75 Fed. Reg. 34,538, 34,553 (June 17, 2010)

Thursday,
June 17, 2010
Part II
Department of the Treasury

Internal Revenue Service
26 CFR Parts 54 and 602
Department of Labor
Employee Benefits Security
Administration
29 CFR Part 2590
Department of Health and

Human Services
45 CFR Part 147
Group Health Plans and Health Insurance

Coverage Relating to Status as a
Grandfathered Health Plan Under the
Patient Protection and Affordable Care
Act; Interim Final Rule and Proposed
Rule
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34538 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Rules and Regulations
DEPARTMENT OF THE TREASURY publicly disclosed. All comments are 4. By hand or courier. If you prefer,
posted on the Internet exactly as you may deliver (by hand or courier)
Internal Revenue Service received, and can be retrieved by most your written comments before the close
Internet search engines. No deletions, of the comment period to either of the
26 CFR Parts 54 and 602 modifications, or redactions will be following addresses:
[TD 9489] made to the comments received, as they a. For delivery in Washington, DC
are public records. Comments may be Office of Consumer Information and
RIN 1545BJ51 submitted anonymously. Insurance Oversight, Department of
Department of Labor. Comments to Health and Human Services, Room 445
DEPARTMENT OF LABOR the Department of Labor, identified by G, Hubert H. Humphrey Building, 200
RIN 1210AB42, by one of the following Independence Avenue, SW.,
Employee Benefits Security methods: Washington, DC 20201.
Administration
Federal eRulemaking Portal: http:// (Because access to the interior of the
www.regulations.gov. Follow the Hubert H. Humphrey Building is not
29 CFR Part 2590
instructions for submitting comments. readily available to persons without
RIN 1210AB42 E-mail: E- Federal government identification,
OHPSCA1251.EBSA@dol.gov. commenters are encouraged to leave
DEPARTMENT OF HEALTH AND Mail or Hand Delivery: Office of their comments in the OCIIO drop slots
HUMAN SERVICES Health Plan Standards and Compliance located in the main lobby of the
[OCIIO9991IFC] Assistance, Employee Benefits Security building. A stamp-in clock is available
Administration, Room N5653, U.S. for persons wishing to retain a proof of
45 CFR Part 147 Department of Labor, 200 Constitution filing by stamping in and retaining an
RIN 0991AB68
Avenue, NW., Washington, DC 20210, extra copy of the comments being filed.)
Attention: RIN 1210AB42. b. For delivery in Baltimore, MD
Interim Final Rules for Group Health Comments received by the Centers for Medicare & Medicaid
Plans and Health Insurance Coverage Department of Labor will be posted Services, Department of Health and
Relating to Status as a Grandfathered without change to http:// Human Services, 7500 Security
Health Plan Under the Patient www.regulations.gov and http:// Boulevard, Baltimore, MD 212441850.
Protection and Affordable Care Act www.dol.gov/ebsa, and available for If you intend to deliver your
public inspection at the Public comments to the Baltimore address,
AGENCY: Internal Revenue Service, Disclosure Room, N1513, Employee please call (410) 7867195 in advance to
Department of the Treasury; Employee Benefits Security Administration, 200 schedule your arrival with one of our
Benefits Security Administration, Constitution Avenue, NW., Washington, staff members.
Department of Labor; Office of DC 20210. Comments mailed to the addresses
Consumer Information and Insurance Department of Health and Human indicated as appropriate for hand or
Oversight, Department of Health and Services. In commenting, please refer to courier delivery may be delayed and
Human Services. file code OCIIO9991IFC. Because of received after the comment period.
ACTION: Interim final rules with request staff and resource limitations, the Submission of comments on
for comments. Departments cannot accept comments paperwork requirements. You may
by facsimile (FAX) transmission. submit comments on this documents
SUMMARY: This document contains You may submit comments in one of paperwork requirements by following
interim final regulations implementing four ways (please choose only one of the the instructions at the end of the
the rules for group health plans and ways listed): Collection of Information
health insurance coverage in the group 1. Electronically. You may submit Requirements section in this document.
and individual markets under electronic comments on this regulation Inspection of Public Comments: All
provisions of the Patient Protection and to http://www.regulations.gov. Follow comments received before the close of
Affordable Care Act regarding status as the instructions under the More Search the comment period are available for
a grandfathered health plan. Options tab. viewing by the public, including any
DATES: Effective date. These interim 2. By regular mail. You may mail personally identifiable or confidential
final regulations are effective on June written comments to the following business information that is included in
14, 2010, except that the amendments to address ONLY: Office of Consumer a comment. The Departments post all
26 CFR 54.98152714T, 29 CFR Information and Insurance Oversight, comments received before the close of
2590.7152714, and 45 CFR 147.120 are Department of Health and Human the comment period on the following
effective July 12, 2010. Services, Attention: OCIIO9991IFC, Web site as soon as possible after they
Comment date. Comments are due on P.O. Box 8016, Baltimore, MD 21244 have been received: http://
or before August 16, 2010. 1850. www.regulations.gov. Follow the search
ADDRESSES: Written comments may be Please allow sufficient time for mailed instructions on that Web site to view
submitted to any of the addresses comments to be received before the public comments.
specified below. Any comment that is close of the comment period. Comments received timely will also
submitted to any Department will be 3. By express or overnight mail. You be available for public inspection as
shared with the other Departments. may send written comments to the they are received, generally beginning
Please do not submit duplicates. following address ONLY: Office of approximately three weeks after
All comments will be made available Consumer Information and Insurance publication of a document, at the
to the public. Warning: Do not include Oversight, Department of Health and headquarters of the Centers for Medicare
any personally identifiable information Human Services, Attention: OCIIO & Medicaid Services, 7500 Security
(such as name, address, or other contact 9991IFC, Mail Stop C42605, 7500 Boulevard, Baltimore, Maryland 21244,
information) or confidential business Security Boulevard, Baltimore, MD Monday through Friday of each week
information that you do not want 212441850. from 8:30 a.m. to 4 p.m. EST. To
Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Rules and Regulations 34539
schedule an appointment to view public term group health plan includes both Affordable Care Act, the PHS Act had a
comments, phone 18007433951. insured and self-insured group health parallel provision at section 2721(a).
Internal Revenue Service. Comments plans.1 The Affordable Care Act adds After the Affordable Care Act amended,
to the IRS, identified by REG118412 section 715(a)(1) to the Employee reorganized, and renumbered most of
10, by one of the following methods: Retirement Income Security Act (ERISA) title XXVII of the PHS Act, that
Federal eRulemaking Portal: http:// and section 9815(a)(1) to the Internal exception no longer exists. Similarly,
www.regulations.gov. Follow the Revenue Code (the Code) to incorporate ERISA section 732(b) and (c) generally
instructions for submitting comments. the provisions of part A of title XXVII provides that the requirements of part 7
Mail: CC:PA:LPD:PR (REG118412 of the PHS Act into ERISA and the of ERISAand Code section 9831(b)
10), room 5205, Internal Revenue Code, and make them applicable to and (c) generally provides that the
Service, P.O. Box 7604, Ben Franklin group health plans, and health requirements of chapter 100 of the
Station, Washington, DC 20044. insurance issuers providing health Codedo not apply to excepted
Hand or courier delivery: Monday insurance coverage in connection with benefits.2 Prior to enactment of the
through Friday between the hours of 8 group health plans. The PHS Act Affordable Care Act, the PHS Act had a
a.m. and 4 p.m. to: CC:PA:LPD:PR sections incorporated by this reference parallel section 2721(c) and (d) that
(REG11841210), Couriers Desk, are sections 2701 through 2728. PHS indicated that the provisions of subparts
Internal Revenue Service, 1111 Act sections 2701 through 2719A are 1 through 3 of part A of title XXVII of
Constitution Avenue, NW., Washington, substantially new, though they the PHS Act did not apply to excepted
DC 20224. incorporate some provisions of prior benefits. After the Affordable Care Act
All submissions to the IRS will be law. PHS Act sections 2722 through amended and renumbered PHS Act
open to public inspection and copying 2728 are sections of prior law section 2721(c) and (d) as section
in room 1621, 1111 Constitution renumbered, with some, mostly minor, 2722(b) and (c), that exception could be
Avenue, NW., Washington, DC from 9 changes. Section 1251 of the Affordable read to be narrowed so that it applies
a.m. to 4 p.m. Care Act, as modified by section 10103 only with respect to subpart 2 of part A
FOR FURTHER INFORMATION CONTACT: of the Affordable Care Act and section of title XXVII of the PHS Act, thus, in
Amy Turner or Beth Baum, Employee 2301 of the Reconciliation Act, specifies effect requiring excepted benefits to
Benefits Security Administration, that certain plans or coverage existing as comply with subparts I and II of part A.
Department of Labor, at (202) 6938335; of the date of enactment (that is, The absence of an express provision
Karen Levin, Internal Revenue Service, grandfathered health plans) are only in part A of title XXVII of the PHS Act
Department of the Treasury, at (202) subject to certain provisions. does not create a conflict with the
6226080; Jim Mayhew, Office of The Affordable Care Act also adds relevant requirements of ERISA and the
Consumer Information and Insurance section 715(a)(2) of ERISA, which Code. Accordingly, the exceptions of
Oversight, Department of Health and provides that, to the extent that any ERISA section 732 and Code section
Human Services, at (410) 7861565. provision of part 7 of ERISA conflicts 9831 for very small plans and certain
Customer Service Information: with part A of title XXVII of the PHS retiree-only health plans, and for
Individuals interested in obtaining Act with respect to group health plans excepted benefits, remain in effect and,
information from the Department of or group health insurance coverage, the thus, ERISA section 715 and Code
Labor concerning employment-based PHS Act provisions apply. Similarly, section 9815, as added by the Affordable
health coverage laws may call the EBSA the Affordable Care Act adds section Care Act, do not apply to such plans or
Toll-Free Hotline at 1866444EBSA 9815(a)(2) of the Code, which provides excepted benefits.
(3272) or visit the Department of Labors that, to the extent that any provision of Moreover, there is no express
Web site (http://www.dol.gov/ebsa). In subchapter B of chapter 100 of the Code indication in the legislative history of an
addition, information from HHS on conflicts with part A of title XXVII of intent to treat issuers of group health
the PHS Act with respect to group insurance coverage or nonfederal
private health insurance for consumers
health plans or group health insurance governmental plans (that are subject to
can be found on the Centers for
coverage, the PHS Act provisions apply. the PHS Act) any differently in this
Medicare & Medicaid Services (CMS)
Therefore, although ERISA section respect from plans subject to ERISA and
Web site (http://www.cms.hhs.gov/
715(a)(1) and Code section 9815(a)(1) the Code. The Departments of Health
HealthInsReformforConsume/
incorporate by reference new and Human Services, Labor, and the
01_Overview.asp) and information on
provisions, they do not affect Treasury (the Departments) operate
health reform can be found at http://
preexisting sections of ERISA or the under a Memorandum of Understanding
www.healthreform.gov.
Code unless they cannot be read (MOU) 3 that implements section 104 of
SUPPLEMENTARY INFORMATION: consistently with an incorporated the Health Insurance Portability and
I. Background provision of the PHS Act. For example, Accountability Act of 1996 (HIPAA),
ERISA section 732(a) generally provides enacted on August 21, 1996, and
The Patient Protection and Affordable that part 7 of ERISAand Code section subsequent amendments, and provides
Care Act (the Affordable Care Act), 9831(a) generally provides that chapter that requirements over which two or
Public Law 111148, was enacted on 100 of the Codedoes not apply to more Secretaries have responsibility
March 23, 2010; the Health Care and plans with less than two participants (shared provisions) must be
Education Reconciliation Act (the who are current employees (including administered so as to have the same
Reconciliation Act), Public Law 111 retiree-only plans that cover less than effect at all times. HIPAA section 104
152, was enacted on March 30, 2010.
two participants who are current

The Affordable Care Act and the employees). Prior to enactment of the 2 Excepted benefits generally include dental-only
Reconciliation Act reorganize, amend, and vision-only plans, most health flexible
and add to the provisions in part A of 1 The term group health plan is used in title spending arrangements, Medigap policies, and
title XXVII of the Public Health Service XXVII of the PHS Act, part 7 of ERISA, and chapter accidental death and dismemberment coverage. For
100 of the Code, and is distinct from the term more information on excepted benefits, see 26 CFR
Act (PHS Act) relating to group health health plan, as used in other provisions of title I 54.98311, 29 CFR 2590.732, 45 CFR 146.145, and
plans and health insurance issuers in of the Affordable Care Act. The term health plan 45 CFR 148.220.
the group and individual markets. The does not include self-insured group health plans. 3 See 64 FR 70164 (December 15, 1999).
also requires the coordination of and 45 CFR 146.143(a)) apply so that the The Affordable Care Act balances the
policies relating to enforcing the shared requirements of part 7 of ERISA and objective of preserving the ability of
provisions in order to avoid duplication title XXVII of PHS Act, as amended by individuals to maintain their existing
of enforcement efforts and to assign the Affordable Care Act, are not to be coverage with the goals of ensuring
priorities in enforcement. construed to supersede any provision access to affordable essential coverage
There is no express statement of of State law which establishes, and improving the quality of coverage.
intent that nonfederal governmental implements, or continues in effect any Section 1251 provides that nothing in
retiree-only plans should be treated standard or requirement solely relating the Affordable Care Act requires an
differently from private sector plans or to health insurance issuers in individual to terminate the coverage in
that excepted benefits offered by connection with group or individual which the individual was enrolled on
nonfederal governmental plans should health insurance coverage except to the March 23, 2010. It also generally
be treated differently from excepted extent that such standard or provides that, with respect to group
benefits offered by private sector plans. requirement prevents the application of health plans or health insurance
Because treating nonfederal a requirement of the Affordable Care coverage in which an individual was
governmental retiree-only plans and Act. Accordingly, State laws that enrolled on March 23, 2010, various
excepted benefits provided by impose on health insurance issuers requirements of the Act shall not apply
nonfederal governmental plans requirements that are stricter than the to such plan or coverage, regardless of
differently would create confusion with requirements imposed by the Affordable whether the individual renews such
respect to the obligations of issuers that Care Act will not be superseded by the coverage after March 23, 2010. However,
do not distinguish whether a group Affordable Care Act. to ensure access to coverage with certain
health plan is subject to ERISA or the particularly significant protections,
The Departments are issuing
PHS Act, and in light of the MOU, the Congress required grandfathered health
regulations implementing the revised
Department of Health and Human plans to comply with a subset of the
PHS Act sections 2701 through 2719A Affordable Care Acts health reform
Services (HHS) does not intend to use in several phases. The first publication
its resources to enforce the requirements provisions. Thus, for example,
in this series was a Request for grandfathered health plans must comply
of HIPAA or the Affordable Care Act Information relating to the medical loss
with respect to nonfederal governmental with the prohibition on rescissions of
ratio provisions of PHS Act section coverage except in the case of fraud or
retiree-only plans or with respect to 2718, published in the Federal Register
excepted benefits provided by intentional misrepresentation and the
on April 14, 2010 (75 FR 19297). The elimination of lifetime limits (both of
nonfederal governmental plans. second publication was interim final
PHS Act section 2723(a)(2) (formerly which apply for plan years, or in the
regulations implementing PHS Act individual market, policy years,
section 2722(a)(2)) gives the States section 2714 (requiring dependent
primary authority to enforce the PHS beginning on or after September 23,
coverage of children to age 26), 2010). On the other hand, grandfathered
Act group and individual market published in the Federal Register on
provisions over group and individual health plans are not required to comply
May 13, 2010 (75 FR 27122). This with certain other requirements of the
health insurance issuers. HHS enforces document contains interim final
these provisions with respect to issuers Affordable Care Act; for example, the
regulations implementing section 1251 requirement that preventive health
only if it determines that the State has of the Affordable Care Act (relating to
failed to substantially enforce one of services be covered without any cost
grandfathered health plans), as well as sharing (which otherwise becomes
the Federal provisions. Furthermore, the adding a cross-reference to these interim
PHS Act preemption provisions allow generally applicable for plan years, or in
final regulations in the regulations the individual market, policy years,
States to impose requirements on implementing PHS Act section 2714.
issuers in the group and individual beginning on or after September 23,
The implementation of other provisions 2010).
markets that are more protective than in PHS Act sections 2701 through
the Federal provisions. However, HHS A number of additional reforms apply
2719A will be addressed in future for plan years (in the individual market,
is encouraging States not to apply the regulations.
provisions of title XXVII of the PHS Act policy years) beginning on or after
to issuers of retiree-only plans or of II. Overview of the Regulations: Section January 1, 2014. As with the
requirements effective for plan years (in
excepted benefits. HHS advises States 1251 of the Affordable Care Act,
the individual market, policy years)
that if they do not apply these Preservation of Right To Maintain
beginning on or after September 23,
provisions to the issuers of retiree-only Existing Coverage (26 CFR 54.9815
2010, grandfathered health plans must
plans or of excepted benefits, HHS will 1251T, 29 CFR 2590.7151251, and 45
then comply with some, but not all of
not cite a State for failing to CFR 147.140)
these reforms. See Table 1 in section
substantially enforce the provisions of
A. Introduction II.D of this preamble for a list of various
part A of title XXVII of the PHS Act in
requirements that apply to
these situations. Section 1251 of the Affordable Care grandfathered health plans.
Subtitles A and C of title I of the Act, as modified by section 10103 of the In making grandfathered health plans
Affordable Care Act amend the Affordable Care Act and section 2301 of subject to some but not all of the health
requirements of title XXVII of the PHS the Reconciliation Act, provides that reforms contained in the Affordable
Act (changes to which are incorporated certain group health plans and health Care Act, the statute balances its
into ERISA section 715). The insurance coverage existing as of March
objective of preserving the ability to

