to
comply with minimum cost-sharing requirements for HDHPs without losing
grandfather status, so enrolled individuals continue to be eligible to
contribute to HSAs. These changes will 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 the final rules, the Departments attempted to balance a
number of competing interests. The Departments sought to balance
providing greater flexibility to grandfathered group health plans and
grandfathered group health insurance coverage that will enable these
plans and coverage to continue offering quality, affordable coverage to
participants and beneficiaries while ensuring that the final rules will
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 grandfathered health plans and
grandfathered group health insurance coverage to make unfettered
changes while retaining grandfather status would be inconsistent with
Congress's intent in enacting PPACA.\24\
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\24\ 75 FR 34538, 34546 (June 17, 2010).
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The final rules 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
final rules 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)(A) of
the Code. Second, the final rules include a revised definition of
maximum percentage increase, which provides an alternative standard
that relies on the premium adjustment percentage, rather than medical
inflation, to account for changes in healthcare costs over time,
providing for an alternative inflation adjustment for fixed-amount
cost-sharing increases.
B. Overall Impact
The Departments have examined the impacts of the final 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 1102(b) of the
Social Security Act (SSA), 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, reducing costs, harmonizing rules, and promoting flexibility.
A regulatory impact analysis (RIA) must be prepared for rules with
economically significant effects ($100 million or more in any 1 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 1
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.
An RIA 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. The final rules are not likely to have
economic impacts of $100 million or more in any 1 year, and therefore
do not meet the definition of ``economically significant'' within the
meaning of section 3(f)(1) of Executive Order 12866. However, OMB has
determined that the actions are significant within the meaning of
section 3(f)(4) of the Executive Order. Therefore, OMB has reviewed the
final rules, and the Departments have provided the following assessment
of their impact.
Some commenters stated that the rules should not be finalized
because the Departments had insufficient information and data to
estimate the effects of the 2020 proposed rules on grandfathered group
health plans and coverage as well as those enrolled in such coverage.
The Departments acknowledge that, given the lack of information and
data, the Departments are not able to precisely estimate the
[[Page 81107]]
overall impact of the final rules. As discussed later in the impact
analysis, the Departments note the inability to predict what changes
each grandfathered group health plan will make in response to the final
rules. The Departments recognize that some grandfathered group health
plans may take advantage of flexibilities provided by the final rules
to change certain types of cost-sharing requirements in amounts greater
than the current rules allow, potentially increasing out-of-pocket
costs at a higher rate for some participants and beneficiaries, while
potentially reducing premiums for others. However, other grandfathered
group health plans may make relatively minor, or no, changes. As
discussed previously in this preamble, the Departments note that the
fact that a significant number of grandfathered group health plans and
coverage remain indicates that some employers and issuers have found
value in preserving grandfather status. The Departments are of the view
that preserving grandfather status will enable participants to retain
their current coverage, including their provider network(s), maintain
access to affordable coverage options, and ensure that employers and
other grandfathered group health plan sponsors can more appropriately
account for the rising costs of healthcare due to inflation. The
Departments have also concluded that the final rules appropriately
support the goal of promoting greater choices in coverage, especially
in light of rising healthcare costs.
C. Impact Estimates of Grandfathered Group Health Plans and
Grandfathered Group Health Insurance Coverage Provisions and Accounting
Table
The final rules 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 final rules 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)(A) of the Code. The
final rules also revise the definition of maximum percentage increase
to provide an alternative standard that relies on the premium
adjustment percentage, rather than medical inflation, to account for
changes in healthcare costs over time. 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 the final rules. The effects in Table 1 reflect non-
quantified impacts and estimated direct monetary costs and transfers
resulting from the provisions of the final rules for grandfathered
group health plans, issuers of grandfathered group health coverage,
participants, and beneficiaries.
Table 1--Accounting Table
------------------------------------------------------------------------
Benefits
-------------------------------------------------------------------------
Non-Quantified:
Increases flexibility for plan sponsors and issuers of
grandfathered group health plans and grandfathered group health
insurance coverage to make changes to certain fixed-amount cost-
sharing requirements without losing grandfather status.
If there is uptake of this flexibility:
[cir] 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).
[cir] 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.
Potential reduction in adverse health outcomes if there is
a decrease in the uninsured rate if participants and beneficiaries
choose to obtain coverage due to potential premium reductions for
grandfathered group health plans and grandfathered group health
insurance coverage and seek needed healthcare.
------------------------------------------------------------------------
Primary estimate Discount rate
Costs: (million) Year dollar (percent) Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)....... $6.09 2020 7 2021-2025
$5.67 2020 3 2021-2025
----------------------------------------------------------------------------------------------------------------
Quantitative:
Regulatory review costs of $26.73 million, incurred in
2021, by grandfathered group health plan coverage sponsors and
issuers.
Non-Quantified:
Potential increase in adverse health outcomes if a
participant or beneficiary foregoes 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 or decline to enroll 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 all PPACA market reforms.
------------------------------------------------------------------------
Transfers
------------------------------------------------------------------------
Non-Quantified:
[[Page 81108]]
For 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.
Economic Impacts of Retaining or Relinquishing Grandfather Status and
Affected Entities and Individuals
The Departments estimate that there are 2.5 million ERISA-covered
plans offered by private employers that cover an estimated 136.2
million participants and beneficiaries in those private employer-
sponsored plans.\25\ Similarly, the Departments estimate that there are
84,087 state and local governments that offer health coverage to their
employees, with an estimated 32.8 million participants and
beneficiaries in those employer-sponsored plans.\26\
---------------------------------------------------------------------------
\25\ U.S. Department of Labor, EBSA calculations using the 2019
Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), the
Form 5500 and 2017 Census County Business Patterns; Health Insurance
Coverage Bulletin: Abstract of Auxiliary Data for the March 2019
Annual Social and Economic Supplement to the Current Population
Survey, Table 3C (forthcoming).
\26\ 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 2019 Annual Social and Economic
Supplement to the Current Population Survey, Table 3C,
(forthcoming).
---------------------------------------------------------------------------
The Kaiser Family Foundation 2020 Employer Health Benefits Survey
reports that 16 percent of firms offering health benefits have at least
one health plan or benefit package option that is a grandfathered plan,
and 14 percent of covered workers are enrolled in grandfathered
plans.\27\ Using this information, the Departments estimate that, of
those firms offering health benefits, 400,000 sponsor ERISA-covered
plans (2.5 million * 0.16) that are grandfathered (or include a
grandfathered benefit package option) and cover 19.1 million
participants and beneficiaries (136.2 million * 0.14). The Departments
further estimate there are 13,454 state and local governments (84,087 *
0.16) offering at least one grandfathered health plan and 4.6 million
participants and beneficiaries (32.8 million * 0.14) covered by a
grandfathered state or local government plan.
---------------------------------------------------------------------------
\27\ 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 RIA, the
Departments used more recent data from the same survey. See Kaiser
Family Foundation, ``2020 Employer Health Benefits Survey,''
available at https://www.kff.org/health-costs/report/2020-employer-health-benefits-survey/.
---------------------------------------------------------------------------
Although the Kaiser Family Foundation 2020 Employer Health Benefits
Survey reports that 20 percent of firms offering health benefits
offered an HDHP and 24 percent of covered workers were enrolled in
HDHPs, the Departments are of the view that 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
reported that 12 percent of firms offering health benefits offered an
HDHP, and 6 percent of covered workers were enrolled in HDHPs.\28\
---------------------------------------------------------------------------
\28\ Kaiser Family Foundation, ``2010 Employer Health Benefits
Survey,'' (Sept. 2010), available at: https://www.kff.org/wp-content/uploads/2013/04/8085.pdf.
---------------------------------------------------------------------------
Benefits
The Departments are of the view that the economic effects of the
final rules will ultimately depend on 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, will continue to be more or less
favorable than the plan as it would exist under the rules applicable to
non-grandfathered group health plans. This determination will depend on
such factors as the respective prices of grandfathered group health
plan and non-grandfathered group health plans, the willingness of
grandfathered group health plans' covered populations to pay for
benefits and protections available under non-grandfathered group health
plans, and the participants' and beneficiaries' willingness to accept
any increases in out-of-pocket costs due to changes to certain types of
cost-sharing requirements. The Departments have concluded that
providing 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 will enable plan sponsors and issuers to continue to
offer quality, affordable coverage to their participants and
beneficiaries while taking into account rising healthcare costs.
The Departments anticipate that the premium adjustment percentage
index will continue to experience faster growth than medical CPI-U, and
therefore are of the view that providing the alternative method of
determining the maximum percentage increase will, 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 are of the view that the
final rules will allow sponsors of those grandfathered group health
plans and coverage to continue to provide the coverage with which their
participants and beneficiaries are familiar and comfortable, without
the unnecessary burden of finding other coverage. Additionally, if the
flexibilities provided for in the final rules result in a reduction in
grandfathered group health plan and grandfathered group health
insurance coverage premiums, there could potentially be a reduction in
adverse health outcomes if participants and beneficiaries chose to
obtain coverage they may have previously foregone and seek needed
healthcare.\29\
---------------------------------------------------------------------------
\29\ To the extent that utilization and health expenditures are
relatively stable, the Departments expect that higher cost sharing
may lead to lower premiums, both because higher cost sharing will
reduce issuers' share of the costs of care and because of medical
loss ratio (MLR) requirements, which encourage issuers to pass these
savings to consumers in the form of lower premiums.