preemption provisions of ERISA section 23, 2010 (the date of enactment of the maintain existing coverage with the
731 and PHS Act section 2724 4 Affordable Care Act), are subject only to goals of expanding access to and
(implemented in 29 CFR 2590.731(a) certain provisions of the Affordable Care improving the quality of health
4 Code section 9815 incorporates the preemption
Act. The statute and these interim final coverage. The statute does not, however,
provisions of PHS Act section 2724. Prior to the
regulations refer to these plans and address at what point changes to a
Affordable Care Act, there were no express health insurance coverage as group health plan or health insurance
preemption provisions in chapter 100 of the Code. grandfathered health plans. coverage in which an individual was
enrolled on March 23, 2010 are those subscribers were offered in the health insurance coverage is a
significant enough to cause the plan or group or individual market before grandfathered health plan.
health insurance coverage to cease to be March 23, 2010. Under the statute and these interim
a grandfathered health plan, leaving that To maintain status as a grandfathered
final regulations, if family members of
question to be addressed by regulatory health plan, a plan or health insurance
coverage (1) must include a statement, an individual who is enrolled in a
guidance.
These interim final regulations are in any plan materials provided to grandfathered health plan as of March
designed to ease the transition of the participants or beneficiaries (in the 23, 2010 enroll in the plan after March
healthcare industry into the reforms individual market, primary subscribers) 23, 2010, the plan or health insurance
established by the Affordable Care Act describing the benefits provided under coverage is also a grandfathered health
by allowing for gradual implementation the plan or health insurance coverage, plan with respect to the family
of reforms through a reasonable that the plan or health insurance members.
grandfathering rule. A more detailed coverage believes that it is a C. Adding New Employees in Paragraph
description of the basis for these interim grandfathered health plan within the
(b) of 26 CFR 54.98151251T, 29 CFR
final regulations and other regulatory meaning of section 1251 of the
alternatives considered is included in Affordable Care Act and (2) must 2590.7151251, and 45 CFR 147.140 of
section IV.B later in this preamble. provide contact information for These Interim Final Regulations
questions and complaints. These interim final regulations at 26
B. Definition of Grandfathered Health Model language is provided in these
Plan Coverage in Paragraph (a) of 26 CFR 54.98151251T, 29 CFR 2590.715
interim final regulations that can be
CFR 54.98151251T, 29 CFR 2590.715 1251, and 45 CFR 147.140 provide that
used to satisfy this disclosure
1251, and 45 CFR 147.140 of These requirement. Comments are invited on a group health plan that provided
Interim Final Regulations possible improvements to the model coverage on March 23, 2010 generally is
Under the statute and these interim language of grandfathered health plan also a grandfathered health plan with
final regulations, a group health plan or status. Some have suggested, for respect to new employees (whether
group or individual health insurance example, that each grandfathered health newly hired or newly enrolled) and
coverage is a grandfathered health plan plan be required to list and describe the their families who enroll in the
with respect to individuals enrolled on various consumer protections that do grandfathered health plan after March
March 23, 2010. Paragraph (a)(1) of 26 not apply to the plan or health 23, 2010. These interim final regulations
CFR 54.98151251T, 29 CFR 2590.715 insurance coverage because it is clarify that in such cases, any health
1251, and 45 CFR 147.140 of these grandfathered, together with their insurance coverage provided under the
interim final regulations provides that a effective dates. The Departments intend group health plan in which an
group health plan or group health to consider any comments regarding individual was enrolled on March 23,
insurance coverage does not cease to be possible improvements to the model 2010 is also a grandfathered health plan.
grandfathered health plan coverage language in the near term; any changes To prevent abuse, these interim final
merely because one or more (or even all) to the model language that may result regulations provide that if the principal
individuals enrolled on March 23, 2010 from such comments could be purpose of a merger, acquisition, or
cease to be covered, provided that the published in additional administrative similar business restructuring is to cover
plan or group health insurance coverage guidance other than in the form of new individuals under a grandfathered
has continuously covered someone regulations.
since March 23, 2010 (not necessarily Similarly, under these interim final health plan, the plan ceases to be a
the same person, but at all times at least regulations, to maintain status as a grandfathered health plan. The goal of
one person). The determination under grandfathered health plan, a plan or this rule is to prevent grandfather status
the rules of these interim final issuer must also maintain records from being bought and sold as a
regulations is made separately with documenting the terms of the plan or commodity in commercial transactions.
respect to each benefit package made health insurance coverage that were in These interim final regulations also
available under a group health plan or effect on March 23, 2010, and any other contain a second anti-abuse rule
health insurance coverage. documents necessary to verify, explain, designed to prevent a plan or issuer
Moreover, these interim final or clarify its status as a grandfathered from circumventing the limits on
regulations provide that, subject to the health plan. Such documents could changes that cause a plan or health
rules of paragraph (f) of 26 CFR include intervening and current plan insurance coverage to cease to be a
54.98151251T, 29 CFR 2590.7151251, documents, health insurance policies, grandfathered health plan under
and 45 CFR 147.140 for collectively certificates or contracts of insurance, paragraph (g) (described more fully in
bargained plans, if an employer or summary plan descriptions, section II.F of this preamble). This rule
employee organization enters into a new documentation of premiums or the cost in paragraph (b)(2)(ii) addresses a
policy, certificate, or contract of of coverage, and documentation of situation under which employees who
insurance after March 23, 2010 required employee contribution rates. In previously were covered by a
(because, for example, any previous addition, the plan or issuer must make grandfathered health plan are
policy, certificate, or contract of such records available for examination.
transferred to another grandfathered
insurance is not being renewed), then Accordingly, a participant, beneficiary,
health plan. This rule is intended to
that policy, certificate, or contract of individual policy subscriber, or State or
prevent efforts to retain grandfather
insurance is not a grandfathered health Federal agency official would be able to
plan with respect to the individuals in inspect such documents to verify the status by indirectly making changes that
the group health plan. Any policies sold status of the plan or health insurance would result in loss of that status if
in the group and individual health coverage as a grandfathered health plan. those changes were made directly.
insurance markets to new entities or The plan or issuer must maintain such
individuals after March 23, 2010 will records and make them available for
not be grandfathered health plans even examination for as long as the plan or
if the health insurance products sold to issuer takes the position that the plan or
D. Applicability of Part A of Title XXVII apply to all grandfathered health plans Act requirements applicable prior to the
of the PHS Act to Grandfathered Health and some provisions continue to apply effective date of the Affordable Care Act
Plans Paragraphs (c), (d), and (e) of 26 only to grandfathered health plans that continue to apply to grandfathered
CFR 54.98151251T, 29 CFR 2590.715 are group health plans. These interim health plans. In addition, the mental
1251, and 45 CFR 147.140 of These final regulations clarify that a health parity provisions, the Newborns
Interim Final Regulations grandfathered health plan must and Mothers Health Protection Act
continue to comply with the provisions, the Womens Health and
A grandfathered health plan generally requirements of the PHS Act, ERISA, Cancer Rights Act, and Michelles Law
is not subject to subtitles A and C of title and the Code that were applicable prior continue to apply to grandfathered
I of the Affordable Care Act, except as to the changes enacted by the Affordable health plans. The following table lists
specifically provided by the statute and Care Act, except to the extent
the new health coverage reforms in part
these interim final regulations. The supplanted by changes made by the
A of title XXVII of the PHS Act (as
statute and these interim final Affordable Care Act. Therefore, the
regulations provide that some HIPAA portability and amended by the Affordable Care Act)
provisions of subtitles A and C of title nondiscrimination requirements and the that apply to grandfathered health
I of the Affordable Care Act continue to Genetic Information Nondiscrimination plans:
TABLE 1LIST OF THE NEW HEALTH REFORM PROVISIONS OF PART A OF TITLE XXVII OF THE PHS ACT THAT APPLY TO
GRANDFATHERED HEALTH PLANS
PHS Act statutory provisions Application to grandfathered health plans
2704 Prohibition of preexisting condition exclusion or other discrimi- Applicable to grandfathered group health plans and group health insur-
nation based on health status. ance coverage.
Not applicable to grandfathered individual health insurance coverage.
2708 Prohibition on excessive waiting periods ..................................... Applicable.
2711 No lifetime or annual limits ........................................................... Lifetime limits: Applicable.
Annual limits: Applicable to grandfathered group health plans and
group health insurance coverage; not applicable to grandfathered in-
dividual health insurance coverage.
2712 Prohibition on rescissions ............................................................. Applicable.
2714 Extension of dependent coverage until age 26 ............................ Applicable 5.
2715 Development and utilization of uniform explanation of coverage Applicable.
documents and standardized definitions.
2718 Bringing down cost of health care coverage (for insured cov- Applicable to insured grandfathered health plans.
erage).
5 For a group health plan or group health insurance coverage that is a grandfathered health plan for plan years beginning before January 1,
2014, PHS Act section 2714 is applicable in the case of an adult child only if the adult child is not eligible for other employer-sponsored health
plan coverage. The interim final regulations relating to PHS Act section 2714, published in 75 FR 27122 (May 13, 2010), and these interim final
regulations clarify that, in the case of an adult child who is eligible for coverage under the employer-sponsored plans of both parents, neither par-
ents plan may exclude the adult child from coverage based on the fact that the adult child is eligible to enroll in the other parents employer-
sponsored plan.
E. Health Insurance Coverage 26 CFR 54.98151251T, 29 CFR grandfathered health plan at the
Maintained Pursuant to a Collective 2590.7151251, and 45 CFR 147.140 of termination of the agreement. However,
Bargaining Agreement of Paragraph (f) these interim final regulations) during for a change in issuers after the
of 26 CFR 54.98151251T, 29 CFR the period of the agreement. The termination of the agreement, the rules
2590.7151251, and 45 CFR 147.140 of statutory language of the provision of paragraph (a)(1)(ii) of 26 CFR
These Interim Final Regulations refers solely to health insurance 54.98151251T, 29 CFR 2590.7151251,
coverage and does not refer to a group and 45 CFR 147.140 of these interim
In paragraph (f) of 26 CFR 54.9815 health plan; therefore, these interim final regulations apply.
1251T, 29 CFR 2590.7151251, and 45 final regulations apply this provision Similar language to section 1251(d) in
CFR 147.140, these interim final only to insured plans maintained related bills that were not enacted
regulations provide that in the case of pursuant to a collective bargaining would have provided a delayed effective
health insurance coverage maintained agreement and not to self-insured plans. date for collectively bargained plans
pursuant to one or more collective After the date on which the last of the with respect to the Affordable Care Act
bargaining agreements ratified before collective bargaining agreements requirements. Questions have arisen as
March 23, 2010, the coverage is a terminates, the determination of to whether section 1251(d) as enacted in
grandfathered health plan at least until whether health insurance coverage the Affordable Care Act similarly
the date on which the last agreement maintained pursuant to a collective operated to delay the application of the
relating to the coverage that was in bargaining agreement is grandfathered Affordable Care Acts requirements to
effect on March 23, 2010 terminates. health plan coverage is made under the collectively bargained plans
Thus, before the last of the applicable rules of paragraph (g). This specifically, whether the provision of
collective bargaining agreement determination is made by comparing the section 1251(d) that exempts
terminates, any health insurance terms of the coverage on the date of collectively bargained plans from
coverage provided pursuant to the determination with the terms of the requirements for the duration of the
collective bargaining agreements is a coverage that were in effect on March agreement effectively provides the plans
grandfathered health plan, even if there 23, 2010. A change in issuers during the with a delayed effective date with
is a change in issuers (or any other period of the agreement, by itself, would respect to all new PHS Act requirements
change described in paragraph (g)(1) of not cause the plan to cease to be a (in contrast to the rules for
grandfathered health plans which health plan (even though this condition cost-sharing requirements other than
provide that specified PHS Act may affect relatively few individuals copayments and a rule for copayments.
provisions apply to all plans, including covered under the plan). Moreover, for Fixed-amount cost-sharing requirements
grandfathered health plans). However, purposes of paragraph (g)(1)(i), the include, for example, a $500 deductible,
the statutory language that applies only elimination of benefits for any necessary a $30 copayment, or a $2,500 out-of-
to collectively bargained plans, as element to diagnose or treat a condition pocket limit. With respect to fixed-
signed into law as part of the Affordable is considered the elimination of all or amount cost-sharing requirements other
Care Act, provides that insured substantially all benefits to diagnose or than copayments, a plan or health
collectively bargained plans in which treat a particular condition. An example insurance coverage ceases to be a
individuals were enrolled on the date of in these interim final regulations grandfathered health plan if there is an
enactment are included in the definition illustrates that if a plan provides increase, since March 23, 2010, in a
of a grandfathered health plan. benefits for a particular mental health fixed-amount cost-sharing requirement
Therefore, collectively bargained plans condition, the treatment for which is a that is greater than the maximum
(both insured and self-insured) that are combination of counseling and percentage increase. The maximum
grandfathered health plans are subject to prescription drugs, and subsequently percentage increase is defined as
the same requirements as other eliminates benefits for counseling, the medical inflation (from March 23, 2010)
grandfathered health plans, and are not plan is treated as having eliminated all plus 15 percentage points. For this
provided with a delayed effective date or substantially all benefits for that purpose, medical inflation is defined in
for PHS Act provisions with which mental health condition. these interim final regulations by
other grandfathered health plans must A second set of rules (in paragraphs reference to the overall medical care
comply. Thus, the provisions that apply (g)(1)(ii) through (g)(1)(iv)) limits the component of the Consumer Price Index
to grandfathered health plans apply to extent to which plans and issuers can for All Urban Consumers, unadjusted
collectively bargained plans before and increase the fixed-amount and the (CPI), published by the Department of
after termination of the last of the percentage cost-sharing requirements Labor. For fixed-amount copayments, a
applicable collective bargaining that are imposed with respect to plan or health insurance coverage ceases
agreement. individuals for covered items and to be a grandfathered health plan if
services. Plans and issuers can choose to there is an increase since March 23,
F. Maintenance of Grandfather Status of make larger increases to fixed-amount or
Paragraph (g) of 26 CFR 54.98151251T, 2010 in the copayment that exceeds the
percentage cost-sharing requirements greater of (A) the maximum percentage
29 CFR 2590.7151251, and 45 CFR than permissible under these interim
147.140 of These Interim Final increase or (B) five dollars increased by
final regulations, but at that point the medical inflation. A more detailed
Regulations) individuals plan or health insurance description of the basis for these rules
Questions have arisen regarding the coverage would cease to be relating to cost-sharing requirements is
extent to which changes can be made to grandfathered health plan coverage. A included in section IV.B later in this
a plan or health insurance coverage and more detailed description of the basis preamble.
still have the plan or coverage for the cost-sharing requirements in With respect to employer
considered the same as that in existence these interim final regulations is contributions, these interim final
on March 23, 2010, so as to maintain included in section IV.B later in this regulations include a standard for
status as a grandfathered health plan. preamble. changes that would result in cessation
Some have suggested that any change These interim final regulations of grandfather status. Specifically,
would cause a plan or health insurance provide different standards with respect paragraph (g)(1)(v) limits the ability of
coverage to be considered different and to coinsurance and fixed-amount cost an employer or employee organization
thus cease to be a grandfathered health sharing. Coinsurance automatically rises to decrease its contribution rate for
plan. Others have suggested that any with medical inflation. Therefore, coverage under a group health plan or
degree of change, no matter how large, changes to the level of coinsurance group health insurance coverage. Two
is irrelevant provided the plan or health (such as moving from a requirement that different situations are addressed. First,
insurance coverage can trace some the patient pay 20 percent to a if the contribution rate is based on the
continuous legal relationship to the plan requirement that the patient pay 30
cost of coverage, a group health plan or
or health insurance coverage that was in percent of inpatient surgery costs)
group health insurance coverage ceases
existence on March 23, 2010. would significantly alter the level of
In paragraph (g)(1) of 26 CFR to be a grandfathered health plan if the
benefits provided. On the other hand,
54.98151251T, 29 CFR 2590.7151251, employer or employee organization
fixed-amount cost-sharing requirements
and 45 CFR 147.140 of these interim decreases its contribution rate towards
(such as copayments and deductibles)
final regulations, coordinated rules are the cost of any tier of coverage for any
do not take into account medical
set forth for determining when changes class of similarly situated individuals 6
inflation. Therefore, changes to fixed-
to the terms of a plan or health by more than 5 percentage points below
amount cost-sharing requirements (for
insurance coverage cause the plan or example, moving from a $35 copayment the contribution rate on March 23, 2010.
coverage to cease to be a grandfathered to a $40 copayment for outpatient For this purpose, contribution rate is
health plan. The first of those rules (in doctor visits) may be reasonable to keep defined as the amount of contributions
paragraph (g)(1)(i)) constrains the extent up with the rising cost of medical items made by an employer or employee
to which the scope of benefits can be and services. Accordingly, paragraph organization compared to the total cost
reduced. It provides that the elimination of coverage, expressed as a percentage.
(g)(1)(ii) provides that any increase in a

of all or substantially all benefits to percentage cost-sharing requirement These interim final regulations provide
diagnose or treat a particular condition (such as coinsurance) causes a plan or that total cost of coverage is determined
causes a plan or health insurance health insurance coverage to cease to be in the same manner as the applicable
coverage to cease to be a grandfathered a grandfathered health plan. 6 Similarly situated individuals are described in
health plan. If, for example, a plan With respect to fixed-amount cost- the HIPAA nondiscrimination regulations at 26 CFR
eliminates all benefits for cystic fibrosis, sharing requirements, paragraph 54.98021(d), 29 CFR 2590.702(d), and 45 CFR
the plan ceases to be a grandfathered (g)(1)(iii) provides two rules: a rule for 146.121(d).
premium is calculated under the described in 26 CFR 54.9815 which to revoke or modify any changes
COBRA continuation provisions of 1251T(g)(1), 29 CFR 2590.715 adopted prior to June 14, 2010, where
section 604 of ERISA, section 1251(g)(1), and 45 CFR 147.140(g)(1) the changes might otherwise cause the
4980B(f)(4) of the Code, and section will not cause a plan or coverage to plan or health insurance coverage to
2204 of the PHS Act. In the case of a cease to be a grandfathered health plan. cease to be a grandfathered health plan.
self-insured plan, contributions by an Examples include changes to premiums, Under this rule, grandfather status is
employer or employee organization are changes to comply with Federal or State preserved if the changes are revoked,
calculated by subtracting the employee legal requirements, changes to and the plan or health insurance
contributions towards the total cost of voluntarily comply with provisions of coverage is modified, effective as of the
coverage from the total cost of coverage. the Affordable Care Act, and changing first day of the first plan or policy year
Second, if the contribution rate is based third party administrators, provided beginning on or after September 23,
on a formula, such as hours worked or these changes are made without 2010 to bring the terms within the limits
tons of coal mined, a group health plan exceeding the standards established by for retaining grandfather status in these
or group health insurance coverage paragraph (g)(1). interim final regulations. For this
ceases to be a grandfathered health plan These interim final regulations purpose, and for purposes of the
if the employer or employee provide transitional rules for plans and reasonable good faith standard changes
organization decreases its contribution issuers that made changes after the will be considered to have been adopted
rate towards the cost of any tier of enactment of the Affordable Care Act before these interim final regulations are
coverage for any class of similarly pursuant to a legally binding contract publicly available if the changes are
situated individuals by more than 5 entered into prior to enactment, made effective before that date, the changes
percent below the contribution rate on changes to the terms of health insurance are effective on or after that date
March 23, 2010. coverage pursuant to a filing before pursuant to a legally binding contract
Finally, paragraph (g)(1)(vi) addresses March 23, 2010 with a State insurance entered into before that date, the
the imposition of a new or modified department, or made changes pursuant changes are effective on or after that
annual limit by a plan, or group or to written amendments to a plan that date pursuant to a filing before that date
individual health insurance coverage.7 were adopted prior to March 23, 2010. with a State insurance department, or
Three different situations are addressed: If a plan or issuer makes changes in any the changes are effective on or after that
A plan or health insurance coverage of these situations, the changes are date pursuant to written amendments to
that, on March 23, 2010, did not impose effectively considered part of the plan a plan that were adopted before that
an overall annual or lifetime limit on terms on March 23, 2010 even though date.
the dollar value of all benefits ceases to they are not then effective. Therefore,
be a grandfathered health plan if the such changes are not taken into account While the Departments have
plan or health insurance coverage in considering whether the plan or determined that the changes identified
imposes an overall annual limit on the health insurance coverage remains a in paragraph (g)(1) of these interim final
dollar value of benefits. grandfathered health plan. regulations would cause a group health
A plan or health insurance Because status as a grandfathered plan or health insurance coverage to
coverage, that, on March 23, 2010, health plan under section 1251 of the cease to be a grandfathered health plan,
imposed an overall lifetime limit on the Affordable Care Act is determined in the Departments invite comments from
dollar value of all benefits but no overall relation to coverage on March 23, 2010, the public on whether this list of
annual limit on the dollar value of all the date of enactment of the Affordable changes is appropriate and what other
benefits ceases to be a grandfathered Care Act, the Departments considered changes, if any, should be added to this
health plan if the plan or health whether they should provide a good- list. Specifically, the Departments invite
insurance coverage adopts an overall faith compliance period from comments on whether the following
annual limit at a dollar value that is Departmental enforcement until changes should result in cessation of
lower than the dollar value of the guidance regarding the standards for grandfathered health plan status for a
lifetime limit on March 23, 2010. maintaining grandfather status was plan or health insurance coverage: (1)
A plan or health insurance coverage made available to the public. Group Changes to plan structure (such as
that, on March 23, 2010, imposed an health plans and health insurance switching from a health reimbursement
overall annual limit on the dollar value issuers often make routine changes from arrangement to major medical coverage
of all benefits ceases to be a year to year, and some plans and issuers or from an insured product to a self-
grandfathered health plan if the plan or may have needed to implement such insured product); (2) changes in a
health insurance coverage decreases the changes prior to the issuance of these network plans provider network, and if
dollar value of the annual limit interim final regulations. so, what magnitude of changes would
(regardless of whether the plan or health Accordingly, for purposes of have to be made; (3) changes to a
insurance coverage also imposed an enforcement, the Departments will take prescription drug formulary, and if so,
overall lifetime limit on March 23, 2010 into account good-faith efforts to what magnitude of changes would have
on the dollar value of all benefits). comply with a reasonable interpretation to be made; or (4) any other substantial
Under these interim final regulations, of the statutory requirements and may change to the overall benefit design. In
changes other than the changes disregard changes to plan and policy addition, the Departments invite
terms that only modestly exceed those comments on the specific standards
7 Independent of these rules regarding the impact
changes described in paragraph (g)(1) of included in these interim final
on grandfather status of newly adopted or reduced regulations on benefits, cost sharing,
26 CFR 54.98151251T, 29 CFR