---------------------------------------------------------------------------
[[Page 81109]]
As noted previously in this preamble, in response to the 2019 RFI,
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 are of the view that providing the flexibilities in the
final rules will 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 this 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 a grandfathered
group health plan or 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)(A) of the Code. Nonetheless, to avoid this scenario
and provide assurance to grandfathered group health plan sponsors and
issuers of grandfathered HDHPs, the final rules 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)(A) of the Code.
The Departments have concluded 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 or, for tax years
beginning after December 31, 2017, C-CPI-U). Using 10 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 C-CPI-U
as required under section 223(g) of the Code.\30\ 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 the final rules will 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 the final rules. Nevertheless, the
Departments are of the view that affording this flexibility will make
the rules more transparent to sponsors of grandfathered HDHPs. Thus,
the final regulations will 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.
---------------------------------------------------------------------------
\30\ As noted earlier in this preamble, the Tax Cuts and Jobs
Act amended section 1(f)(3) of the Code, cross-referenced in section
223(g) of the Code, to refer to C-CPI-U, instead of CPI-U, for tax
years beginning after December 31, 2017.
---------------------------------------------------------------------------
Costs and Transfers
The Departments recognize there are costs associated with the final
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 to be covered by non-grandfathered group health plans
and group health insurance coverage subject to PPACA market reforms. As
noted earlier in this analysis, it is possible that lower premiums,
compared to the likely premiums if these rules are not finalized, could
partially offset these increased costs. Further, participants and
beneficiaries who would otherwise be covered by a non-grandfathered
plan could potentially face increases in adverse health outcomes if
they forego treatment because certain services are not covered by their
grandfathered plan or coverage. The Departments cannot precisely
predict the number of group health plans and group health insurance
coverage that will retain their grandfather status as a result of the
final rules. According to the annual Kaiser Family Foundation Employer
Health Benefits Survey, the percentage of employers offering health
coverage that offered at least one grandfathered plan between 2016 and
2019 has been relatively stable (23 percent in 2016 to 22 percent in
2019).\31\ The Departments are of the view that a large change over
that time period would have indicated that the 2015 final rules were
too
[[Page 81110]]
restrictive and that a relaxation of those rules would have a large
effect. The actual small change suggests the opposite. Therefore, the
Departments do not expect a significant impact on the number of
grandfathered group health plans or grandfathered group health
insurance coverage as a result of the final rules.
---------------------------------------------------------------------------
\31\ See Kaiser Family Foundation, ``2016 Employer Health
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2016-employer-health-benefits-survey/; Kaiser Family
Foundation, ``2017 Employer Health Benefits Survey,'' available at
https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/; Kaiser Family Foundation, ``2018 Employer Health
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2018-employer-health-benefits-survey/; and Kaiser Family
Foundation, ``2019 Employer Health Benefits Survey,'' available at
https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/. Despite the relative stability between 2016 and
2019, the 2020 Employer Health Benefits Survey reported that the
number of firms offering health coverage that offered at least one
grandfathered plan in 2020 decreased to 16 percent. The Departments
are of the view that this change may largely be attributable to
issues with employer survey reporting during the COVID-19 pandemic,
rather than to the 2015 final rules. The Kaiser Family Foundation
reported a diminished response to the 2020 survey compared to
previous years and attributed that lower response rate to a
combination of factors including changing data collection firms,
disruptions from the COVID-19 pandemic, and starting the fielding
period later. Kaiser Family Foundation, ``2020 Employer Health
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2020-employer-health-benefits-survey/.
---------------------------------------------------------------------------
For those plans and coverages that continue to maintain their
grandfather status as a result of the flexibilities in the final rules,
the participants and beneficiaries will continue to have coverage and
may experience lower premiums when compared to non-grandfathered group
health plans. Although some participants and beneficiaries will pay
higher cost-sharing amounts, these increased costs may be partially
offset by reduced employee premiums, and indirectly through potential
wage adjustments that reflect reduced employer contributions due to any
resulting lower premiums. In contrast, individuals who have low or no
medical expenses, along with nonparticipants, will be unlikely to
experience increased cost-sharing amounts and may benefit from lower
employee premiums, and indirectly through potential wage adjustments.
The Departments recognize there will be transfers associated with
the final 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 the final rules, some
participants and beneficiaries of grandfathered group health plans and
grandfathered group health insurance coverage will 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 is
permitted under the 2015 final rules. Changes in costs associated with
increased deductibles or other cost sharing will be a transfer from
participants and beneficiaries with higher out-of-pocket costs to
participants and beneficiaries with lower 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
grandfathered group plan sponsors will choose to do, the Departments
are unable to precisely estimate the overall economic impact, but the
Departments anticipate that the overall impact will be minimal.
However, there is a large degree of uncertainty regarding the effect of
the final rules on any potential changes to cost sharing at the plan
level so actual experience could differ.
Commenters suggested that the provisions of the 2020 proposed rules
would disadvantage consumers with pre-existing conditions.
Specifically, commenters suggested that those individuals most likely
to shoulder the burden of increased out-of-pocket costs are those who
already have higher medical expenses and out-of-pocket costs (for
example, those with blood cancer). Another commenter noted that the
2020 proposed rules suggested that the resulting increases in out-of-
pocket expenditures for participants and beneficiaries of grandfathered
plans could be offset by decreases in premiums or wage adjustments;
however, according to this commenter, those potential benefits are
minimal and uncertain, while participants and beneficiaries will likely
be paying more for substandard health coverage. Another commenter
suggested that the Departments should fully evaluate and publicly
report on whether increased cost sharing will lead to decreased
utilization of necessary medical care.
The Departments appreciate these concerns. Nevertheless, the
Departments are of the view that finalizing the 2020 proposed rules is
important to help grandfathered group health plans and grandfathered
group health insurance coverage maintain grandfather status and
supports the goal of promoting greater choice in coverage, especially
in light of rising healthcare costs. The Departments recognize that
should a grandfathered group health plan or grandfathered group health
insurance coverage avail itself of the flexibilities in the final
rules, some participants and beneficiaries could incur higher out-of-
pocket costs for ongoing or future healthcare needs. However, as
discussed previously in this preamble, participants and beneficiaries
would continue to benefit from many PPACA consumer protections that are
applicable to all group health plans and group health insurance
coverage, regardless of grandfather status, including the prohibition
on preexisting condition exclusions, the prohibition on waiting periods
that exceed 90 days, and the prohibition on lifetime or annual dollar
limits. Additionally, grandfathered group health plans and issuers of
grandfathered group health insurance coverage are not prohibited from
providing coverage consistent with any of PPACA market provisions that
apply to non-grandfathered group health plans and may add coverage
consistent with such market provisions without relinquishing
grandfather status.
As discussed later in the impact analysis, some participants and
beneficiaries could experience savings in reduced premiums, wage
adjustments, and continued access to tax-advantaged HSAs due to changes
made as a result of the final rules. The Departments recognize that any
increases in cost sharing, changes in premiums, or wage adjustments are
at the discretion of the issuer or grandfathered group plan sponsor.
The Departments are of the view that providing the flexibilities in the
final rules could allow participants to retain their current coverage
instead of finding alternate coverage, which may result in greater
increases in cost-sharing or reduced benefits for those individuals. As
noted later in the impact analysis, the Departments are of the view
that because individuals with significant healthcare needs generally
exceed the out-of-pocket limit for the plan year, they are only
modestly affected by increases in cost-sharing requirements, while
individuals with fewer healthcare needs are more likely to be affected
by an increase in fixed-amount cost-sharing, but that they incur a
small portion of the overall costs.
The Departments have concluded that the final rules strike a proper
balance between preserving the ability to maintain existing coverage
with the goals of expanding access to and improving the quality of
health coverage.
Revenue Impact of Final Rules
This section of the preamble discusses the revenue impact of the
final rules, considers a variety of approaches that employers offering
grandfathered health plan coverage might have taken if the 2015 final
rules were not amended, and compares the revenue impact of each
approach under the 2015 final rules with the revenue impact under the
final rules.
a. Employees Who Would Have Remained in Grandfathered Plans and
Coverage Without the Final Rules
If the 2015 final rules were not amended, some employers might have
chosen to continue to maintain their grandfathered health plan
coverage. This subsection discusses the revenue impact that the final
rules may have on this group of employers and employees.