annual limits, group health plans and group or
individual health insurance coverage (other than 2590.7151251, and 45 CFR 147.140 and employer contributions. The
individual health insurance policies that are and that are adopted before June 14, Departments specifically invite
grandfathered health plans) are required to comply 2010, the date the regulations were comments on whether these standards
with PHS Act section 2711, which permits made publicly available. should be drawn differently in light of
restricted annual limits (as defined in regulations)
until 2014. The Departments expect to publish
In addition, these interim final the fact that changes made by the
regulations regarding restricted annual limits in the regulations provide employers and Affordable Care Act may alter plan or
very near future. issuers with a grace period within issuer practices in the next several
years. Any new standards published in interest to delay putting the provisions interim final regulations provide the
the final regulations that are more in these interim final regulations in public with an opportunity for
restrictive than these interim final place until a full public notice and comment, but without delaying the
regulations would only apply comment process was completed. As effective date of the regulations.
prospectively to changes to plans or noted above, numerous provisions of For the foregoing reasons, the
health insurance coverage after the the Affordable Care Act are applicable Departments have determined that it is
publication of the final rules. for plan years (in the individual market, impracticable and contrary to the public
Moreover, the Departments may issue, policy years) beginning on or after interest to engage in full notice and
as appropriate, additional September 23, 2010, six months after comment rulemaking before putting
administrative guidance other than in date of enactment. Grandfathered health these regulations into effect, and that it
the form of regulations to clarify or plans are exempt from many of these is in the public interest to promulgate
interpret the rules contained in these provisions while group health plans and interim final regulations.
interim final regulations for maintaining group and individual health insurance IV. Economic Impact and Paperwork
grandfathered health plan status prior to coverage that are not grandfathered Burden
the issuance of final regulations. The health plans must comply with them.
ability to issue prompt, clarifying The determination of whether a plan or A. OverviewDepartment of Labor and
guidance is especially important given health insurance coverage is a Department of Health and Human
the uncertainty as to how plans or grandfathered health plan therefore Services
issuers will alter their plans or policies could substantially affect the design of As stated earlier in this preamble,
in response to these rules. This the plan or health insurance coverage. these interim final regulations
guidance can address unanticipated The six-month period between the implement section 1251 of the
changes by plans and issuers to ensure enactment of the Affordable Care Act Affordable Care Act, as modified by
that individuals benefit from the and the applicability of many of the section 10103 of the Affordable Care Act
Affordable Care Acts new health care provisions affected by grandfather status and section 2301 of the Reconciliation
protections while preserving the ability would not allow sufficient time for the Act. Pursuant to section 1251, certain
to maintain the coverage individuals Departments to draft and publish provisions of the Affordable Care Act do
had on the date of enactment. proposed regulations, receive and not apply to a group health plan or
consider comments, and draft and health insurance coverage in which an
III. Interim Final Regulations and
publish final regulations. Moreover, individual was enrolled on March 23,
Request for Comments
regulations are needed well in advance 2010 (a grandfathered health plan).8 The
Section 9833 of the Code, section 734 of the effective date of the requirements
of ERISA, and section 2792 of the PHS statute and these interim final
of the Affordable Care Act. Many group regulations allow family members of
Act authorize the Secretaries of the health plans and health insurance
Treasury, Labor, and HHS (collectively, individuals already enrolled in a
coverage that are not grandfathered grandfathered health plan to enroll in
the Secretaries) to promulgate any health plans must make significant
interim final rules that they determine the plan after March 23, 2010; in such
changes in their provisions to comply cases, the plan or coverage is also a
are appropriate to carry out the with the requirements of the Affordable
provisions of chapter 100 of the Code, grandfathered health plan with respect
Care Act. Moreover, plans and issuers to the family members. New employees
part 7 of subtitle B of title I of ERISA, considering other modifications to their
and part A of title XXVII of the PHS Act, (whether newly hired or newly
terms need to know whether those
which include PHS Act sections 2701 enrolled) and their families can enroll in
modifications will affect their status as
through 2728 and the incorporation of a grandfathered group health plan after
grandfathered health plans.
those sections into ERISA section 715 March 23, 2010 without affecting status
Accordingly, in order to allow plans and
and Code section 9815. The rules set as a grandfathered health plan.9
health insurance coverage to be
forth in these interim final regulations designed and implemented on a timely 8 The Affordable Care Act adds section 715(a)(1)
govern the applicability of the basis, regulations must be published to ERISA and section 9815(a)(1) to the Code to
requirements in these sections and are and available to the public well in incorporate the provisions of part A of title XXVII
therefore appropriate to carry them out. advance of the effective date of the of the PHS Act into ERISA and the Code, and make
Therefore, the foregoing interim final them applicable to group health plans, and health
requirements of the Affordable Care Act. insurance issuers providing health insurance
rule authority applies to these interim It is not possible to have a full notice coverage in connection with group health plans.
final regulations. and comment process and to publish The PHS Act sections incorporated by this reference
In addition, under Section 553(b) of final regulations in the brief time are sections 2701 through 2728. PHS Act sections
the Administrative Procedure Act (APA) between enactment of the Affordable 2701 through 2719A are substantially new, though
(5 U.S.C. 551 et seq.) a general notice of they incorporate some provisions of prior law. PHS
Care Act and the date regulations are Act sections 2722 through 2728 are sections of prior
proposed rulemaking is not required needed. law renumbered, with some, mostly minor,
when an agency, for good cause, finds The Secretaries further find that changes. Section 1251 of the Affordable Care Act,
that notice and public comment thereon issuance of proposed regulations would as modified by section 10103 of the Affordable Care
are impracticable, unnecessary, or Act and section 2301 of the Reconciliation Act,
not be sufficient because the provisions specifies that certain plans or coverage existing as
contrary to the public interest. The of the Affordable Care Act protect of the date of enactment (that is, grandfathered
provisions of the APA that ordinarily significant rights of plan participants health plans) are only subject to certain provisions.
require a notice of proposed rulemaking and beneficiaries and individuals 9 For individuals who have coverage through an
do not apply here because of the insured group health plans subject to a collective
covered by individual health insurance

bargaining agreement ratified before March 23,
specific authority granted by section policies and it is essential that 2010, an individuals coverage is grandfathered at
9833 of the Code, section 734 of ERISA, participants, beneficiaries, insureds, least until the date on which the last agreement
and section 2792 of the PHS Act. plan sponsors, and issuers have relating to the coverage that was in effect on March
However, even if the APA were certainty about their rights and 23, 2010, terminates. These collectively bargained
plans may make any permissible changes to the
applicable, the Secretaries have responsibilities. Proposed regulations benefit structure before the agreement terminates
determined that it would be are not binding and cannot provide the and remain grandfathered. After the termination
impracticable and contrary to the public necessary certainty. By contrast, the Continued
As addressed earlier in this preamble, 1. Need for Regulatory Action Therefore, as further discussed below,
and further discussed below, these these interim final regulations are
interim final regulations include rules As discussed earlier in this preamble, designed, among other things, to take
for determining whether changes to the Section 1251 of the Affordable Care Act, into account reasonable changes
terms of a grandfathered health plan as modified by section 10103 of the routinely made by plan sponsors or
made by issuers and plan sponsors Affordable Care Act and section 2301 of issuers without the plan or health
allow the plan or health insurance the Reconciliation Act, provides that insurance coverage relinquishing its
coverage to remain a grandfathered grandfathered health plans are subject grandfather status so that individuals
only to certain provisions of the can retain the ability to remain enrolled
health plan. These rules are the primary
Affordable Care Act. The statute, in the coverage in which they were
focus of this regulatory impact analysis.
however, is silent regarding changes enrolled on March 23, 2010. Thus, for
The Departments have quantified the plan sponsors and issuers can make to example, these interim final regulations
effects where possible and provided a plans and health insurance coverage generally permit plan sponsors and
qualitative discussion of the economic while retaining grandfather status. issuers to make voluntary changes to
effects and some of the transfers and These interim final regulations are increase benefits, to conform to required
costs that may result from these interim necessary in order to provide rules that legal changes, and to adopt voluntarily
final regulations. plan sponsors and issuers can use to other consumer protections in the
determine which changes they can make Affordable Care Act.
B. Executive Order 12866Department
to the terms of the plan or health 2. Regulatory Alternatives
of Labor and Department of Health and
insurance coverage while retaining their
Human Services Section 6(a)(3)(C)(iii) of Executive
grandfather status, thus exempting them
from certain provisions of the Order 12866 requires an economically
Under Executive Order 12866 (58 FR
Affordable Care Act and fulfilling a goal significant regulation to include an
51735), significant regulatory actions
of the legislation, which is to allow assessment of the costs and benefits of
are subject to review by the Office of potentially effective and reasonable
Management and Budget (OMB). those that like their healthcare to keep
it. These interim final regulations are alternatives to the planned regulation,
Section 3(f) of the Executive Order and an explanation of why the planned
defines a significant regulatory action designed to allow individuals who wish
to maintain their current health regulatory action is preferable to the
as an action that is likely to result in a potential alternatives. The alternatives
rule (1) having an annual effect on the insurance plan to do so, to reduce short
term disruptions in the market, and to considered by the Departments fall into
economy of $100 million or more in any two general categories: Permissible
one year, or adversely and materially ease the transition to market reforms
that phase in over time. changes to cost sharing and benefits.
affecting a sector of the economy, The discussion below addresses the
productivity, competition, jobs, the In drafting this rule, the Departments considered alternatives in each category.
environment, public health or safety, or attempted to balance a number of The Departments considered allowing
State, local or tribal governments or competing interests. For example, the looser cost-sharing requirements, such
communities (also referred to as Departments sought to provide adequate as 25 percent plus medical inflation.
economically significant); (2) creating flexibility to plan sponsors and issuers However, the data analysis led the
a serious inconsistency or otherwise to ease transition and mitigate potential Departments to believe that the cost-
interfering with an action taken or premium increases while avoiding sharing windows provided in these
planned by another agency; (3) excessive flexibility that would conflict interim final regulations permit enough
materially altering the budgetary with the goal of permitting individuals flexibility to enable a smooth transition
impacts of entitlement grants, user fees, who like their healthcare to keep it and in the group market over time, and
or loan programs or the rights and might lead to longer term market further widening this window was not
obligations of recipients thereof; or (4) segmentation as the least costly plans necessary and could conflict with the
raising novel legal or policy issues remain grandfathered the longest. In goal of allowing those who like their
arising out of legal mandates, the addition, the Departments recognized healthcare to keep it.
Presidents priorities, or the principles that many plan sponsors and issuers Another alternative the Departments
set forth in the Executive Order. OMB make changes to the terms of plans or considered was an annual allowance for
has determined that this regulation is health insurance coverage on an annual cost-sharing increases above medical
basis: Premiums fluctuate, provider inflation, as opposed to the one-time
economically significant within the
networks and drug formularies change, allowance of 15 percent above medical
meaning of section 3(f)(1) of the
employer and employee contributions inflation. An annual margin of 15
Executive Order, because it is likely to
and cost-sharing change, and covered percent above medical inflation, for
have an annual effect on the economy
items and services may vary. Without example, would permit plans to
of $100 million in any one year.
some ability to make some adjustments increase cost sharing by medical
Accordingly, OMB has reviewed these while retaining grandfather status, the inflation plus 15 percent every year. The
rules pursuant to the Executive Order. ability of individuals to maintain their Departments concluded that the effect of
The Departments provide an assessment current coverage would be frustrated, the one-time allowance (15 percent of
of the potential costs, benefits, and because most plans or health insurance the original, date-of-enactment level
transfers associated with these interim coverage would quickly cease to be plus medical inflation) would diminish
final regulations below. The regarded as the same group health plan over time insofar as it would represent
Departments invite comments on this or health insurance coverage in a diminishing fraction of the total level
assessment and its conclusions. existence on March 23, 2010. At the of cost sharing with the cumulative
same time, allowing unfettered changes effects of medical inflation over time.
date, grandfather status will be determined by while retaining grandfather status Accordingly, the one-time allowance
comparing the plan, as it existed on March 23, 2010
to the changes that the plan made before
would also be inconsistent with would better reflect (i) the potential
termination under the rules established by these Congresss intent to preserve coverage need of grandfathered health plans to
interim final regulations. that was in effect on March 23, 2010. make adjustments in the near term to
reflect the requirement that they comply Another alternative was a requirement above the level at which it was on
with the market reforms that apply to that employers continue to contribute March 23, 2010;
grandfathered health plans in the near the same dollar amount they were Increases fixed-amount cost-sharing
term as well as (ii) the prospect that, for contributing for the period including requirements other than copayments,
many plans and health insurance March 23, 2010, plus an inflation such as a $500 deductible or a $2,500
coverage, the need to recover the costs component. However, the Departments out-of-pocket limit, by a total percentage
of compliance in other ways will were concerned that this approach measured from March 23, 2010 that is
diminish in the medium term, in part would not provide enough flexibility to more than the sum of medical inflation
because of the changes that will become accommodate the year-to-year volatility and 15 percentage points.10
effective in 2014 and in part because of in premiums that can result from Increases copayments by an amount
the additional time plan sponsors and changes in some plans covered that exceeds the greater of: a total
issuers will have to make gradual populations or other factors. percentage measured from March 23,
adjustments that take into account the The Departments also considered 2010 that is more than the sum of
market reforms that are due to take whether a change in third party medical inflation plus 15 percentage
effect in later years. administrator by a self-insured plan points, or $5 increased by medical
The Departments considered should cause the plan to relinquish inflation measured from March 23,
establishing an overall prohibition grandfather status. The Departments 2010;
against changes that, in the aggregate, or decided that such a change would not For a group health plan or group
cumulatively over time, render the plan necessarily cause the plan to be so health insurance coverage, an employer
or coverage substantially different than different from the plan in effect on or employee organization decreases its
the plan or coverage that existed on March 23, 2010 that it should be contribution rate by more than five
March 23, 2010, or further delineating required to relinquish grandfather percentage points below the
other examples of changes that could status. contribution rate on March 23, 2010; or
After careful consideration, the With respect to annual limits (1) a
cause a plan to relinquish grandfather
Departments opted against rules that group health plan, or group or
status. This kind of substantially
would require a plan sponsor or issuer individual health insurance coverage,
different standard would have captured
to relinquish its grandfather status if that, on March 23, 2010, did not impose
significant changes not anticipated in
only relatively small changes are made an overall annual or lifetime limit on
the interim final regulation. However, it
to the plan. The Departments concluded the dollar value of all benefits imposes
would rely on a facts and
that plan sponsors and issuers of an overall annual limit on the dollar
circumstances analysis in defining
grandfathered health plans should be value of benefits; (2) a group health
substantially different or significant
permitted to take steps within the plan, or group or individual health
changes, which would be less
boundaries of the grandfather definition insurance coverage, that, on March 23,
transparent and result in greater
to control costs, including limited 2010, imposed an overall lifetime limit
uncertainty about the status of a health
increases in cost-sharing and other plan on the dollar value of all benefits but no
plan. That, in turn, could hinder plan
changes not prohibited by these interim overall annual limit on the dollar value
sponsor or issuer decisions as well as
final regulations. As noted earlier, of all benefits adopts an overall annual
enrollee understanding of what
deciding to relinquish grandfather status limit at a dollar value that is lower than
protections apply to their coverage.
is a one-way sorting process: after some the dollar value of the lifetime limit on
An actuarial equivalency standard period of time, more plans will
was another considered option. Such a March 23, 2010; or (3) a group health
relinquish their grandfather status. plan, or group or individual health
standard would allow a plan or health These interim final regulations will
insurance coverage to retain status as a insurance coverage, that, on March 23,
likely influence plan sponsors 2010, imposed an overall annual limit
grandfathered health plan if the decisions to relinquish grandfather
actuarial value of the coverage remains on the dollar value of all benefits
status. decreases the dollar value of the annual
in approximately the same range as it
was on March 23, 2010. However, under 3. Discussion of Regulatory Provisions limit (regardless of whether the plan or
such a standard, a plan could make As discussed earlier in this preamble, health insurance coverage also imposes
fundamental changes to the benefit these interim final regulations provide an overall lifetime limit on the dollar
design, potentially conflicting with the that a group health plan or health value of all benefits).
goal of allowing those who like their insurance coverage no longer will be Table 1, in section II.D of this preamble,
healthcare to keep it, and still retain considered a grandfathered health plan lists the relevant Affordable Care Act
grandfather status. Moreover, the if a plan sponsor or an issuer: provisions that apply to grandfathered
complexity involved in defining and Eliminates all or substantially all health plans.
determining actuarial value for these benefits to diagnose or treat a particular In accordance with OMB Circular A
purposes, the likelihood of varying condition. The elimination of benefits 4,11 Table 2 below depicts an
methodologies for determining such for any necessary element to diagnose or accounting statement showing the
value unless the Departments treat a condition is considered the Departments assessment of the benefits,
promulgated very detailed prescriptive elimination of all or substantially all costs, and transfers associated with this
rules, and the costs of administering and benefits to diagnose or treat a particular regulatory action. In accordance with
ensuring compliance with such rules condition; Executive Order 12866, the Departments
Increases a percentage cost-sharing
led the Departments to reject that believe that the benefits of this
approach. requirement (such as coinsurance) regulatory action justify the costs.
10 Medical inflation is defined in these interim 11 Available at http://www.whitehouse.gov/omb/
regulations by reference to the overall medical care circulars/a004/a-4.pdf.

component of the CPI.
TABLE 2ACCOUNTING TABLE
Benefits
Qualitative: These interim final regulations provide plans with guidance about the requirements for retaining grandfather status. Non-grand-
fathered plans are required to offer coverage with minimum benefit standards and patient protections as required by the Affordable Care Act,
while grandfathered plans are required only to comply with certain provisions. The existence of grandfathered health plans will provide individ-
uals with the benefits of plan continuity, which may have a high value to some. In addition, grandfathering could potentially slow the rate of
premium growth, depending on the extent to which their current plan does not include the benefits and protections of the new law. It could
also provide incentives to employers to continue coverage, potentially reducing new Medicaid enrollment and spending and lowering the num-
ber of uninsured individuals. These interim final regulations also provide greater certainty for plans and issuers about what changes they can
make without affecting their grandfather status. As compared with alternative approaches, these regulations provide significant economic and
noneconomic benefits to both issuers and beneficiaries, though these benefits cannot be quantified at this time.
Costs Low-end Mid-range High-end Year dollar Discount rate Period

estimate estimate estimate covered
Annualized ............................................... 22.0 25.6 27.9 2010 7% 20112013