Under the final rules, grandfathered group health plans and
grandfathered group health insurance coverage will be allowed to
increase fixed-amount cost-sharing requirements (such as copayments,
deductibles, and out-of-
[[Page 81111]]
pocket limits) at a somewhat higher rate than under the 2015 final
rules without losing grandfather status, 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 applicability date of the final rules, grandfathered group health
plans and grandfathered group health insurance coverage may 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
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 final rules than under the 2015
final rules. However, a grandfathered group plan that increases fixed-
amount cost-sharing to the maximum amount allowed under the final 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 final rules for a particular
grandfathered group health 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 needed medical care. If individuals generally forgo
unnecessary care, but continue to go to providers when necessary,
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 potential increases in pre-tax contributions to health FSAs
and HSAs would reduce tax revenues. Nonetheless, to the extent that
employers would have continued to offer a grandfathered group health
plan without changes to the 2015 final rules, under these final rules,
the Departments expect tax revenues may increase slightly on net as a
result of potential 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 group health plan. This increase may be offset by a
reduction in revenue, however, if a reduction in premiums encourages
non-participant employees to obtain coverage.
b. Employees Who Would No Longer Have Been Covered by Grandfathered
Group Health Plans or Coverage Without the Final Rules
If the 2015 final rules were not amended, some employers might have
chosen to change their insured grandfathered group health plans to
self-insured, non-grandfathered group health 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 final rules will have little, if any, revenue
effect.
Alternatively, assuming the 2015 final rules were not amended, an
employer might switch to a fully insured non-grandfathered non-HDHP
group health plan. With respect to small employers, employees who would
transfer to the non-grandfathered group health plan could improve the
small group market 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.
One commenter stated that because the non-grandfathered small group
market is subject to modified community rating and single risk pool
requirements, making it easier for small-group health plans to preserve
their grandfather status would encourage firms with younger or
healthier employees to find ways to opt out of the non-grandfathered
small group market, at the expense of other firms that then would face
higher premiums. The commenter noted that because premiums and medical
claims costs in the small group market are higher for plans that are
subject to all PPACA market reforms than for plans that are not, and
because PPACA's changes to plan standards in the small group market
were more significant than in the large group market, employees at
small businesses have more to lose when employers avoid most PPACA
market reforms. The commenter suggested that further extending
grandfather status would only contribute to market segmentation that
harms the non-grandfathered small-group market, rather than channeling
younger and healthier groups into the insurance markets that generally
are subject to PPACA market reforms, which would serve to bolster
stability in those markets.
The Departments acknowledge that the existence of grandfathered
group health plans potentially creates market segmentation in the small
group market. However, to the extent such market segmentation exists,
the Departments do not anticipate that the additional flexibilities
provided in the final rules will increase segmentation since the final
rules do not provide any mechanism for non-grandfathered plans to
become grandfathered. Moreover, the Departments do not expect the
number of plans that maintain grandfather status because of the final
rules to be so significant as to exacerbate any market segmentation
that may already exist.
Although the type of benefits covered in new, non-grandfathered
plans (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 were not amended, most employers
would not make the switch from a grandfathered group health plan to a
non-grandfathered group health 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 final rules enable an employer that otherwise might
switch to a non-grandfathered group health plan to retain its
grandfather plan, this revenue gain would not occur, resulting in a
revenue loss compared to the status quo under the 2015 final rules.
Without the change to the 2015 final rules, some employers might
replace their grandfathered group health plan with an individual
coverage health reimbursement arrangement (individual coverage HRA). If
the employer contributes a similar dollar amount to
[[Page 81112]]
the individual coverage HRA as it currently does to the grandfathered
group health plan, the employees' tax exclusion would be at least
roughly the same as for the grandfathered group health 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 group health plan. Thus,
under this scenario, there would be very little revenue effect from the
final rules.
c. Termination of Employer-Sponsored Coverage
If the 2015 final rules were not amended, some employers might drop
grandfathered group 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. Many of
those employees with household incomes between 100-400 percent of the
federal poverty level might qualify for financial assistance to help
pay for their Exchange coverage and related healthcare expenses, which
would increase federal outlays, as discussed further later in this
section. Others might 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 continue their grandfathered group health plan under the
final 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 final rules
may result in a revenue gain. However, the employees for which there
would be a revenue gain are likely a small population for an employer
that is currently offering a grandfathered group health 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 group health plan,
which, along with an employer shared responsibility payment, if any,
may result in an increase in federal tax revenue. However, if these
employees were to remain covered under a grandfathered group health
plan as a result of the final rule, there may be a loss in federal
revenue for this group.