Monetized ($millions/year) ....................... 21.2 24.7 26.9 2010 3% 20112013
Monetized costs are due to a requirement to notify participants and beneficiaries of a plans grandfather status and maintain plan documents to
verify compliance with these interim final regulations requirements to retain grandfather status.
Qualitative: Limitations on cost-sharing increases imposed by these interim final regulations could result in the cost of some grandfathered
health plans increasing more (or decreasing less) than they otherwise would. This increased cost may encourage some sponsors and issuers
to replace their grandfathered health plans with new, non-grandfathered ones. Market segmentation (adverse selection) due to the decision of
higher risk plans to relinquish grandfathering could cause premiums in the exchanges to be higher than they would have been absent
grandfathering.
Transfers
Qualitative: Limits on the changes to cost-sharing in grandfathered plans and the elimination of cost-sharing for some services in non-grand-
fathered plans, leads to transfers of wealth from premium payers overall to individuals using covered services. Once pre-existing conditions
are fully prohibited and other insurance reforms take effect, the extent to which individuals are enrolled in grandfathered plans could affect ad-
verse selection, as higher risk plans relinquish grandfather status to gain new protections while lower risk grandfathered plans retain their
grandfather status. This could result in a transfer of wealth from non-grandfathered plans to grandfathered health plans.
4. Discussion of Economic Impacts of plan sponsor or issuer must determine changes will determine whether a plan
Retaining or Relinquishing Grandfather whether the rules applicable to retains its grandfather status.
Status grandfathered health plans are more or Ultimately, these decisions will involve
The economic effects of these interim less favorable than the rules applicable a comparison by the plan sponsor or
final regulations will depend on to non-grandfathered health plans. This issuer of the long run value of
decisions by plan sponsors and issuers, determination will depend on such grandfather status to the short-run need
as well as by those covered under these factors as the respective prices of of that plan sponsor or issuer to adjust
plans and health insurance coverage. grandfathered and non-grandfathered plan structure in order to control
The collective decisions of plan health plans, as well as on the premium costs or achieve other business
sponsors and issuers over time can be preferences of grandfathered health objectives.
viewed as a one-way sorting process in plans covered populations and their Decisions by plan sponsors and
which these parties decide whether, and willingness to pay for benefits and issuers may be significantly affected by
when, to relinquish status as a patient protections available under non- the preferences and behavior of the
grandfathered health plan. grandfathered health plans. In making enrollees, especially a tendency among
Plan sponsors and issuers can decide its decisions about grandfather status, a many towards inertia and resistance to
to: plan sponsor or issuer is also likely to change. There is limited research that
1. Continue offering the plan or consider the market segment (because has directly examined what drives this
coverage in effect on March 23, 2010 different rules apply to the large and tendencywhether individuals remain
with limited changes, and thereby retain small group market segments), and the with health plans because of simple
grandfather status; utilization pattern of its covered inertia and procrastination, a lack of
2. Significantly change the terms of population. relevant information, or because they
the plan or coverage and comply with In deciding whether to change a want to avoid risk associated with
Affordable Care Act provisions from plans benefits or cost sharing, a plan switching to new plans. One study that
which grandfathered health plans are sponsor or issuer will examine its short- examined the extent to which premium
excepted; or run business requirements. These changes influenced plan switching
3. In the case of a plan sponsor, cease requirements are regularly altered by, determined that younger low-risk
among other things, rising costs that employees were the most price-sensitive
to offer any plan.

For a plan sponsor or issuer, the result from factors such as technological to premium changes; older, high-risk
potential economic impact of the changes, changes in risk status of the employees were the least price-
application of the provisions in the enrolled population, and changes in sensitive. This finding suggests that, in
Affordable Care Act may be one utilization and provider prices. As particular, individuals with substantial
consideration in making its decisions. shown below, changes in benefits and health needs may be more apt to remain
To determine the value of retaining the cost sharing are typical in insurance with a plan because of inertia as such
health plans grandfather status, each markets. Decisions about the extent of or uncertainties associated with plan
switching rather than quality per sea part, this churn stems from the outweigh those of retaining grandfather
phenomenon some behavioral individual markets function as a status.
economists have called status quo stopping place for people between jobs Market dynamics affecting these
bias, 12 which can be found when with employer-sponsored or other types decisions change in 2014, when the
people stick with the status quo even of health insurance, but in part, the Affordable Care Act limits variation in
though a change would have higher churn is due to the behavior of issuers. premium rates for individual and small
expected value. Evidence suggests that issuers often group policies. Small groups for this
Even when an enrollee could reap an make policy changes such as raising purpose include employers with up to
economic or other advantage from deductibles as a means of attracting 100 employees (States may limit this
changing plans, that enrollee may not new, healthy enrollees who have few threshold to 50 employees until 2016).
make the change because of inertia, a medical costs and so are little- The Affordable Care Act rating rules
lack of relevant information, or because concerned about such deductibles. will not apply to grandfathered health
of the cost and effort involved in There is also evidence that issuers use plans, but such plans will remain
examining new options and uncertainty such changes to sort out high-cost subject to State rating rules, which vary
about the alternatives. Consistent with enrollees from low-cost ones.17 widely and typically apply to employers
well-known findings in behavioral Decisions about the value of retaining with up to 50 employees. Based on the
economics, studies of private insurance or relinquishing status as a current State rating rules, it is likely
demonstrate the substantial effect of grandfathered health plan are complex, that, in many States, no rating rules will
inertia in the behavior of the insured. and the wide array of factors affecting apply to group health insurance policies
One survey found that approximately 83 issuers, plan sponsors, and enrollees that are grandfathered health plans
percent of privately insured individuals poses difficult challenges for the covering employers with 51 to 100
stuck with their plans in the year prior Departments as they try to estimate how employees.18
to the survey.13 Among those who did large the presence of grandfathered The interaction of the Affordable Care
health plans will be in the future and Act and State rating rules implies that,
change plans, well over half sought the
what the economic effects of their beginning in 2014, premiums can vary
same type of plan they had before.
presence will be. As one example, these more widely for grandfathered plans
Those who switched plans also tended
interim final regulations limit the extent than for non-grandfathered plans for
to do so for reasons other than
to which plan sponsors and issuers can employers with up to 100 employees in
preferring their new plans. For example,
many switched because they changed increase cost sharing and still remain many States. This could encourage both
grandfathered. The increases that are plan sponsors and issuers to continue
jobs or their employer changed
allowed provide plans and issuers with grandfathered health plans that cover
insurance offerings, compelling them to
substantial flexibility in attempting to lower-risk groups, because these groups
switch.
control expenditure increases. However, will be isolated from the larger, higher-
Medicare beneficiaries display similar there are likely to be some plans and risk, non-grandfathered risk pool. On
plan loyalties. On average, only seven issuers that would, in the absence of the other hand, this scenario likely will
percent of the 17 million seniors on these regulations, choose to make even encourage plan sponsors and issuers
Medicare drug plans switch plans each larger increases in cost sharing than are that cover higher-risk groups to end
year, according to the Centers for specified here. Such plans will need to grandfathered health plans, because the
Medicare and Medicaid Services.14 decide whether the benefits of group would be folded into the larger,
Researchers have found this maintaining grandfather status outweigh lower-risk non-grandfathered pool.
comparatively low rate of switching is those expected from increasing cost Depending on the size of the
maintained whether or not those sharing above the levels permitted in grandfathered health plan market, such
insured have higher quality information the interim final regulations. adverse selection by grandfathered
about plan choices, and that switching A similar analysis applies to the health plans against non-grandfathered
has little effect on the satisfaction of the provision that an employers or plans could cause premiums in the
insured with their health plans.15 employee organizations share of the exchanges to be higher than they would
The incentives to change are different total premium of a group health plan have been absent grandfathering. To
for people insured in the individual cannot be reduced by more than 5 accommodate these changes in market
market than they are for those covered percentage points from the share it was dynamics in 2014, the Departments
by group health plans or group health paying on March 23, 2010 without that have structured a cost-sharing rule
insurance coverage. The median length plan or health insurance coverage whose parameters enable greater
of coverage for people entering the relinquishing its grandfather status. flexibility in early years and less over
individual market is eight months.16 In Employers and employee organizations time. It is likely that few plans will
sponsoring group health plans or health delay for many years before making
12 http://www.nber.org/reporter/summer06/
insurance coverage may be faced with changes that exceed medical inflation.
buchmueller.html. Consumer Demand for Health economic circumstances that would
Insurance The National Bureau of Economic This is because the cumulative increase
Research (Buchmueller, 2006). lead them to reduce their premium in copayments from March 23, 2010 is
13 http://content.healthaffairs.org/cgi/reprint/19/ contributions. But reductions of greater compared to a maximum percentage
3/158.pdf. Health Plan Switching: Choice Or than 5 percentage points would cause increase that includes a fixed amount
Circumstance? (Cunnigham and Kohn, 2000). them to relinquish the grandfather
14 http://www.kaiserhealthnews.org/Stories/2009/ 15 percentage pointsthat does not
status of their plans. These plan increase annually with any type of
December/01/Medicare-Drug-Plan.aspx. Seniors
Often Reluctant To Switch Medicare Drug Plans sponsors must decide whether the inflator. This should help mitigate
(2009, Kaiser Health News/Washington Post). benefit of such premium reductions adverse selection and require plans and
15 http://www.ncbi.nlm.nih.gov/pubmed/
16704882. The effect of quality information on

issuers that seek to maintain grandfather
Individual Health Insurance Coverage, 19962000.
consumer health plan switching: evidence from the Health Affairs Nov/Dec 2004: 210221. status to find ways other than increased
Buyers Health Care Action Group. (Abraham, 17 Melinda Beeuwkes Bustin, M. Susan Marquis,
Feldman, Carlin, and Christianson, 2006). and Jill M. Yegian. The Role of the Individual 18 Kaiser Family Foundation State Health Facts
16 Erika C. Ziller, Andrew F. Coburn, Timothy D. Health Insurance Market and Prospects for Change. (2010), http://www.statehealthfacts.org/
McBride, and Courtney Andrews. Patterns of Health Affairs 2004; 23(6): 7990. comparetable.jsp?ind=351&cat=7.
copayments to limit cost growth. As Departments also estimated the number cost containment and other objectives
discussed in the preamble, the of fully-insured plans that changed than they had in the past. In order to
Departments are also soliciting issuers.21 The distribution of changes examine this possibility, the
comments to make any adjustments made within the two time periods were Departments carefully analyzed those
needed for the final rule prior to 2014. nearly identical and ultimately the plans that would have relinquished
Therefore it is premature to estimate the 20082009 changes were used as a basis grandfather status based on a change
economic effects described above in for the analyses. they made from 20082009. The
2014 and beyond. In the following As discussed previously, plans will Departments then estimated the
section, the Departments provide a need to make decisions that balance the proportion of these plans that could
range of estimates of how issuers and value they (and their enrollees) place on have achieved similar cost control by
sponsors might respond to these interim maintaining grandfather status with the using one or more other cost-sharing
final regulations, with the caveat that need to meet short run objectives by changes in addition to the one they
there is substantial uncertainty about changing plan features including the made in a manner that would not have
actual outcomes, especially considering various cost sharing requirements that exceeded the limits set by these interim
that available data are historical and so are the subject of this rule. The 2008 final regulations for qualifying as a
do not account for behavioral changes in 2009 data reflect changes in plan benefit grandfathered health plan. For example,
plans and the insured as a result of design that were made under very if a plan was estimated to relinquish
enactment of the Affordable Care Act. different market conditions and grandfather status because it increased
expectations than will exist in 2011 and its deductible by more than the allowed
5. Estimates of Number of Plans and beyond. Therefore, there is a significant
Employees Affected 15 percentage points plus medical
degree of uncertainty associated with inflation, the Departments analyze
The Affordable Care Act applies to using the 20082009 data to project the whether the plan could have achieved
group health plans and health insurance number of plans whose grandfather the same cost control objectives with a
issuers in the group and individual status may be affected in the next few smaller change in deductible, but larger
markets. The large and small group years. Because the level of uncertainty changes (within the limits set forth in
markets will be discussed first, followed becomes substantially greater when these interim final regulations) in
by a discussion of impacts on the trying to use this data to predict copayments, out-of-pocket maximums,
individual market. The Departments outcomes once the full range of reforms and employer contributions to the
have defined a large group health plan takes effect in 2014 and the exchanges premium or cost of coverage.
as a plan at an employer with 100 or begin operating, substantially changing Finally, the Departments examined
more workers and a small group plan as market dynamics the Departments the impact of alternative assumptions
a plan at an employer with less than 100 restrict our estimates to the 20112013 about sponsor behavior. For example, it
workers. Using data from the 2008 period and use the existing data and a is possible that some sponsors who
Medical Expenditure SurveyInsurance range of assumptions to estimate made changes from 20082009 in plan
Component, the Departments estimated possible outcomes based on a range of parameters that were so large that they
that there are approximately 72,000 assumptions concerning how plans would have relinquished their
large ERISA-covered health plans and behavior regarding cost sharing changes grandfather status would not make
2.8 million small group health plans may change relative to what is reflected similar changes in 20112013. It is also
with an estimated 97.0 million in the 20082009 data. possible that even though a sponsor
participants and beneficiaries 19 in large Deriving projections of the number of
could make an equivalent change that
group plans and 40.9 million plans that could retain grandfather
conforms to the rules established in
participants and beneficiaries in small status under the requirements of these
these interim final regulations to
group plans. The Departments estimate interim final regulations required
maintain grandfather status, it would
that there are 126,000 governmental several steps:
plans 20 with 36.1 million participants Using Kaiser/HRET data for 2008 decide not to.
2009, estimates were generated of the The estimates in this example rely on
in large plans and 2.3 million
number of plans in the large and small several other assumptions. Among
participants in small plans. The
group markets that made changes in them: (1) The annual proportion of
Departments estimate there are 16.7
employer premium share or any of the plans relinquishing grandfather status is
million individuals under age 65
covered by individually purchased cost-sharing parameters that were larger the same throughout the period; (2) all
policies. than permitted for a plan to retain group health plans existing at the
grandfather status under these interim beginning of 2010 qualify for
a. Methodology for Analyzing Plan grandfather status; (3) all changes
final regulations;
Changes Over Time in the Group Market In order to account for a range of during 2010 occur after March 23, 2010;
For the large and small group markets, uncertainty with regard to changes in (4) annual medical inflation is 4 percent
the Departments analyzed three years of plan behavior toward cost sharing (based on the average annual change in
Kaiser-HRET data to assess the changes changes, the Departments assumed that the medical CPI between 2000 and
that plans made between plan years many plans will want to maintain 2009); and (5) firms for which the
2007 to 2008 and 2008 to 2009. grandfather status and will look for Kaiser-HRET survey has data for both
Specifically, the Departments examined ways to achieve short run cost control 2008 and 2009 are representative of all
changes made to deductibles, out-of- and still maintain that status. One firms.22 The assumption used for
pocket maximums, copayments, plausible assumption is that plans
22 The analysis is limited to firms that responded

coinsurance, and the employers share would look to a broader range of cost
to the Kaiser/HRET survey in both 2008 and 2009.
of the premium or cost of coverage. The sharing strategies in order to achieve Large firms are overrepresented in the analytic
sample. New firms and firms that went out of
19 All participant counts and the estimates of 21 Under the Affordable Care Act and these business in 2008 or 2009 are underrepresented. The
individual policies are from the 2009 Current interim final regulations, if a plan that is not a Departments present results separately for large
Population Survey (CPS). collectively bargained plan changes issuers after firms and small firms, and weight the results to the
20 Estimate is from the 2007 Census of March 23, 2010, it is no longer a grandfathered number of employees in each firm-size category.
Government. health plan. Results are presented for PPO plans. The Kaiser/
estimating the effects of the limits on total premium paid by the employer conducted further analyses of the 2008
copayment increases does not take into declined by more than 5 percentage 2009 data. Many employers who made
account the greater flexibility in the points. For fully-insured plans only, changes between 2008 and 2009 that
near term than in the long term; the estimates were made of the proportion would have caused them to relinquish
estimated increase in firms losing their that switched to a different issuer.24 grandfather status did so based on
grandfather status over time reflects This estimate does not take into account exceeding one of the cost-sharing limits.
cumulative effects of a constant policy. collectively bargained plans, which can Assuming that the sponsors major
To the extent that the data reflect plans change issuers during the period of the objective in implementing these changes
that are more likely to make frequent collective bargaining agreement without was to restrain employer costs or overall
changes in cost sharing, the assumption a loss of grandfather status, because the premiums, the Departments examined
that a constant share of plans Departments could not quantify this whether the sponsor could have
relinquishing grandfather status category of plans. Accordingly, this achieved the same net effect on
throughout the period may estimate represents an upper bound. employer cost or premiums by
underestimate the number of plans that Using the Kaiser/HRET data, the spreading cost sharing over two or more
will retain grandfather status through Departments estimated that 55 percent changes without exceeding the limits on
2013. In addition, data on substantial of small employers and 36 percent of any of these changes. For example, an
benefit changes were not available and large employers made at least one employer that increased its deductible
thus not included in the analysis. The change in cost-sharing parameters above by 30 percent would have relinquished
survey data is limited, in that it covers the thresholds provided in these interim grandfather status. However, it is
only one year of changes in healthcare final regulations. Similarly, 33 percent possible that the employer could have
plans. The Departments analysis of small employers and 21 percent of achieved the same cost control
employed data only on PPO plans, the large employers decreased the objectives by limiting the deductible
predominant type of plan. In addition, employers share of premium by more increase to 19 percent, and, also
the difficulties of forecasting behavior in than five percentage points. In total, increasing the out-of-pocket maximum
response to this rule create uncertainties approximately 66 percent of small or copayments, or decreasing the
for quantitative evaluation. However, employers and 48 percent of large employer share of the premium.
the analysis presented here is employers made a change in either cost The Departments estimate that
illustrative of the rules goal of sharing or premium contribution during approximately two-thirds of the
balancing flexibility with maintaining 2009 that would require them to employers that made changes in 2009
current coverage. relinquish grandfather status if the same that would have exceeded the threshold
change were made in 2011.25 implemented by this rule could have
b. Impacts on the Group Market The changes made by employers from achieved the same cost-control objective
Resulting From Changes From 2008 to 2008 to 2009 were possibly made in and remained grandfathered by making
2009 anticipation of the recession. As changes in other cost-sharing
The Departments first estimated the discussed previously, analysis of parameters or in the employer share of
percentage of plans that had a percent changes from 2007 to 2008 suggests that the premium. Only 24 percent of small
change in the dollar value of the 200708 changes were not much employers and 16 percent of large
deductibles, copayments, or out-of- different from the 200809 changes. employers could not have reconfigured
pocket maximums that exceeded 19 Nevertheless, as a result of the cost-sharing parameters or employer
percent (the sum of medical inflation improvements in economic conditions, contributions in such a manner that
(assumed in these analyses to be four it makes sense to think that the pressure would have allowed them to stay
percent) plus 15 percentage points on employers to reduce their grandfathered. If benefit changes that
measured from March 23, 2010. Plans contributions to health insurance will are allowed within the grandfathered
making copayment changes of five be smaller in 2011 than they were in health plan definition were also taken
dollars or less were considered to have 2009, and that the Departments analysis into account (not possible with available
satisfied the copayment limit, even if of changes in 2009 may overestimate the data), these percentages would be even
that change exceeded 19 percent.23 The changes that should be expected in lower.
Departments also estimated the number 2011.26 For fully insured group health plans,
of plans for whom the percentage of As discussed previously, it is highly another change that would require a
unlikely that plans would continue to plan to relinquish grandfather status is
HRET survey gathers information about the PPO exhibit the same behavior in 2011 to a change in issuer. Between 2008 and
with the most enrollment in each year. If 2013 as in 2008 to 2009. In order to 2009, 15 percent of small employers and
enrollment at a given employer shifted from one guide the choice of behavioral
PPO to a different PPO between 2008 and 2009,
four percent of large employers changed
then the PPO with the most enrollment in 2009 may
assumptions, the Departments insurance carriers.27 However, it is
be different than the PPO with the most enrollment likely that the incentive to stay
24 In contrast, for self-insured plans, a change in
in 2008. To the extent this occurred, the estimates grandfathered would lead some of these
presented here may overestimate the fraction of third party administrator in and of itself does not
plans that will relinquish grandfather status. cause a group health plan to cease to be a employers to continue with the same
However, given the behavioral assumptions of the grandfathered health plan, provided changes do not issuer, making the actual share of firms
analysis and the need to present a range of results, exceed the limits of paragraph (g)(1) of these relinquishing grandfather status as a
the Departments believe that such overestimation interim final regulations. result of an issuer change lower than the
will not have a noticeable effect on estimates 25 Some employers made changes which
presented here. exceeded at least one cost-sharing threshold and

percentage that switched in 2009. There
23 The regulation allows plans to increase fixed- decreased the employers share of contribution by appears to be no empirical evidence to
amount copayments by an amount that does not more than five percent.
exceed $5 increased by medical inflation. In this 26 Employers who offer plans on a calendar year 27 Among the 76 percent of small employers and
analysis, the Departments used a threshold of $5, basis generally make decisions about health plan 84 percent of large employers who could have
rather than the threshold of approximately $5.20 offerings during the preceding summer. Thus, accommodated the cost-sharing changes they
that would be allowed by these interim final decisions for calendar 2009 were generally made desired to make within the parameters of these
regulations. There would have been no difference during the summer of 2008. At that time, the depth interim final regulations, 13 percent of the small
in the results if the Departments had used $5.20 of the coming recession was not yet clear to most employers and three percent of the large employers
rather than $5 as the threshold. observers. changed issuers.
provide guidance on the proportion of substantial uncertainty, however, about choose to remain grandfathered by
employers that would choose to remain how many firms would utilize these limiting the out-of-pocket maximum to
with their issuer rather than relinquish other avenues. $3,570, reducing the employer
grandfather status. That being so, an To examine the impact of this type of contribution and increasing the
assumption was made that 50 percent of behavior on the estimates on the employee contribution to premium. It is
employers that changed issuers in 2009 number of plans that would not not clear, however, that all plan
would not have made a similar change maintain grandfather status, the sponsors would do sosome may see
in 2011 in order to retain grandfather Departments examined the magnitude of the costs in negative employee relations
status. It is likely that fewer employers additional premium increases plans as larger than the benefits from
will elect to change carriers than in would need to implement if they were remaining grandfathered. Moreover,
recent years given that some will prefer to modify their cost-sharing changes to because some plans may already nearly
to retain grandfather status. But it is also stay within the allowable limits. Among comply with all provisions of the
likely that many employers will prefer the 24 percent of small firms that would Affordable Care Act, or because
to switch carriers given a change in the have relinquished grandfather status enrollees are of average to less favorable
issuers network or other factors. based on the changes they made in health status, some employers may
Because there is little empirical 2009, 31 percent would have needed to place less value on retaining grandfather
evidence regarding the fraction of firms increase premiums by 3 percent or less status.
that would elect to switch in response in order to maintain grandfather status.
to the change in regulations, we take the The analogous statistic for the 16 With this in mind, the Departments
midpoint of the plausible range of no percent of large firms that would have replicated the analysis, but assumed
switching carriers at one extreme and all relinquished grandfather status is 41 that one-half of the employers who
switching carriers at the other extreme. percent. It is reasonable to think that made a change in cost-sharing
We therefore assume that 50 percent of employers that are facing only a parameter that could not be
employers that changed issuers in 2009 relatively small premium increase might accommodated without reducing the
would not make a similar change in choose to remain grandfathered. employer contribution will be unwilling
2011 to retain grandfather status. Using these estimates, if employers to reduce the employer contribution as
Combining the estimates of the value grandfathering enough that they a share of premium. Under this
percentage of employers that would are willing to allow premiums to assumption, the 24 percent and 16
relinquish grandfather status because increase by three percent more than percent estimates of the proportion of
they chose to make cost-sharing, benefit their otherwise intended level (or can employers relinquishing grandfather
or employer contribution changes make changes to benefits other than status increases to approximately 37
beyond the permitted parameters with cost-sharing that achieve a similar percent and 28 percent among small and
the estimates of the percentage that result), then 14 percent of small large employers, respectively. Adding in
would relinquish grandfather status employers and 11 percent of large the number of employers that it is
because they change issuers, the employers would relinquish grandfather estimated will change issuers, the
Departments estimate that status if they made the same changes in Departments high-end estimate for the
approximately 31 percent of small 2011 as they had in 2009. Adding in the proportion that will relinquish
employers and 18 percent of large employers who would relinquish grandfather status in 2011 is
employers would make changes that grandfather status because they change approximately 42 percent for small
would require them to relinquish issuers, the Departments lower bound employers and 29 percent for large
grandfather status in 2011. The estimate is that approximately 21 employers.
Departments use these estimates as our percent of small employers and 13
mid-range scenario. percent of large employers will e. Estimates for 20112013
relinquish grandfather status in 2011.
c. Sensitivity Analysis: Assuming That Estimates are provided above for the
Employers Will Be Willing To Absorb a d. Sensitivity Analysis: Incomplete percentage of employers that will retain
Premium Increase in Order To Remain Flexibility To Substitute One Cost- grandfather status in 2011. These
Grandfathered Sharing Mechanism for Another estimates are extended through 2013 by
To the extent that a large number of Although economic conditions may assuming that the identical percentage
plans placed a high value on remaining cause more plans to remain of plan sponsors will relinquish
grandfathered, it is reasonable to assume grandfathered in 2011 than might be grandfathering in each year. Again, to
that some would consider other expected from analysis of the 2009 data, the extent that the 20082009 data
measures to maintain that status. In there are other factors that may cause reflect plans that are more likely to
addition to the adjustments that the Departments estimates of the make frequent changes in cost sharing,
employers could relatively easily make fraction of plans retaining grandfather this assumption will overestimate the
by simply adjusting the full set of cost- status to be overestimates of the fraction number of plans relinquishing
sharing parameters rather than focusing that will retain grandfather status. The grandfather status in 2012 and 2013.
changes on a single parameter, the estimates are based on the assumption Under this assumption, the
Departments expect that further that all plans that could accommodate Departments mid-range estimate is that
behavioral changes in response to the the 2009 change they made in a single 66 percent of small employer plans and
incentives created by the Affordable cost-sharing parameter by spreading out 45 percent of large employer plans will
Care Act and these interim final those changes over multiple parameters relinquish their grandfather status by
regulations is possible. For instance, would actually do so. However, some the end of 2013. The low-end estimates
plans could alter other benefits or could plans and sponsors may be concerned are for 49 percent and 34 percent of
decide to accept a slight increase in plan about the labor relations consequences small and large employer plans,
premium or in premium contribution. of reducing the employer contribution respectively, to have relinquished
All of these options would further lower to premium. For example, if a plan grandfather status, and the high-end
the percentage of firms that would increases its out-of-pocket maximum estimates are 80 percent and 64 percent,
relinquish grandfather status. There is from $3,000 to $5,000 in 2009, it could respectively.
TABLE 3ESTIMATES OF THE CUMULATIVE PERCENTAGE OF EMPLOYER PLANS RELINQUISHING THEIR GRANDFATHERED
STATUS, 20112013
2011 2012 2013
Low-end Estimate
Small Employer Plans .......................................................................................................... 20% 36% 49%
Large Employer Plans .......................................................................................................... 13% 24% 34%
All Employer Plans ............................................................................................................... 15% 28% 39%
Mid-range Estimate
High-end Estimate
Notes: Represents full-time employees. Small Employers=3 to 99 employees; Large Employers=100+ employees. All three scenarios assume
that two percent of all large employer plans and six percent of small employer plans would relinquish grandfathered status due to a change in
issuer. Estimates are based on enrollment in PPOs.
Source: Kaiser/RHET Employer Survey, 20082009
f. Impacts on the Individual Market nearly 30 percent maintained policies 13, 2010 (75 FR 27122), the Departments
for more than three years.31 estimated that there were 5.3 million
The market for individual insurance Using these turnover estimates, a young adults age 1925 who were
is significantly different than that for reasonable range for the percentage of covered by employer-sponsored
group coverage. This affects estimates of individual policies that would coverage (ESI) and whose parents were
the proportion of plans that will remain terminate, and therefore relinquish their covered by employer-sponsored
grandfathered until 2014. As mentioned grandfather status, is 40 percent to 67 insurance, and an additional 480,000
previously, the individual market is a percent. These estimates assume that young adults who were uninsured, were
residual market for those who need the policies that terminate are replaced offered ESI, and whose parents were
insurance but do not have group by new individual policies, and that covered by ESI. In that impact
coverage available and do not qualify for these new policies are not, by assessment, the Departments assumed
public coverage. For many, the market definition, grandfathered. In addition, that all parents with employer-
is transitional, providing a bridge the coverage that some individuals sponsored insurance would be in
between other types of coverage. One maintain for long periods might lose its grandfathered health plans, and that
study found a high percentage of grandfather status because the cost- none of their 1925 year old dependents
individual insurance policies began and sharing parameters in policies change with their own offer of employer-
ended with employer-sponsored by more than the limits specified in sponsored insurance would gain
coverage.28 More importantly, coverage these interim final regulations. The coverage as a result of that regulation.
on particular policies tends to be for frequency of this outcome cannot be As estimated here, approximately 80
short periods of time. Reliable data are gauged due to lack of data, but as a percent of the parents with ESI are
scant, but a variety of studies indicate result of it, the Departments estimate likely to be in grandfathered health
that between 40 percent and 67 percent that the percentage of individual market plans in 2011, leaving approximately 20
of policies are in effect for less than one policies losing grandfather status in a percent of these parents in non-
year.29 Although data on changes in given year exceeds the 40 percent to 67 grandfathered health plans. Young
benefit packages comparable to that for percent range that is estimated based on adults under 26 with employer-
the group market is not readily the fraction of individual policies that sponsored insurance or with an offer of
available, the high turnover rates turn over from one year to the next. such coverage whose parents are in non-
described here would dominate benefit g. Application to Extension of grandfathered plans potentially could
changes as the chief source of changes Dependent Coverage to Age 26 enroll in their parents coverage. The
in grandfather status. Departments assume that a large
One way to assess the impact of these percentage of the young adults who are
While a substantial fraction of interim final regulations is to assess
individual policies are in force for less uninsured will enroll in their parents
how they interact with other Affordable coverage when given the opportunity. It
than one year, a small group of Care Act provisions. One such provision
individuals maintain their policies over is more difficult to model the choices of
is the requirement that, in plan years on young adults with an offer of employer-
longer time periods. One study found or after September 23, 2010, but prior to
that 17 percent of individuals sponsored insurance whose parents also
January 1, 2014, grandfathered group have group coverage. One assumes these
maintained their policies for more than health plans are required to offer
two years,30 while another found that young adults will compare the amount
dependent coverage to a child under the that they must pay for their own
age of 26 who is not eligible for employers coverage with the amount
28 Adele M. Kirk. The Individual Insurance

employer-sponsored insurance. In the that they (or their parents) would pay if
Market: A Building Block for Health Care Reform?
Health Care Financing Organization Research Regulatory Impact Assessment (RIA) for they were covered under their parents
Synthesis. May 2008. the regulation that was issued on May policies. Such a decision will
29 Ibid.
30 http://content.healthaffairs.org/cgi/content/ 31 http://content.healthaffairs.org/cgi/content/
incorporate the type of plan that the
full/23/6/210#R14. Patterns of Individual Health full/hlthaff.25.w226v1/DC1. Consumer Decision
parent has, since if the parent already
Insurance Coverage Health Affairs (Ziller et al, Making in the Individual Health Insurance Market has a family plan whose premium does
2004). Health Affairs (Marquis et al., 2006). not vary by number of dependents, the
adult child could switch at no cost to plans and insurance issuers of Procedure Act (5 U.S.C. chapter 5) does
additional cost to the parents. A very preparing and distributing the not apply to these regulations. For the
rough estimate therefore is that grandfathered health plan disclosure is applicability of the RFA, refer to the
approximately 25 percent of young $39.6 million in 2011. The one time cost Special Analyses section in the
adults with ESI will switch to their to plans and insurance issuers for the preamble to the cross-referencing notice
parents coverage when their parents record retention requirement is of proposed rulemaking published
coverage is not grandfathered. The estimated to be $32.2 million in 2011. elsewhere in this issue of the Federal
Departments assume that 15 percent of For a discussion of the grandfathered Register. Pursuant to section 7805(f) of
young adults who are offered ESI but are health plan document retention and the Code, these temporary regulations
uninsured and whose parents have non- disclosure requirements, see the have been submitted to the Chief
grandfathered health plans will switch Paperwork Reduction Act section later Counsel for Advocacy of the Small
to their parents plan. This latter in this preamble. Business Administration for comment
estimate roughly corresponds to the on their impact on small businesses.
C. Regulatory Flexibility Act
assumption made in the low-take up
Department of Labor and Department of E. Paperwork Reduction Act
rate scenario in the RIA for dependent
Health and Human Services
coverage for young adults who are 1. Department of Labor and Department
uninsured. The Regulatory Flexibility Act (5 of Treasury: Affordable Care Act
These assumptions imply that an U.S.C. 601 et seq.) (RFA) imposes Grandfathered Plan Disclosure and
additional approximately 414,000 young certain requirements with respect to Record Retention Requirements
adults whose parents have nonfederal rules that are subject to the
grandfathered ESI will be covered by notice and comment requirements of As part of their continuing efforts to
their parents health coverage in 2011, section 553(b) of the APA (5 U.S.C. 551 reduce paperwork and respondent
of whom 14,000 would have been et seq.) and that are likely to have a burden, the Departments conduct a
uninsured, compared with the significant economic impact on a preclearance consultation program to
dependent coverage regulation impact substantial number of small entities. provide the general public and federal
analysis that assumed that all existing Under Section 553(b) of the APA, a agencies with an opportunity to
plans would have remained general notice of proposed rulemaking comment on proposed and continuing
grandfathered and none of these adult is not required when an agency, for collections of information in accordance
children would have been eligible for good cause, finds that notice and public with the Paperwork Reduction Act of
coverage under their parents plans. By comment thereon are impracticable, 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)).
2013, an estimated 698,000 additional unnecessary, or contrary to the public This helps to ensure that requested data
young adults with ESI or an offer of ESI interest. These interim final regulations can be provided in the desired format,
will be covered by their parents non- are exempt from the APA, because the reporting burden (time and financial
grandfathered health policy, of which Departments made a good cause finding resources) is minimized, collection
36,000 would have been uninsured. that a general notice of proposed requirements on respondents can be
rulemaking is not necessary earlier in properly assessed.
6. Grandfathered Health Plan Document this preamble. Therefore, the RFA does As discussed earlier in this preamble,
Retention and Disclosure Requirements not apply and the Departments are not if a plan or health insurance coverage
To maintain grandfathered health required to either certify that the intends to be a grandfathered health
plan status under these interim final regulations would not have a significant plan, it must include a statement in any
regulations, a plan or issuer must economic impact on a substantial plan materials provided to participants
maintain records that document the number of small entities or conduct a or beneficiaries (in the individual
plan or policy terms in connection with regulatory flexibility analysis. market, primary subscriber) describing
the coverage in effect on March 23, Nevertheless, the Departments the benefits provided under the plan or
2010, and any other documents carefully considered the likely impact of health insurance coverage, and that the
necessary to verify, explain or clarify is the regulations on small entities in plan or coverage is intended to be
status as a grandfathered health plan. connection with their assessment under grandfathered health plan within the
The records must be made available for Executive Order 12866. Consistent with meaning of section 1251 of the
examination by participants, the policy of the RFA, the Departments Affordable Care Act (grandfathered
beneficiaries, individual policy encourage the public to submit health plan disclosure). Model
subscribers, or a State or Federal agency comments that suggest alternative rules language has been provided in these
official. that accomplish the stated purpose of interim final regulations, the use of
Plans or health insurance coverage section 1251 of the Affordable Care Act which will satisfy this disclosure
that intend to be a grandfathered health and minimize the impact on small requirement
plan, also must include a statement, in entities. To maintain status as a grandfathered
any plan materials provided to health plan under these interim final
participants or beneficiaries (in the D. Special AnalysesDepartment of the regulations, a plan or issuer must
individual market, primary subscriber) Treasury maintain records documenting the plan
describing the benefits provided under Notwithstanding the determinations or policy terms in connection with the
the plan or health insurance coverage, of the Department of Labor and coverage in effect on March 23, 2010,
and that the plan or coverage is Department of Health and Human and any other documents necessary to
intended to be a grandfathered health Services, for purposes of the Department verify, explain, or clarify its status as a
plan within the meaning of section 1251 of the Treasury, it has been determined grandfathered health plan
of the Affordable Care Act. In these that this Treasury decision is not a (recordkeeping requirement). In
interim final regulations, the significant regulatory action for addition, the plan or issuer must make
Departments provide a model statement purposes of Executive Order 12866. such records available for examination.
plans and issuers may use to satisfy the Therefore, a regulatory assessment is not Accordingly, a participant, beneficiary,
disclosure requirement. The required. It has also been determined individual policy subscriber, or State or
Departments estimate that the one time that section 553(b) of the Administrative Federal agency official would be able to
inspect such documents to verify the (http://www.reginfo.gov/public/do/ b. Record-Keeping Requirement

status of the plan or health insurance PRAMain). The Departments assume that most of
coverage as a grandfathered health plan. the documents required to be retained to
a. Grandfathered Health Plan Disclosure
As discussed earlier in this preamble, satisfy recordkeeping requirement of
grandfathered health plans are not In order to satisfy the interim final these interim final regulations already
required to comply with certain regulations grandfathered health plan are retained by plans for tax purposes,
Affordable Care Act provisions. These disclosure requirement, the to satisfy ERISAs record retention and
interim regulations define for plans and Departments estimate that 2.2 million statute of limitations requirements, and
issuers the scope of changes that they ERISA-covered plans will need to notify for other business reasons. Therefore,
can make to their grandfathered health an estimated 56.3 million policy holders the Departments estimate that the
plans and policies under the Affordable of their plans grandfathered health plan recordkeeping burden imposed by this
Care Act while retaining their status.32 The following estimates, except ICR will require five minutes of a legal
grandfathered health plan status. where noted, are based on the mid-range professionals time (with a rate of
The Affordable Care Act estimates of the percent of plans $119.03/hour) to determine the relevant
grandfathered health plan disclosure retaining grandfather status. Because the plan documents that must be retained
and recordkeeping requirements are interim final regulations provide model and ten minutes of clerical staff time
information collection requests (ICR) language for this purpose, the (with a labor rate of $26.14/hour) to
subject to the PRA. Currently, the Departments estimate that five minutes organize and file the required
Departments are soliciting public of clerical time (with a labor rate of documents to ensure that they are
comments for 60 days concerning these $26.14/hour) will be required to accessible to participants, beneficiaries,
disclosures. The Departments have incorporate the required language into and Federal and State governmental
submitted a copy of these interim final the plan document and ten minutes of agency officials.
regulations to OMB in accordance with an human resource professionals time With an estimated 2.2 million
44 U.S.C. 3507(d) for review of the (with a labor rate of $89.12/hour) will be grandfathered plans in 2011, the
information collections. The required to review the modified Departments estimate an hour burden of
Departments and OMB are particularly language.33 After plans first satisfy the approximately 538,000 hours with
interested in comments that: grandfathered health plan disclosure equivalent costs of $30.7 million. The
Evaluate whether the collection of requirement in 2011, any additional Departments have estimated this as a
information is necessary for the proper burden should be de minimis if a plan one-time cost incurred in 2011, because
performance of the functions of the wants to maintain its grandfather status after the first year, the Departments
agency, including whether the in future years. The Departments also anticipate that any future costs will be
information will have practical utility; expect the cost of removing the notice de minimis.
Evaluate the accuracy of the from plan documents as plans Overall, for both the grandfathering
agencys estimate of the burden of the relinquish their grandfather status to be notice and the recordkeeping
collection of information, including the de minimis and therefore is not requirement, the Departments expect
validity of the methodology and estimated. Therefore, the Departments there to be a total hour burden of 1.1
assumptions used; estimate that plans will incur a one-time million hours and a cost burden of
Enhance the quality, utility, and hour burden of 538,000 hours with an $291,000.
clarity of the information to be equivalent cost of $36.6 million to meet The Departments note that persons
collected; and the disclosure requirement. are not required to respond to, and
Minimize the burden of the The Departments assume that only generally are not subject to any penalty
collection of information on those who printing and material costs are for failing to comply with, an ICR unless
are to respond, including through the associated with the disclosure the ICR has a valid OMB control
use of appropriate automated, requirement, because the interim final number.
electronic, mechanical, or other regulations provide model language that These paperwork burden estimates
technological collection techniques or can be incorporated into existing plan are summarized as follows:
other forms of information technology, Type of Review: New Collection.
documents, such as a summary plan Agencies: Employee Benefits Security
for example, by permitting electronic description (SPD). The Departments
submission of responses. Administration, Department of Labor;
estimate that the notice will require one- Internal Revenue Service, U.S.
Comments should be sent to the half of a page, five cents per page
Office of Information and Regulatory Department of Treasury.
printing and material cost will be Title: Disclosure and Recordkeeping
Affairs, Attention: Desk Officer for the incurred, and 38 percent of the notices
Employee Benefits Security Requirements for Grandfathered Health
will be delivered electronically. This Plans under the Affordable Care Act.
Administration either by fax to (202) results in a cost burden of $873,000 OMB Number: 12100140; 1545
3957285 or by e-mail to ($0.05 per page*12 pages per notice * 2178.
oira_submission@omb.eop.gov. A copy 34.9 million notices*0.62). Affected Public: Business or other for-
of the ICR may be obtained by profit; not-for-profit institutions.
contacting the PRA addressee: G. 32 The Departments estimate of the number of Total Respondents: 2,151,000.
Christopher Cosby, Office of Policy and ERISA-covered health plans was obtained from the Total Responses: 56,347,000.
Research, U.S. Department of Labor, 2008 Medical Expenditure Panel Surveys Insurance Frequency of Response: One time.
Employee Benefits Security component. The estimate of the number of policy
holders was obtained from the 2009 Current