Overall, there are a number of potential revenue effects of the
final rules, some of which could offset each other. Additionally, there
is a large degree of uncertainty, including uncertainty regarding how
many group health plans would have continued as grandfathered plans
absent the final rules and what alternatives would have been chosen by
employers who would not have kept grandfathered group health plans
absent the final rules, as well as how many grandfathered group health
plans will make plan design changes as a result of the final 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.
Regulatory Review Costs
Affected entities will need to understand the requirements of the
final rules before they can avail themselves of any of the
flexibilities in the final rules. Sponsors and issuers of grandfathered
group health plan coverage will be responsible for ensuring compliance
with the final rules should they seek to make changes to their
grandfathered group health plans' cost-sharing requirements.
If regulations impose administrative costs on private entities,
such as the time needed to read and interpret the final rules, the
Departments seek to estimate the cost associated with regulatory
review. Due to the uncertainty involved with accurately quantifying the
number of entities that will review and interpret the final rules, the
Departments assume that the total number of grandfathered group health
plan coverage sponsors and issuers that will be able to avail
themselves of the flexibilities provided by the final rules is a fair
estimate of the number of entities affected. The Departments estimate
414,288 grandfathered plan sponsors and issuers of grandfathered group
health insurance coverage will incur burdens related to reviewing the
final rules.
The Departments acknowledge that this assumption may understate or
overstate the costs of reviewing the final rules. It is possible that
not all affected entities will review the final rules in detail and
that others may seek the assistance of outside counsel to read and
interpret the final rules. For example, firms providing or sponsoring a
grandfathered group health plan may not read the final rules and might
rely upon an issuer or a third-party administrator, if self-funded, to
read and interpret the final rules. For these reasons, the Departments
are of the view that the number of grandfathered group health plan
coverage sponsors and issuers is a fair estimate of the number of
reviewers of the final rules. The Departments sought, but did not
receive, comments on the approach to estimating the number of affected
entities that will review and interpret the final rules.
Using the wage information from the Bureau of Labor and Statistics
(BLS) for a Compensation and Benefits Manager (Code 11-3111), the
Departments estimate that the cost of reviewing the final rules is
$129.04 per hour, including overhead and fringe benefits.\32\ Assuming
an average reading speed, the Departments estimate that it would take
approximately 0.5 hour for the staff to review and interpret the final
rules; therefore, the Departments estimate that the cost of reviewing
and interpreting the final rules for each grandfathered group health
plan coverage sponsor and issuer is approximately $64.52. Thus, the
Departments estimate that the overall cost for the estimated 414,288
grandfathered group health plan coverage sponsors and issuers will be
$26,729,861.76 ($64.52 * 414,288 total number of estimated
grandfathered plan sponsors and issuers).\33\
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\32\ 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 11-3111) is $64.52, when multiplied by 100 percent
results in a total adjusted hourly wage of $129.04.
\33\ The 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 (2.5 million * 0.16 = 400,000), the
number of state and local governments multiplied by the percentage
of entities offering grandfathered health plans (84,087 * 0.16 =
13,454), and the 834 issuers offering at least one grandfathered
health plan (400,000 + 13,454 + 843 = 414,288).
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D. Regulatory Alternatives Considered
In developing the policies contained in the final rules, the
Departments considered alternatives to the final rules. In the
following paragraphs, the Departments discuss the key regulatory
alternatives considered.
[[Page 81113]]
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 group 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 final rules allow for the desired flexibility, while
better reflecting underlying costs for grandfathered group health plans
and grandfathered group health insurance coverage. The Departments
acknowledge that the premium adjustment percentage, which the
Departments 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 are of the view
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 group health
insurance coverage with grandfather status to decrease the contribution
rates by more than five percentage points. This change 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 final 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 rely upon the benefits to which a limit is applied.
Therefore, this option was not included in the final rules.
The Departments considered options to offset cost-sharing
requirement changes by allowing sponsors of grandfathered group health
plans and issuers of grandfathered 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 or coverage'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 and still retain grandfather status, potentially conflicting
with the goal of allowing participants and beneficiaries to retain
health plans they like.\34\ 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 final rules.
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\34\ 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 applicability
date of the final rules. 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 grandfathered group
health 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 was allowing unlimited changes to cost-sharing for out-of-
network benefits. However, the Departments are concerned that unlimited
discretion to change cost-sharing requirements for out-of-network
benefits could result in changes to grandfathered group health plans or
coverages so extensive that these plans or coverages could not
reasonably be described as being the same plans or coverages that were
offered on March 23, 2010. Additionally, the Departments decided that
the change in the applicable index for medical inflation provides
sufficient flexibility for fixed cost-sharing requirements. This option
will give flexibility to grandfathered group health plans and
grandfathered group health insurance coverage with respect to all
fixed-amount cost-sharing requirements, including for out-of-network
benefits.
E. Collection of Information Requirements
The final 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 final rules do not contain any new
information collection requirements, the Departments are maintaining
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 that plans and
coverages must provide contact information for participants to direct
questions and complaints. Additionally, the Departments are maintaining
the requirement that a grandfathered group health plan that is changing
health insurance issuers must provide the succeeding health insurance
issuer documentation of plan terms under the prior health insurance
coverage sufficient to determine 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 met, and
[[Page 81114]]
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 final rules will 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 final 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.
The final rules amend the 2015 final rules to allow greater
flexibility for grandfathered group health plans and issuers of
grandfathered group health insurance coverage. Specifically, the final
rules 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)(A) of the Code. The final rules also include a revised
definition of maximum percentage increase that will 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 (Health Maintenance Organization (HMO) Medical
Centers) and, if this is the case, the SBA size standard would be $35
million or less.\35\ 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 2019 MLR reporting year, approximately 74 out of 483 issuers of
health insurance coverage nationwide had total premium revenue of $41.5
million or less.\36\ This estimate may overstate the actual number of
small health insurance companies that may be affected, since over 68
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 group health plans or grandfathered group health
coverage. The Departments do not expect any of these 74 potentially
small entities to experience a change in revenues of more than three to
five percent as a result of the final rules. Therefore, the Departments
do not expect the provisions of the final 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 in the
final rules, the Departments are not able to precisely ascertain the
economic effects on small entities. However, the Departments are of the
view that the flexibilities provided for in the final rules will 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 sought, but
did not receive, comments on ways that the 2020 proposed rules may
impose additional costs and burdens on small entities.
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\35\ ``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.
\36\ ``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.\37\ The
basis of this definition is found in section 104(a)(2) 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 DOL 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 the final 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 SBA (13 CFR 121.201) pursuant to the Small Business
Act (15 U.S.C. 631 et seq.). Therefore, EBSA requested, but did not
receive, comments on the appropriateness of the size standard used in
evaluating the impact of the final rules on small entities.
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\37\ The DOL consulted with the SBA in making this determination
as required by 5 U.S.C. 603(c) and 13 CFR 121.903(c).
---------------------------------------------------------------------------
H. Impact of Regulations on Small Business--Department of the Treasury
Pursuant to section 7805(f) of the Code, the proposed rules that
preceded these final rules were submitted to the Chief Counsel for
Advocacy of the SBA for comment on their impact on small business, and
no comments were received.
I. Effects on Small Rural Hospitals
Section 1102(b) of the SSA (42 U.S.C. 1302) requires agencies to
prepare an RIA 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
[[Page 81115]]
of section 604 of the RFA. For purposes of section 1102(b) of the SSA,
HHS defines a small rural hospital as a hospital that is located
outside of a metropolitan statistical area and has fewer than 100 beds.
The final rules would not materially affect small rural hospitals.
Therefore, while the final rules are not subject to section 1102(b) of
the SSA, the Departments have determined that the final rules will 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 final 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 the final rules. The
Departments estimate that any costs associated with the final rules
will not exceed the $156 million threshold. Thus, the Departments
conclude that the final rules will 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, the final rules do not have any
federalism implications. They simply provide grandfathered group health
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)(A) 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 final rules will 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 the final
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 the final rules, the
Departments certify that the Department of the Treasury, EBSA, and CMS
have complied with the requirements of Executive Order 13132 for the
attached final 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.'' It
has been determined that the final rules are an action that primarily
results in transfers and does not impose more than de minimis costs as
described above and thus is not a regulatory or deregulatory action for
the purposes of Executive Order 13771.
V. Statutory Authority
The Department of the Treasury regulations are adopted pursuant to
the authority contained in sections 7805 and 9833 of the Code.
The Department of Labor regulations are adopted pursuant to the
authority contained in 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169,
1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and
1191c; section 101(g), Public Law 104-191, 110 Stat. 1936; section
401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); section
512(d), Public Law 110-343, 122 Stat. 3881; section 1001, 1201, and
1562(e), Public Law 111-148, 124 Stat. 119, as amended by Public Law
111-152, 124 Stat. 1029; Secretary of Labor's Order 6-2009, 74 FR 21524
(May 7, 2009).
The Department of Health and Human Services regulations are adopted
pursuant to the authority contained in sections 2701 through 2763,
2791, and 2792 of the PHS Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting
and recordkeeping requirements.