Estimated Total Annual Burden
Administration, 200 Constitution Population Survey. The methodology used to Hours: 538,000 (Employee Benefits
Avenue, NW., Room N5718, estimate the percentage of plans that will retain Security Administration); 538,000
Washington, DC 20210. Telephone: their grandfathered plans was discussed above. (Internal Revenue Service).
33 EBSA estimates of labor rates include wages,
(202) 6938410; Fax: (202) 2192745. Estimated Total Annual Burden Cost:
other benefits, and overhead based on the National
These are not toll-free numbers. E-mail: Occupational Employment Survey (May 2008,
$437,000 (Employee Benefits Security
ebsa.opr@dol.gov. ICRs submitted to Bureau of Labor Statistics) and the Employment Administration); $437,000 (Internal
OMB also are available at reginfo.gov Cost Index June 2009, Bureau of Labor Statistics). Revenue Service).
2. Department of Health and Human million to meet the disclosure the ICR has a valid OMB control
Services: Affordable Care Act requirement. number.
Grandfathered Plan Disclosure and The Department assumes that only These paperwork burden estimates
Record Retention Requirements printing and material costs are are summarized as follows:
As discussed above in the Department associated with the disclosure Type of Review: New collection.
of Labor and Department of the Treasury requirement, because the interim final Agency: Department of Health and
PRA section, these interim final regulations provide model language that Human Services.
regulations contain a record retention can be incorporated into existing plan Title: Disclosure and Recordkeeping
and disclosure requirement for documents, such as an SPD. The Requirements for Grandfathered Health
grandfathered health plans. These Department estimates that the notice Plans under the Affordable Care Act.
requirements are information collection will require one-half of a page, five OMB Number: 09381093.
requirements under the PRA. cents per page printing and material Affected Public: Business; State,
cost will be incurred, and 38 percent of Local, or Tribal Governments.
a. Grandfathered Health Plan Disclosure the notices will be delivered Respondents: 105,000.
In order to satisfy the interim final electronically. This results in a cost Responses: 20,508,000.
regulations grandfathered health plan burden of $318,000 ($0.05 per page*12 Frequency of Response: One-time.
disclosure requirement, the Department pages per notice * 12.7 million Estimated Total Annual Burden
estimates that 98,000 state and local notices*0.62). Hours: 53,000 hours.
governmental plans will need to notify Estimated Total Annual Burden Cost:
b. Record-Keeping Requirement
approximately 16.2 million policy $318,000.
holders of their plans status as a The Department assumes that most of If you comment on this information
grandfathered health plan. The the documents required to be retained to collection and recordkeeping
following estimates except where noted satisfy the Affordable Care Acts requirements, please do either of the
are based on the mid-range estimates of recordkeeping requirement already are following:
the percent of plans retaining retained by plans for tax purposes, to 1. Submit your comments
grandfather status. An estimated 490 satisfy ERISAs record retention and electronically as specified in the
insurers providing coverage in the statute of limitations requirements, and ADDRESSES section of this proposed rule;
individual market will need to notify an for other business reasons. Therefore, or
estimated 4.3 million policy holders of the Department estimates that the 2. Submit your comments to the
their policies status as a grandfathered recordkeeping burden imposed by this Office of Information and Regulatory
health plan.34 ICR will require five minutes of a legal Affairs, Office of Management and
Because the interim final regulations professionals time (with a rate of Budget,
provide model language for this $119.03/hour) to determine the relevant Attention: OCIIO Desk Officer,
purpose, the Department estimates that plan documents that must be retained OCIIO9991IFC.
five minute of clerical time (with a labor and ten minutes of clerical staff time Fax: (202) 3956974; or
rate of $26.14/hour) will be required to (with a labor rate of $26.14/hour) to E-mail:
incorporate the required language into organize and file the required OIRA_submission@omb.eop.gov.
the plan document and ten minutes of documents to ensure that they are
a human resource professionals time accessible to participants, beneficiaries, F. Congressional Review Act
(with a labor rate of $89.12/hour) will be and Federal and State governmental These interim final regulations are
required to review the modified agency officials. subject to the Congressional Review Act
language.35 After plans first satisfy the With an estimated 98,000 provisions of the Small Business
grandfathered health plan disclosure grandfathered plans and 7,400 Regulatory Enforcement Fairness Act of
requirement in 2011, any additional grandfathered individual insurance 1996 (5 U.S.C. 801 et seq.) and have
burden should be de minimis if a plan products 36 in 2011, the Department been transmitted to Congress and the
wants to maintain its grandfather status estimates an hour burden of Comptroller General for review.
in future years. The Department also approximately 26,000 hours with
expects the cost of removing the notice equivalent costs of $1.5 million. The G. Unfunded Mandates Reform Act
from plan documents as plans Departments have estimated this as a The Unfunded Mandates Reform Act
relinquish their grandfather status to be one-time cost incurred in 2011, because of 1995 (Pub. L. 1044) requires
de minimis and therefore is not after the first year, the Department agencies to prepare several analytic
estimated. Therefore, the Department assumes any future costs will be de statements before proposing any rules
estimates that plans and insurers will minimis. that may result in annual expenditures
incur a one-time hour burden of 26,000 Overall, for both the grandfathering of $100 million (as adjusted for
hours with an equivalent cost of $1.8 notice and the recordkeeping inflation) by State, local and tribal
requirement, the Department expects governments or the private sector. These
34 The Departments estimate of the number of
there to be a total hour burden of 53,000 interim final regulations are not subject
state and local governmental health plans was
obtained from the 2007 Census of Governments.
hours and a cost burden of $318,000. to the Unfunded Mandates Reform Act,
The estimate of the number of policy holders in the The Department notes that persons because they are being issued as an
individual market were obtained from the 2009 are not required to respond to, and interim final regulation. However,
Current Population Survey. The methodology used generally are not subject to any penalty consistent with the policy embodied in
to estimate the percentage of state and local

governmental plans and individual market policies
for failing to comply with, an ICR unless the Unfunded Mandates Reform Act,
that will retain their grandfathered health plan these interim final regulations have
status was discussed above. 36 The Department is not certain on the number been designed to be the least
35 EBSA estimates of labor rates include wages, of products offered in the individual market and burdensome alternative for State, local
other benefits, and overhead based on the National requests comments. After reviewing the number of
Occupational Employment Survey (May 2008, products offered by various insurers in the
and tribal governments, and the private
Bureau of Labor Statistics) and the Employment individual market the Department used an estimate sector, while achieving the objectives of
Cost Index June 2009, Bureau of Labor Statistics). of 15 which it believes is a high estimate. the Affordable Care Act.
H. Federalism StatementDepartment Cong. & Admin. News 2018.) States may 200, 112 Stat. 645 (42 U.S.C. 651 note);
of Labor and Department of Health and continue to apply State law section 512(d), Public Law 110343, 122
Human Services requirements except to the extent that Stat. 3881; section 1001, 1201, and
Executive Order 13132 outlines such requirements prevent the 1562(e), Public Law 111148, 124 Stat.
fundamental principles of federalism, application of the Affordable Care Act 119, as amended by Public Law 111
and requires the adherence to specific requirements that are the subject of this 152, 124 Stat. 1029; Secretary of Labors
criteria by Federal agencies in the rulemaking. State insurance laws that Order 62009, 74 FR 21524 (May 7,
process of their formulation and are more stringent than the federal 2009).
implementation of policies that have requirements are unlikely to prevent The Department of Health and Human
substantial direct effects on the States, the application of the Affordable Care Services interim final regulations are
the relationship between the national Act, and be preempted. Accordingly, adopted pursuant to the authority
government and States, or on the States have significant latitude to contained in sections 2701 through
impose requirements on health 2763, 2791, and 2792 of the PHS Act (42
distribution of power and
insurance issuers that are more U.S.C. 300gg through 300gg63, 300gg
responsibilities among the various
restrictive than the Federal law.
levels of government. Federal agencies 91, and 300gg92), as amended.
In compliance with the requirement
promulgating regulations that have of Executive Order 13132 that agencies List of Subjects
these federalism implications must examine closely any policies that may
consult with State and local officials, have federalism implications or limit 26 CFR Part 54
and describe the extent of their the policy making discretion of the
consultation and the nature of the Excise taxes, Health care, Health
States, the Departments have engaged in insurance, Pensions, Reporting and
concerns of State and local officials in efforts to consult with and work
the preamble to the regulation. recordkeeping requirements.
cooperatively with affected State and
In the Departments view, this local officials, including attending 26 CFR Part 602
regulation has federalism implications, conferences of the National Association
because it has direct effects on the of Insurance Commissioners and Reporting and recordkeeping
States, the relationship between the consulting with State insurance officials requirements.
national government and States, or on on an individual basis. It is expected 29 CFR Part 2590
the distribution of power and that the Departments will act in a
responsibilities among various levels of similar fashion in enforcing the Continuation coverage, Disclosure,
government. However, in the Affordable Care Act requirements. Employee benefit plans, Group health
Departments view, the federalism Throughout the process of developing plans, Health care, Health insurance,
implications of the regulation is these regulations, to the extent feasible Medical child support, Reporting and
substantially mitigated because, with within the specific preemption recordkeeping requirements.
respect to health insurance issuers, the provisions of HIPAA as it applies to the
Departments expect that the majority of 45 CFR Part 147
Affordable Care Act, the Departments
States will enact laws or take other have attempted to balance the States Health care, Health insurance,
appropriate action resulting in their interests in regulating health insurance Reporting and recordkeeping
meeting or exceeding the Federal issuers, and Congress intent to provide requirements, and State regulation of
standard. uniform minimum protections to health insurance.
In general, through section 514, consumers in every State. By doing so,
ERISA supersedes State laws to the it is the Departments view that they Steven T. Miller,
extent that they relate to any covered have complied with the requirements of Deputy Commissioner for Services and
employee benefit plan, and preserves Executive Order 13132. Enforcement, Internal Revenue Service.
State laws that regulate insurance, Pursuant to the requirements set forth Approved: June 10, 2010.
banking, or securities. While ERISA in section 8(a) of Executive Order Michael F. Mundaca,
prohibits States from regulating a plan 13132, and by the signatures affixed to
as an insurance or investment company Assistant Secretary of the Treasury (Tax
these regulations, the Departments Policy).
or bank, the preemption provisions of certify that the Employee Benefits
ERISA section 731 and PHS Act section Signed this 4th day of June, 2010.
Security Administration and the Office
2724 (implemented in 29 CFR of Consumer Information and Insurance Phyllis C. Borzi,
2590.731(a) and 45 CFR 146.143(a)) Oversight have complied with the Assistant Secretary, Employee Benefits
apply so that the HIPAA requirements requirements of Executive Order 13132 Security Administration, Department of
(including those of the Affordable Care Labor.
for the attached regulation in a
Act) are not to be construed to meaningful and timely manner. Approved: June 8, 2010.
supersede any provision of State law Jay Angoff,
which establishes, implements, or V. Statutory Authority
Director, Office of Consumer Information and
continues in effect any standard or The Department of the Treasury Insurance Oversight.
requirement solely relating to health temporary regulations are adopted
Approved: June 9, 2010.
insurance issuers in connection with pursuant to the authority contained in
group health insurance coverage except sections 7805 and 9833 of the Code. Kathleen Sebelius,
to the extent that such standard or The Department of Labor interim final Secretary.
requirement prevents the application of regulations are adopted pursuant to the DEPARTMENT OF THE TREASURY
a requirement of a Federal standard. authority contained in 29 U.S.C. 1027,
The conference report accompanying 1059, 1135, 11611168, 1169, 1181 Internal Revenue Service
HIPAA indicates that this is intended to 1183, 1181 note, 1185, 1185a, 1185b, 26 CFR Chapter I
be the narrowest preemption of State 1191, 1191a, 1191b, and 1191c; section
laws. (See House Conf. Rep. No. 104 101(g), Public Law 104191, 110 Stat. Accordingly, 26 CFR parts 54 and 602
736, at 205, reprinted in 1996 U.S. Code 1936; section 401(b), Public Law 105 are amended as follows:
PART 54PENSION EXCISE TAXES section 1251 of the Patient Protection (5) Examples. The rules of this
and Affordable Care Act and must paragraph (a) are illustrated by the
1. The authority citation for part 54 is provide contact information for following examples:
amended by adding entries for questions and complaints. Example 1. (i) Facts. A group health plan
54.98151251T and 54.98152714T (ii) The following model language can not maintained pursuant to a collective
in numerical order to read in part as be used to satisfy this disclosure bargaining agreement provides coverage
follows: requirement: through a group health insurance policy from
Authority: 26 U.S.C. 7805. * * * Issuer X on March 23, 2010. For the plan year
This [group health plan or health insurance beginning January 1, 2012, the plan enters
Section 54.98151251T also issued under issuer] believes this [plan or coverage] is a into a new policy with Issuer Z.
26 U.S.C. 9833. grandfathered health plan under the Patient (ii) Conclusion. In this Example 1, for the
Section 54.98152714T also issued under Protection and Affordable Care Act (the plan year beginning January 1, 2012, the
26 U.S.C. 9833. * * * Affordable Care Act). As permitted by the group health insurance coverage issued by Z
Affordable Care Act, a grandfathered health is not a grandfathered health plan under the
2. Section 54.98151251T is added to plan can preserve certain basic health rules of paragraph (a)(1)(ii) of this section
read as follows: coverage that was already in effect when that because the policy issued by Z did not
law was enacted. Being a grandfathered provide coverage on March 23, 2010.
54.98151251T Preservation of right to health plan means that your [plan or policy] Example 2. (i) Facts. A group health plan
maintain existing coverage (temporary). may not include certain consumer not maintained pursuant to a collective
(a) Definition of grandfathered health protections of the Affordable Care Act that bargaining agreement offers three benefit
plan coverage(1) In general(i) apply to other plans, for example, the packages on March 23, 2010. Option F is a
Grandfathered health plan coverage requirement for the provision of preventive self-insured option. Options G and H are
means coverage provided by a group health services without any cost sharing. insured options. Beginning July 1, 2013, the
However, grandfathered health plans must plan replaces the issuer for Option H with a
health plan, or a health insurance
comply with certain other consumer new issuer.
issuer, in which an individual was protections in the Affordable Care Act, for (ii) Conclusion. In this Example 2, the
enrolled on March 23, 2010 (for as long example, the elimination of lifetime limits on coverage under Option H is not
as it maintains that status under the benefits. grandfathered health plan coverage as of July
rules of this section). A group health Questions regarding which protections 1, 2013, consistent with the rule in paragraph
plan or group health insurance coverage apply and which protections do not apply to (a)(1)(ii) of this section. Whether the coverage
does not cease to be grandfathered a grandfathered health plan and what might under Options F and G is grandfathered
health plan coverage merely because cause a plan to change from grandfathered health plan coverage is determined under the
health plan status can be directed to the plan rules of this section, including paragraph (g)
one or more (or even all) individuals of this section. If the plan enters into a new
administrator at [insert contact information].
enrolled on March 23, 2010 cease to be policy, certificate, or contract of insurance for
[For ERISA plans, insert: You may also
covered, provided that the plan or group contact the Employee Benefits Security Option G, Option Gs status as a
health insurance coverage has Administration, U.S. Department of Labor at grandfathered health plan would cease under
continuously covered someone since 18664443272 or www.dol.gov/ebsa/ paragraph (a)(1)(ii) of this section.
March 23, 2010 (not necessarily the healthreform. This website has a table (b) Allowance for new employees to
same person, but at all times at least one summarizing which protections do and do join current plan(1) In general.
person). For purposes of this section, a not apply to grandfathered health plans.] [For Subject to paragraph (b)(2) of this
plan or health insurance coverage that individual market policies and nonfederal
section, a group health plan (including
provides grandfathered health plan governmental plans, insert: You may also
contact the U.S. Department of Health and health insurance coverage provided in
coverage is referred to as a connection with the group health plan)
Human Services at www.healthreform.gov.]
grandfathered health plan. The rules of that provided coverage on March 23,
this section apply separately to each (3) Documentation of plan or policy 2010 and has retained its status as a
benefit package made available under a terms on March 23, 2010. To maintain grandfathered health plan (consistent
group health plan or health insurance status as a grandfathered health plan, a with the rules of this section, including
coverage. group health plan, or group health paragraph (g) of this section) is
(ii) Subject to the rules of paragraph insurance coverage, must, for as long as grandfathered health plan coverage for
(f) of this section for collectively the plan or health insurance coverage new employees (whether newly hired or
bargained plans, if an employer or takes the position that it is a newly enrolled) and their families
employee organization enters into a new grandfathered health plan enrolling in the plan after March 23,
policy, certificate, or contract of (i) Maintain records documenting the 2010.
insurance after March 23, 2010 terms of the plan or health insurance (2) Anti-abuse rules(i) Mergers and
(because, for example, any previous coverage in connection with the acquisitions. If the principal purpose of
policy, certificate, or contract of coverage in effect on March 23, 2010, a merger, acquisition, or similar
insurance is not being renewed), then and any other documents necessary to business restructuring is to cover new
that policy, certificate, or contract of verify, explain, or clarify its status as a individuals under a grandfathered
insurance is not a grandfathered health grandfathered health plan; and health plan, the plan ceases to be a
plan with respect to the individuals in (ii) Make such records available for grandfathered health plan.
the group health plan. examination upon request. (ii) Change in plan eligibility. A group
(2) Disclosure of grandfather status (4) Family members enrolling after health plan or health insurance coverage
(i) To maintain status as a grandfathered March 23, 2010. With respect to an (including a benefit package under a
health plan, a plan or health insurance individual who is enrolled in a group
group health plan) ceases to be a