[[Page 81116]]
29 CFR Part 2590
Employee benefit plans, Health care, Health insurance, Penalties,
Pensions, Privacy, Reporting and recordkeeping requirements.
45 CFR Part 147
Age discrimination, Citizenship and naturalization, Civil rights,
Health care, Health insurance, Individuals with disabilities,
Intergovernmental relations, Reporting and recordkeeping requirements,
Sex discrimination.
Sunita Lough,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.
Approved: December 7, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
Dated: December 9, 2020.
Jeanne Klinefelter Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration,
U.S. Department of Labor.
Dated: November 30, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
Dated: December 2, 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, amends 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, unless otherwise noted.
* * * * *
0
Par. 2. Section 54.9815-1251 is 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); and
0
f. In newly redesignated paragraph (g)(5):
0
i. By revising Examples 3 and 4;
0
ii. By redesignating Examples 5 through 9 as Examples 6 through 10;
0
iii. By adding a new Example 5;
0
iv. By revising newly redesignated Examples 6 through 10; and
0
v. 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.
* * * * *
(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 made effective on or after June 15, 2021 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 purposes of this paragraph
(g)(4)(i), 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 June 15, 2021, 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 June 15, 2021, 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
[[Page 81117]]
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 June 15, 2021. 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 of this paragraph
(g)(5), except the grandfathered group health plan subsequently
increases the $40 copayment requirement to $45 for a later plan year,
effective before June 15, 2021. 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 of this paragraph
(g)(5), except the grandfathered group health plan increases the
copayment requirement to $45, effective after June 15, 2021. 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
of this paragraph (g)(5), 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 June 15, 2021. 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. Same facts as Example 6 of this paragraph
(g)(5), except on March 23, 2010, the grandfathered health plan has no
copayment ($0) for office visits for primary care providers. The plan
is subsequently, amended to increase the copayment requirement to $5,
effective before June 15, 2021.
(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
[[Page 81118]]
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 June 15, 2021 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 amends 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); and
0
f. In newly redesignated paragraph (g)(5):
0
i. By revising Examples 3 and 4;
0
ii. By redesignating Examples 5 through 9 as Examples 6 through 10;
0
iii. By adding a new Example 5;
0
iv. By revising newly redesignated Examples 6 through 10; and
0
v. 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 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 made effective on
or after June 15, 2021 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 purposes of this paragraph
(g)(4)(i), 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.
[[Page 81119]]
(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 June 15, 2021, 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 June 15, 2021, 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 June 15, 2021. 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 of this paragraph
(g)(5), except the grandfathered group health plan subsequently
increases the $40 copayment requirement to $45 for a later plan year,
effective before June 15, 2021. 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 of this paragraph
(g)(5), except the grandfathered group health plan increases the
copayment requirement to $45, effective after June 15, 2021. 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
of this paragraph (g)(5), 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 June 15, 2021. 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. Same facts as Example 6 of this paragraph
(g)(5), except on March 23, 2010, the grandfathered health plan has no
copayment ($0) for office visits for primary care providers. The plan
is subsequently, amended to increase the copayment requirement to $5,
effective before June 15, 2021.
(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.
[[Page 81120]]
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 June 15, 2021 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 amends 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, and section 3203, Pub. L. 116-136, 134 Stat.
281.
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); and
0
f. In newly redesignated paragraph (g)(5):
0
i. By revising Examples 3 and 4;
0
ii. By redesignating Examples 5 through 9 as Examples 6 through 10;
0
iii. By adding a new Example 5;
0
iv. By revising newly redesignated Examples 6 through 10;
0
v. 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 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 made effective on
or after June 15, 2021 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) * * *
[[Page 81121]]
(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 purposes of this paragraph
(g)(4)(i), 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 June 15, 2021, 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 June 15, 2021, 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 June 15, 2021. 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 of this paragraph
(g)(5), except the grandfathered group health plan subsequently
increases the $40 copayment requirement to $45 for a later plan year,
effective before June 15, 2021. 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 of this paragraph
(g)(5), except the grandfathered group health plan increases the
copayment requirement to $45, effective after June 15, 2021. 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
of this paragraph (g)(5), 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 June 15, 2021. 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. Same facts as Example 6 of this paragraph
(g)(5), except on March 23, 2010, the grandfathered health plan has no
copayment ($0) for office visits for primary care providers. The plan
is subsequently, amended to increase the copayment requirement to $5,
effective before June 15, 2021.
(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;
[[Page 81122]]
$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 June 15, 2021 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. 2020-27498 Filed 12-11-20; 8:45 am]
BILLING CODE P