coverage must include a statement, in health plan or health insurance coverage grandfathered health plan if
any plan materials provided to a on March 23, 2010, grandfathered health (A) Employees are transferred into the
participant or beneficiary describing the plan coverage includes coverage of plan or health insurance coverage (the
benefits provided under the plan or family members of the individual who transferee plan) from a plan or health
health insurance coverage, that the plan enroll after March 23, 2010 in the insurance coverage under which the
or coverage believes it is a grandfathered grandfathered health plan coverage of employees were covered on March 23,
health plan within the meaning of the individual. 2010 (the transferor plan);
(B) Comparing the terms of the and the incorporation of those defined in section 5000A(f)(2)) other
transferee plan with those of the amendments into section 9815 and than a grandfathered health plan of a
transferor plan (as in effect on March 23, ERISA section 715) do not apply to parent. For plan years beginning on or
2010) and treating the transferee plan as grandfathered health plan coverage. after January 1, 2014, the provisions of
if it were an amendment of the Accordingly, the provisions of PHS Act PHS Act section 2714 apply with
transferor plan would cause a loss of sections 2701, 2702, 2703, 2705, 2706, respect to a grandfathered health plan
grandfather status under the provisions 2707, 2709 (relating to coverage for that is a group health plan without
of paragraph (g)(1) of this section; and individuals participating in approved regard to whether an adult child is
(C) There was no bona fide clinical trials, as added by section 10103 eligible to enroll in any other coverage.
employment-based reason to transfer the of the Patient Protection and Affordable (f) Effect on collectively bargained
employees into the transferee plan. For Care Act), 2713, 2715A, 2716, 2717, plans(1) In general. In the case of
this purpose, changing the terms or cost 2719, and 2719A, as added or amended health insurance coverage maintained
of coverage is not a bona fide by the Patient Protection and Affordable pursuant to one or more collective
employment-based reason. Care Act, do not apply to grandfathered bargaining agreements between
(3) Examples. The rules of this health plans. (In addition, see 45 CFR employee representatives and one or
paragraph (b) are illustrated by the 147.140(c), which provides that the more employers that was ratified before
following examples: provisions of PHS Act section 2704, and March 23, 2010, the coverage is
Example 1. (i) Facts. A group health plan PHS Act section 2711 insofar as it grandfathered health plan coverage at
offers two benefit packages on March 23, relates to annual limits, do not apply to least until the date on which the last of
2010, Options F and G. During a subsequent grandfathered health plans that are the collective bargaining agreements
open enrollment period, some of the individual health insurance coverage.) relating to the coverage that was in
employees enrolled in Option F on March 23, (2) To the extent not inconsistent with effect on March 23, 2010 terminates.
2010 switch to Option G. the rules applicable to a grandfathered Any coverage amendment made
(ii) Conclusion. In this Example 1, the health plan, a grandfathered health plan pursuant to a collective bargaining
group health coverage provided under must comply with the requirements of agreement relating to the coverage that
Option G remains a grandfathered health
the Code, the PHS Act, and ERISA amends the coverage solely to conform
plan under the rules of paragraph (b)(1) of
this section because employees previously applicable prior to the changes enacted to any requirement added by subtitles A
enrolled in Option F are allowed to enroll in by the Patient Protection and Affordable and C of title I of the Patient Protection
Option G as new employees. Care Act. and Affordable Care Act (and the
Example 2. (i) Facts. Same facts as (d) Provisions applicable to all amendments made by those subtitles,
Example 1, except that the plan sponsor grandfathered health plans. The and the incorporation of those
eliminates Option F because of its high cost provisions of PHS Act section 2711 amendments into section 9815 and
and transfers employees covered under insofar as it relates to lifetime limits, ERISA section 715) is not treated as a
Option F to Option G. If instead of and the provisions of PHS Act sections termination of the collective bargaining
transferring employees from Option F to 2712, 2714, 2715, and 2718, apply to agreement. After the date on which the
Option G, Option F was amended to match
the terms of Option G, then Option F would
grandfathered health plans for plan last of the collective bargaining
cease to be a grandfathered health plan. years beginning on or after September agreements relating to the coverage that
(ii) Conclusion. In this Example 2, the plan 23, 2010. The provisions of PHS Act was in effect on March 23, 2010
did not have a bona fide employment-based section 2708 apply to grandfathered terminates, the determination of
reason to transfer employees from Option F health plans for plan years beginning on whether health insurance coverage
to Option G. Therefore, Option G ceases to or after January 1, 2014. maintained pursuant to a collective
be a grandfathered health plan with respect (e) Applicability of PHS Act sections bargaining agreement is grandfathered
to all employees. (However, any other benefit 2704, 2711, and 2714 to grandfathered health plan coverage is made under the
package maintained by the plan sponsor is group health plans and group health
analyzed separately under the rules of this
rules of this section other than this
insurance coverage(1) The provisions paragraph (f) (comparing the terms of
section.)
Example 3. (i) Facts. A group health plan of PHS Act section 2704 as it applies the health insurance coverage after the
offers two benefit packages on March 23, with respect to enrollees who are under date the last collective bargaining
2010, Options H and I. On March 23, 2010, 19 years of age, and the provisions of agreement terminates with the terms of
Option H provides coverage only for PHS Act section 2711 insofar as it the health insurance coverage that were
employees in one manufacturing plant. relates to annual limits, apply to in effect on March 23, 2010) and, for any
Subsequently, the plant is closed, and some grandfathered health plans that are changes in insurance coverage after the
employees in the closed plant are moved to group health plans (including group termination of the collective bargaining
another plant. The employer eliminates health insurance coverage) for plan
Option H and the employees that are moved
agreement, under the rules of paragraph
years beginning on or after September (a)(1)(ii) of this section.
are transferred to Option I. If instead of
transferring employees from Option H to
23, 2010. The provisions of PHS Act (2) Examples. The rules of this
Option I, Option H was amended to match section 2704 apply generally to paragraph (f) are illustrated by the
the terms of Option I, then Option H would grandfathered health plans that are following examples:
cease to be a grandfathered health plan. group health plans (including group Example 1. (i) Facts. A group health plan
(ii) Conclusion. In this Example 3, the plan health insurance coverage) for plan maintained pursuant to a collective
has a bona fide employment-based reason to years beginning on or after January 1, bargaining agreement provides coverage
transfer employees from Option H to Option 2014. through a group health insurance policy from
I. Therefore, Option I does not cease to be a (2) For plan years beginning before
Issuer W on March 23, 2010. The collective

grandfathered health plan. January 1, 2014, the provisions of PHS bargaining agreement has not been amended
(c) General grandfathering rule(1) Act section 2714 apply in the case of an and will not expire before December 31,
Except as provided in paragraphs (d) adult child with respect to a 2011. The group health plan enters into a
new group health insurance policy with
and (e) of this section, subtitles A and grandfathered health plan that is a Issuer Y for the plan year starting on
C of title I of the Patient Protection and group health plan only if the adult child January 1, 2011.
Affordable Care Act (and the is not eligible to enroll in an eligible (ii) Conclusion. In this Example 1, the
amendments made by those subtitles, employer-sponsored health plan (as group health plan, and the group health
insurance policy provided by Y, remains a a group health plan or health insurance (C) Decrease in limit for a plan or
grandfathered health plan with respect to coverage to cease to be a grandfathered coverage with an annual limit. A group
existing employees and new employees and health plan, if the total increase in the health plan, or group health insurance
their families because the coverage is
copayment measured from March 23, coverage, that, on March 23, 2010,
maintained pursuant to a collective
bargaining agreement ratified prior to 2010 exceeds the greater of: imposed an overall annual limit on the
March 23, 2010 that has not terminated. (A) An amount equal to $5 increased dollar value of all benefits ceases to be
Example 2. (i) Facts. Same facts as by medical inflation, as defined in a grandfathered health plan if the plan
Example 1, except the coverage with Y is paragraph (g)(3)(i) of this section (that or health insurance coverage decreases
renewed under a new collective bargaining is, $5 times medical inflation, plus $5), the dollar value of the annual limit
agreement effective January 1, 2012, with the or (regardless of whether the plan or health
only changes since March 23, 2010 being (B) The maximum percentage increase insurance coverage also imposed an
changes that do not cause the plan to cease (as defined in paragraph (g)(3)(ii) of this overall lifetime limit on March 23, 2010
to be a grandfathered health plan under the section), determined by expressing the
rules of this section, including paragraph (g) on the dollar value of all benefits).
of this section. total increase in the copayment as a (2) Transitional rules(i) Changes
(ii) Conclusion. In this Example 2, the percentage. made prior to March 23, 2010. If a group
group health plan remains a grandfathered (v) Decrease in contribution rate by health plan or health insurance issuer
health plan pursuant to the rules of this employers and employee makes the following changes to the
section. Moreover, the group health organizations(A) Contribution rate terms of the plan or health insurance
insurance policy provided by Y remains a based on cost of coverage. A group coverage, the changes are considered
grandfathered health plan under the rules of health plan or group health insurance part of the terms of the plan or health
this section, including paragraph (g) of this coverage ceases to be a grandfathered
section.
insurance coverage on March 23, 2010
health plan if the employer or employee even though they were not effective at
(g) Maintenance of grandfather organization decreases its contribution that time and such changes do not cause
status(1) Changes causing cessation of rate based on cost of coverage (as a plan or health insurance coverage to
grandfather status. Subject to paragraph defined in paragraph (g)(3)(iii)(A) of this cease to be a grandfathered health plan:
(g)(2) of this section, the rules of this section) towards the cost of any tier of (A) Changes effective after March 23,
paragraph (g)(1) describe situations in coverage for any class of similarly 2010 pursuant to a legally binding
which a group health plan or health situated individuals (as described in contract entered into on or before
insurance coverage ceases to be a 54.98021(d)) by more than 5 March 23, 2010;
grandfathered health plan. percentage points below the (B) Changes effective after March 23,
(i) Elimination of benefits. The contribution rate for the coverage period 2010 pursuant to a filing on or before
elimination of all or substantially all that includes March 23, 2010. March 23, 2010 with a State insurance
benefits to diagnose or treat a particular (B) Contribution rate based on a department; or
condition causes a group health plan or formula. A group health plan or group (C) Changes effective after March 23,
health insurance coverage to cease to be health insurance coverage ceases to be 2010 pursuant to written amendments
a grandfathered health plan. For this a grandfathered health plan if the to a plan that were adopted on or before
purpose, the elimination of benefits for employer or employee organization March 23, 2010.
any necessary element to diagnose or decreases its contribution rate based on (ii) Changes made after March 23,
treat a condition is considered the a formula (as defined in paragraph 2010 and adopted prior to issuance of
elimination of all or substantially all (g)(3)(iii)(B) of this section) towards the regulations. If, after March 23, 2010, a
benefits to diagnose or treat a particular cost of any tier of coverage for any class group health plan or health insurance
condition. of similarly situated individuals (as issuer makes changes to the terms of the
(ii) Increase in percentage cost- described in 54.98021(d)) by more plan or health insurance coverage and
sharing requirement. Any increase, than 5 percent below the contribution the changes are adopted prior to June
measured from March 23, 2010, in a rate for the coverage period that 14, 2010, the changes will not cause the
percentage cost-sharing requirement includes March 23, 2010. plan or health insurance coverage to
(such as an individuals coinsurance (vi) Changes in annual limits(A) cease to be a grandfathered health plan
requirement) causes a group health plan Addition of an annual limit. A group if the changes are revoked or modified
or health insurance coverage to cease to health plan, or group health insurance effective as of the first day of the first
be a grandfathered health plan. coverage, that, on March 23, 2010, did plan year (in the individual market,
(iii) Increase in a fixed-amount cost- not impose an overall annual or lifetime policy year) beginning on or after
sharing requirement other than a limit on the dollar value of all benefits September 23, 2010, and the terms of
copayment. Any increase in a fixed- ceases to be a grandfathered health plan the plan or health insurance coverage on
amount cost-sharing requirement other if the plan or health insurance coverage that date, as modified, would not cause
than a copayment (for example, imposes an overall annual limit on the the plan or coverage to cease to be a
deductible or out-of-pocket limit), dollar value of benefits. grandfathered health plan under the
determined as of the effective date of the (B) Decrease in limit for a plan or rules of this section, including
increase, causes a group health plan or coverage with only a lifetime limit. A paragraph (g)(1) of this section. For this
health insurance coverage to cease to be group health plan, or group health purpose, changes will be considered to
a grandfathered health plan, if the total insurance coverage, that, on March 23, have been adopted prior to June 14,
percentage increase in the cost-sharing 2010, imposed an overall lifetime limit 2010 if:
on the dollar value of all benefits but no
requirement measured from March 23, (A) The changes are effective before
2010 exceeds the maximum percentage overall annual limit on the dollar value that date;
increase (as defined in paragraph of all benefits ceases to be a (B) The changes are effective on or
(g)(3)(ii) of this section). grandfathered health plan if the plan or after that date pursuant to a legally
(iv) Increase in a fixed-amount health insurance coverage adopts an binding contract entered into before that
copayment. Any increase in a fixed- overall annual limit at a dollar value date;
amount copayment, determined as of that is lower than the dollar value of the (C) The changes are effective on or
the effective date of the increase, causes lifetime limit on March 23, 2010. after that date pursuant to a filing before
that date with a State insurance to increase the coinsurance requirement to $15 copayment takes effect, the greatest value
department; or 25%. of the overall medical care component of the
(D) The changes are effective on or (ii) Conclusion. In this Example 1, the CPIU (unadjusted) is 415.
increase in the coinsurance requirement from (ii) Conclusion. In this Example 5, the
after that date pursuant to written 20% to 25% causes the plan to cease to be increase in the copayment, expressed as a
amendments to a plan that were a grandfathered health plan. percentage, is 50% (15 10 = 5; 5 10 =
adopted before that date. Example 2. (i) Facts. Before March 23, 0.5; 0.5 = 50%). Medical inflation (as defined
(3) Definitions(i) Medical inflation 2010, the terms of a group health plan in paragraph (g)(3) of this section) from
defined. For purposes of this paragraph provide benefits for a particular mental March 2010 is 0.0720 (415.0 387.142 =
(g), the term medical inflation means the health condition, the treatment for which is 27.858; 27.858 387.142 = 0.0720). The
increase since March 2010 in the overall a combination of counseling and prescription increase that would cause a plan to cease to
medical care component of the drugs. Subsequently, the plan eliminates be a grandfathered health plan under
benefits for counseling. paragraph (g)(1)(iv) of this section is the
Consumer Price Index for All Urban (ii) Conclusion. In this Example 2, the plan greater of the maximum percentage increase
Consumers (CPIU) (unadjusted) ceases to be a grandfathered health plan of 22.20% (0.0720 = 7.20%; 7.20% + 15% =
published by the Department of Labor because counseling is an element that is 22.20), or $5.36 ($5 0.0720 = $0.36; $0.36
using the 19821984 base of 100. For necessary to treat the condition. Thus the + $5 = $5.36). The $5 increase in copayment
this purpose, the increase in the overall plan is considered to have eliminated in this Example 5 would not cause the plan
medical care component is computed by substantially all benefits for the treatment of to cease to be a grandfathered health plan
subtracting 387.142 (the overall medical the condition. pursuant to paragraph (g)(1)(iv) of this
care component of the CPIU Example 3. (i) Facts. On March 23, 2010, section, which would permit an increase in
a grandfathered health plan has a copayment the copayment of up to $5.36.
(unadjusted) published by the requirement of $30 per office visit for Example 6. (i) Facts. The same facts as
Department of Labor for March 2010, specialists. The plan is subsequently Example 5, except on March 23, 2010, the
using the 19821984 base of 100) from amended to increase the copayment grandfathered health plan has no copayment
the index amount for any month in the requirement to $40. Within the 12-month ($0) for office visits for primary care
12 months before the new change is to period before the $40 copayment takes effect, providers. The plan is subsequently amended
take effect and then dividing that the greatest value of the overall medical care to increase the copayment requirement to $5.
amount by 387.142. component of the CPIU (unadjusted) is 475. (ii) Conclusion. In this Example 6, medical
(ii) Maximum percentage increase (ii) Conclusion. In this Example 3, the inflation (as defined in paragraph (g)(3)(i) of
defined. For purposes of this paragraph increase in the copayment from $30 to $40, this section) from March 2010 is 0.0720
expressed as a percentage, is 33.33% (40 (415.0 387.142 = 27.858; 27.858 387.142
(g), the term maximum percentage 30 = 10; 10 30 = 0.3333; 0.3333 = 33.33%). = 0.0720). The increase that would cause a
increase means medical inflation (as Medical inflation (as defined in paragraph plan to cease to be a grandfathered health
defined in paragraph (g)(3)(i) of this (g)(3)(i) of this section) from March 2010 is plan under paragraph (g)(1)(iv)(A) of this
section), expressed as a percentage, plus 0.2269 (475 387.142 = 87.858; 87.858 section is $5.36 ($5 0.0720 = $0.36; $0.36
15 percentage points. 387.142 = 0.2269). The maximum percentage + $5 = $5.36). The $5 increase in copayment
(iii) Contribution rate defined. For increase permitted is 37.69% (0.2269 = in this Example 6 is less than the amount
purposes of paragraph (g)(1)(v) of this 22.69%; 22.69% + 15% = 37.69%). Because calculated pursuant to paragraph (g)(1)(iv)(A)
section: 33.33% does not exceed 37.69%, the change of this section of $5.36. Thus, the $5 increase
in the copayment requirement at that time in copayment does not cause the plan to
(A) Contribution rate based on cost of
does not cause the plan to cease to be a cease to be a grandfathered health plan.
coverage. The term contribution rate grandfathered health plan. Example 7. (i) Facts. On March 23, 2010,
based on cost of coverage means the Example 4. (i) Facts. Same facts as a self-insured group health plan provides two
amount of contributions made by an Example 3, except the grandfathered health tiers of coverageself-only and family. The
employer or employee organization plan subsequently increases the $40 employer contributes 80% of the total cost of
compared to the total cost of coverage, copayment requirement to $45 for a later coverage for self-only and 60% of the total
expressed as a percentage. The total cost plan year. Within the 12-month period before cost of coverage for family. Subsequently, the
of coverage is determined in the same the $45 copayment takes effect, the greatest employer reduces the contribution to 50% for
manner as the applicable premium is value of the overall medical care component family coverage, but keeps the same
of the CPIU (unadjusted) is 485. contribution rate for self-only coverage.
calculated under the COBRA
(ii) Conclusion. In this Example 4, the (ii) Conclusion. In this Example 7, the
continuation provisions of section increase in the copayment from $30 (the decrease of 10 percentage points for family
4980B(f)(4), section 604 of ERISA, and copayment that was in effect on March 23, coverage in the contribution rate based on
section 2204 of the PHS Act. In the case 2010) to $45, expressed as a percentage, is cost of coverage causes the plan to cease to
of a self-insured plan, contributions by 50% (45 30 = 15; 15 30 = 0.5; 0.5 = 50%). be a grandfathered health plan. The fact that
an employer or employee organization Medical inflation (as defined in paragraph the contribution rate for self-only coverage
are equal to the total cost of coverage (g)(3)(i) of this section) from March 2010 is remains the same does not change the result.
minus the employee contributions 0.2527 (485 387.142 = 97.858; 97.858 Example 8. (i) Facts. On March 23, 2010,
towards the total cost of coverage. 387.142 = 0.2527). The increase that would a self-insured grandfathered health plan has
cause a plan to cease to be a grandfathered a COBRA premium for the 2010 plan year of
(B) Contribution rate based on a health plan under paragraph (g)(1)(iv) of this $5000 for self-only coverage and $12,000 for
formula. The term contribution rate section is the greater of the maximum family coverage. The required employee
based on a formula means, for plans percentage increase of 40.27% (0.2527 = contribution for the coverage is $1000 for
that, on March 23, 2010, made 25.27%; 25.27% + 15% = 40.27%), or $6.26 self-only coverage and $4000 for family
contributions based on a formula (such ($5 0.2527 = $1.26; $1.26 + $5 = $6.26). coverage. Thus, the contribution rate based
as hours worked or tons of coal mined), Because 50% exceeds 40.27% and $15 on cost of coverage for 2010 is 80% ((5000
the formula. exceeds $6.26, the change in the copayment 1000)/5000) for self-only coverage and
(4) Examples. The rules of this requirement at that time causes the plan to 67% ((12,000 4000)/12,000) for family
paragraph (g) are illustrated by the cease to be a grandfathered health plan. coverage. For a subsequent plan year, the
Example 5. (i) Facts. On March 23, 2010, COBRA premium is $6000 for self-only
following examples: a grandfathered health plan has a copayment coverage and $15,000 for family coverage.
Example 1. (i) Facts. On March 23, 2010, of $10 per office visit for primary care The employee contributions for that plan
a grandfathered health plan has a providers. The plan is subsequently amended year are $1200 for self-only coverage and
coinsurance requirement of 20% for inpatient to increase the copayment requirement to $5000 for family coverage. Thus, the
surgery. The plan is subsequently amended $15. Within the 12-month period before the contribution rate based on cost of coverage is
80% ((6000 1200)/6000) for self-only PART 2590RULES AND benefits provided under the plan or
coverage and 67% ((15,000 5000)/15,000) REGULATIONS FOR GROUP HEALTH health insurance coverage, that the plan
for family coverage. or coverage believes it is a grandfathered
PLANS
(ii) Conclusion. In this Example 8, because
health plan within the meaning of
there is no change in the contribution rate 1. The authority citation for part 2590
based on cost of coverage, the plan retains its section 1251 of the Patient Protection
continues to read as follows: and Affordable Care Act and must
status as a grandfathered health plan. The
result would be the same if all or part of the Authority: 29 U.S.C. 1027, 1059, 1135, provide contact information for
employee contribution was made pre-tax 11611168, 1169, 11811183, 1181 note, questions and complaints.
through a cafeteria plan under section 125 of 1185, 1185a, 1185b, 1191, 1191a, 1191b, and (ii) The following model language can
the Internal Revenue Code. 1191c; sec. 101(g), Pub. L. 104191, 110 Stat. be used to satisfy this disclosure
Example 9. (i) Facts. Before March 23, 1936; sec. 401(b), Pub. L. 105200, 112 Stat. requirement:
2010, Employer W and Individual B enter 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
into a legally binding employment contract 110343, 122 Stat. 3881; sec. 1001, 1201, and This [group health plan or health insurance
that promises B lifetime health coverage 1562(e), Pub. L. 111148, 124 Stat. 119, as issuer] believes this [plan or coverage] is a
upon termination. Prior to termination, B is amended by Pub. L. 111152, 124 Stat. 1029; grandfathered health plan under the Patient
covered by Ws self-insured grandfathered Secretary of Labors Order 62009, 74 FR Protection and Affordable Care Act (the
group health plan. B is terminated after 21524 (May 7, 2009). Affordable Care Act). As permitted by the
March 23, 2010 and W purchases a new Affordable Care Act, a grandfathered health
health insurance policy providing coverage 2. Section 2590.7151251 is added to plan can preserve certain basic health
to B, consistent with the terms of the subpart C to read as follows: coverage that was already in effect when that
employment contract. law was enacted. Being a grandfathered
2590.7151251 Preservation of right to health plan means that your [plan or policy]
(ii) Conclusion. In this Example 9, because
maintain existing coverage. may not include certain consumer
no individual is enrolled in the health
(a) Definition of grandfathered health protections of the Affordable Care Act that
insurance policy on March 23, 2010, it is not
apply to other plans, for example, the
a grandfathered health plan. plan coverage(1) In general(i) requirement for the provision of preventive
(h) Expiration date. This section Grandfathered health plan coverage health services without any cost sharing.
expires on or before June 14, 2013. means coverage provided by a group However, grandfathered health plans must
3. Section 54.98152714T is amended
health plan, or a health insurance comply with certain other consumer
by revising paragraphs (h) and (i) to read issuer, in which an individual was protections in the Affordable Care Act, for
example, the elimination of lifetime limits on
as follows: enrolled on March 23, 2010 (for as long
as it maintains that status under the benefits.
* * * * * rules of this section). A group health Questions regarding which protections
(h) Applicability date. The provisions apply and which protections do not apply to
plan or group health insurance coverage a grandfathered health plan and what might
of this section apply for plan years
does not cease to be grandfathered cause a plan to change from grandfathered
beginning on or after September 23,
health plan coverage merely because health plan status can be directed to the plan
2010. See 54.98151251T for
one or more (or even all) individuals administrator at [insert contact information].
determining the application of this
enrolled on March 23, 2010 cease to be [For ERISA plans, insert: You may also
section to grandfathered health plans. contact the Employee Benefits Security
covered, provided that the plan or group
(i) Expiration date. This section Administration, U.S. Department of Labor at
health insurance coverage has
expires on or before May 10, 2013. 18664443272 or www.dol.gov/ebsa/
continuously covered someone since
healthreform. This Web site has a table
PART 602OMB CONTROL NUMBERS March 23, 2010 (not necessarily the summarizing which protections do and do
UNDER THE PAPERWORK same person, but at all times at least one not apply to grandfathered health plans.] [For
REDUCTION ACT person). For purposes of this section, a individual market policies and nonfederal
plan or health insurance coverage that governmental plans, insert: You may also
4. The authority citation for part 602 provides grandfathered health plan contact the U.S. Department of Health and
continues to read in part as follows: coverage is referred to as a Human Services at www.healthreform.gov.]
Authority: 26 U.S.C. 7805. * * * grandfathered health plan. The rules of (3) Documentation of plan or policy
this section apply separately to each terms on March 23, 2010. To maintain
5. Section 602.101(b) is amended by benefit package made available under a status as a grandfathered health plan, a
adding the following entry in numerical group health plan or health insurance group health plan, or group health
order to the table to read as follows: coverage. insurance coverage, must, for as long as
602.101 OMB Control numbers.
(ii) Subject to the rules of paragraph the plan or health insurance coverage
(f) of this section for collectively takes the position that it is a
(b) * * *
bargained plans, if an employer or grandfathered health plan
CFR part or section where Current OMB
employee organization enters into a new (i) Maintain records documenting the
identified and described control No. policy, certificate, or contract of terms of the plan or health insurance
insurance after March 23, 2010 coverage in connection with the
(because, for example, any previous coverage in effect on March 23, 2010,
* * * * * policy, certificate, or contract of and any other documents necessary to
54.98151251T ..................... 15452178 insurance is not being renewed), then verify, explain, or clarify its status as a
that policy, certificate, or contract of grandfathered health plan; and
* * * * *
insurance is not a grandfathered health (ii) Make such records available for
plan with respect to the individuals in
examination upon request.

DEPARTMENT OF LABOR the group health plan. (4) Family members enrolling after
Employee Benefits Security (2) Disclosure of grandfather status March 23, 2010. With respect to an
Administration (i) To maintain status as a grandfathered individual who is enrolled in a group
29 CFR Chapter XXV health plan, a plan or health insurance health plan or health insurance coverage
coverage must include a statement, in on March 23, 2010, grandfathered health
29 CFR part 2590 is amended as any plan materials provided to a plan coverage includes coverage of
follows: participant or beneficiary describing the family members of the individual who
enroll after March 23, 2010 in the transferee plan) from a plan or health and (e) of this section, subtitles A and
grandfathered health plan coverage of insurance coverage under which the C of title I of the Patient Protection and
the individual. employees were covered on March 23, Affordable Care Act (and the
(5) Examples. The rules of this 2010 (the transferor plan); amendments made by those subtitles,
paragraph (a) are illustrated by the (B) Comparing the terms of the and the incorporation of those
following examples: transferee plan with those of the amendments into ERISA section 715
Example 1. (i) Facts. A group health plan transferor plan (as in effect on March 23, and Internal Revenue Code section
not maintained pursuant to a collective 2010) and treating the transferee plan as 9815) do not apply to grandfathered
bargaining agreement provides coverage if it were an amendment of the health plan coverage. Accordingly, the
through a group health insurance policy from transferor plan would cause a loss of provisions of PHS Act sections 2701,
Issuer X on March 23, 2010. For the plan year grandfather status under the provisions 2702, 2703, 2705, 2706, 2707, 2709
beginning January 1, 2012, the plan enters of paragraph (g)(1) of this section; and (relating to coverage for individuals
into a new policy with Issuer Z. (C) There was no bona fide participating in approved clinical trials,
(ii) Conclusion. In this Example 1, for the employment-based reason to transfer the as added by section 10103 of the Patient
plan year beginning January 1, 2012, the employees into the transferee plan. For Protection and Affordable Care Act),
group health insurance coverage issued by Z
is not a grandfathered health plan under the
this purpose, changing the terms or cost 2713, 2715A, 2716, 2717, 2719, and
rules of paragraph (a)(1)(ii) of this section of coverage is not a bona fide 2719A, as added or amended by the
because the policy issued by Z did not employment-based reason. Patient Protection and Affordable Care
provide coverage on March 23, 2010. (3) Examples. The rules of this Act, do not apply to grandfathered
Example 2. (i) Facts. A group health plan paragraph (b) are illustrated by the health plans. (In addition, see 45 CFR
not maintained pursuant to a collective following examples: 147.140(c), which provides that the
bargaining agreement offers three benefit Example 1. (i) Facts. A group health plan provisions of PHS Act section 2704, and
packages on March 23, 2010. Option F is a offers two benefit packages on March 23, PHS Act section 2711 insofar as it
self-insured option. Options G and H are 2010, Options F and G. During a subsequent relates to annual limits, do not apply to
insured options. Beginning July 1, 2013, the open enrollment period, some of the grandfathered health plans that are
plan replaces the issuer for Option H with a employees enrolled in Option F on March 23,
new issuer.
individual health insurance coverage.)
2010 switch to Option G. (2) To the extent not inconsistent with
(ii) Conclusion. In this Example 2, the (ii) Conclusion. In this Example 1, the
coverage under Option H is not the rules applicable to a grandfathered
group health coverage provided under health plan, a grandfathered health plan
grandfathered health plan coverage as of July Option G remains a grandfathered health
1, 2013, consistent with the rule in paragraph plan under the rules of paragraph (b)(1) of
must comply with the requirements of
(a)(1)(ii) of this section. Whether the coverage this section because employees previously the PHS Act, ERISA, and the Internal
under Options F and G is grandfathered enrolled in Option F are allowed to enroll in Revenue Code applicable prior to the
health plan coverage is determined under the Option G as new employees. changes enacted by the Patient
rules of this section, including paragraph (g) Example 2. (i) Facts. Same facts as Protection and Affordable Care Act.
of this section. If the plan enters into a new Example 1, except that the plan sponsor (d) Provisions applicable to all
policy, certificate, or contract of insurance for eliminates Option F because of its high cost grandfathered health plans. The
Option G, Option Gs status as a and transfers employees covered under provisions of PHS Act section 2711
grandfathered health plan would cease under Option F to Option G. If instead of
paragraph (a)(1)(ii) of this section. insofar as it relates to lifetime limits,
transferring employees from Option F to
and the provisions of PHS Act sections
(b) Allowance for new employees to Option G, Option F was amended to match
the terms of Option G, then Option F would 2712, 2714, 2715, and 2718, apply to
join current plan(1) In general. grandfathered health plans for plan
cease to be a grandfathered health plan.
Subject to paragraph (b)(2) of this (ii) Conclusion. In this Example 2, the plan years beginning on or after September
section, a group health plan (including did not have a bona fide employment-based 23, 2010. The provisions of PHS Act
health insurance coverage provided in reason to transfer employees from Option F section 2708 apply to grandfathered
connection with the group health plan) to Option G. Therefore, Option G ceases to health plans for plan years beginning on
that provided coverage on March 23, be a grandfathered health plan with respect or after January 1, 2014.
2010 and has retained its status as a to all employees. (However, any other benefit (e) Applicability of PHS Act sections
grandfathered health plan (consistent package maintained by the plan sponsor is 2704, 2711, and 2714 to grandfathered
with the rules of this section, including analyzed separately under the rules of this
group health plans and group health
section.)
paragraph (g) of this section) is Example 3. (i) Facts. A group health plan insurance coverage(1) The provisions
grandfathered health plan coverage for offers two benefit packages on March 23, of PHS Act section 2704 as it applies
new employees (whether newly hired or 2010, Options H and I. On March 23, 2010, with respect to enrollees who are under
newly enrolled) and their families Option H provides coverage only for 19 years of age, and the provisions of
enrolling in the plan after March 23, employees in one manufacturing plant. PHS Act section 2711 insofar as it
2010. Subsequently, the plant is closed, and some relates to annual limits, apply to
(2) Anti-abuse rules(i) Mergers and employees in the closed plant are moved to grandfathered health plans that are
acquisitions. If the principal purpose of another plant. The employer eliminates group health plans (including group
a merger, acquisition, or similar Option H and the employees that are moved health insurance coverage) for plan
are transferred to Option I. If instead of
business restructuring is to cover new transferring employees from Option H to
years beginning on or after September
individuals under a grandfathered Option I, Option H was amended to match 23, 2010. The provisions of PHS Act
health plan, the plan ceases to be a the terms of Option I, then Option H would section 2704 apply generally to
grandfathered health plan. cease to be a grandfathered health plan. grandfathered health plans that are
(ii) Change in plan eligibility. A group (ii) Conclusion. In this Example 3, the plan group health plans (including group
health plan or health insurance coverage has a bona fide employment-based reason to health insurance coverage) for plan
(including a benefit package under a transfer employees from Option H to Option years beginning on or after January 1,
group health plan) ceases to be a I. Therefore, Option I does not cease to be a 2014.
grandfathered health plan if grandfathered health plan. (2) For plan years beginning before
(A) Employees are transferred into the (c) General grandfathering rule(1) January 1, 2014, the provisions of PHS
plan or health insurance coverage (the Except as provided in paragraphs (d) Act section 2714 apply in the case of an
adult child with respect to a bargaining agreement has not been amended requirement measured from March 23,
grandfathered health plan that is a and will not expire before December 31, 2010 exceeds the maximum percentage
group health plan only if the adult child 2011. The group health plan enters into a increase (as defined in paragraph
is not eligible to enroll in an eligible new group health insurance policy with (g)(3)(ii) of this section).
Issuer Y for the plan year starting on January (iv) Increase in a fixed-amount
employer-sponsored health plan (as 1, 2011.
defined in section 5000A(f)(2) of the (ii) Conclusion. In this Example 1, the
copayment. Any increase in a fixed-
Internal Revenue Code) other than a group health plan, and the group health amount copayment, determined as of
grandfathered health plan of a parent. insurance policy provided by Y, remains a the effective date of the increase, causes
For plan years beginning on or after grandfathered health plan with respect to a group health plan or health insurance
January 1, 2014, the provisions of PHS existing employees and new employees and coverage to cease to be a grandfathered
Act section 2714 apply with respect to their families because the coverage is health plan, if the total increase in the
a grandfathered health plan that is a maintained pursuant to a collective copayment measured from March 23,
group health plan without regard to bargaining agreement ratified prior to March 2010 exceeds the greater of:
whether an adult child is eligible to 23, 2010 that has not terminated. (A) An amount equal to $5 increased
Example 2. (i) Facts. Same facts as by medical inflation, as defined in
enroll in any other coverage. Example 1, except the coverage with Y is
(f) Effect on collectively bargained paragraph (g)(3)(i) of this section (that
renewed under a new collective bargaining
plans(1) In general. In the case of agreement effective January 1, 2012, with the
is, $5 times medical inflation, plus $5),
health insurance coverage maintained only changes since March 23, 2010 being or
pursuant to one or more collective changes that do not cause the plan to cease (B) The maximum percentage increase
bargaining agreements between to be a grandfathered health plan under the (as defined in paragraph (g)(3)(ii) of this
employee representatives and one or rules of this section, including paragraph (g) section), determined by expressing the
more employers that was ratified before of this section. total increase in the copayment as a
March 23, 2010, the coverage is (ii) Conclusion. In this Example 2, the percentage.
grandfathered health plan coverage at group health plan remains a grandfathered (v) Decrease in contribution rate by
least until the date on which the last of health plan pursuant to the rules of this employers and employee
section. Moreover, the group health organizations(A) Contribution rate
the collective bargaining agreements insurance policy provided by Y remains a
relating to the coverage that was in based on cost of coverage. A group
grandfathered health plan under the rules of
effect on March 23, 2010 terminates. health plan or group health insurance
this section, including paragraph (g) of this
Any coverage amendment made section. coverage ceases to be a grandfathered
pursuant to a collective bargaining health plan if the employer or employee
agreement relating to the coverage that (g) Maintenance of grandfather organization decreases its contribution
amends the coverage solely to conform status(1) Changes causing cessation of rate based on cost of coverage (as
to any requirement added by subtitles A grandfather status. Subject to paragraph defined in paragraph (g)(3)(iii)(A) of this
and C of title I of the Patient Protection (g)(2) of this section, the rules of this section) towards the cost of any tier of
and Affordable Care Act (and the paragraph (g)(1) describe situations in coverage for any class of similarly
amendments made by those subtitles, which a group health plan or health situated individuals (as described in
and the incorporation of those insurance coverage ceases to be a 2590.702(d) of this part) by more than
amendments into ERISA section 715 grandfathered health plan. 5 percentage points below the
and Internal Revenue Code section (i) Elimination of benefits. The contribution rate for the coverage period
9815) is not treated as a termination of elimination of all or substantially all that includes March 23, 2010.
the collective bargaining agreement. benefits to diagnose or treat a particular (B) Contribution rate based on a
After the date on which the last of the condition causes a group health plan or formula. A group health plan or group
collective bargaining agreements health insurance coverage to cease to be health insurance coverage ceases to be
relating to the coverage that was in a grandfathered health plan. For this a grandfathered health plan if the
effect on March 23, 2010 terminates, the purpose, the elimination of benefits for employer or employee organization
determination of whether health any necessary element to diagnose or decreases its contribution rate based on
insurance coverage maintained pursuant treat a condition is considered the a formula (as defined in paragraph
to a collective bargaining agreement is elimination of all or substantially all (g)(3)(iii)(B) of this section) towards the
grandfathered health plan coverage is benefits to diagnose or treat a particular cost of any tier of coverage for any class
made under the rules of this section condition. of similarly situated individuals (as
other than this paragraph (f) (comparing (ii) Increase in percentage cost- described in section 2590.702(d) of this
the terms of the health insurance sharing requirement. Any increase, part) by more than 5 percent below the
coverage after the date the last collective measured from March 23, 2010, in a contribution rate for the coverage period
bargaining agreement terminates with percentage cost-sharing requirement that includes March 23, 2010.
the terms of the health insurance (such as an individuals coinsurance (vi) Changes in annual limits(A)
coverage that were in effect on March requirement) causes a group health plan Addition of an annual limit. A group
23, 2010) and, for any changes in or health insurance coverage to cease to health plan, or group health insurance
insurance coverage after the termination be a grandfathered health plan. coverage, that, on March 23, 2010, did
of the collective bargaining agreement, (iii) Increase in a fixed-amount cost- not impose an overall annual or lifetime
under the rules of paragraph (a)(1)(ii) of sharing requirement other than a limit on the dollar value of all benefits
this section. copayment. Any increase in a fixed- ceases to be a grandfathered health plan
amount cost-sharing requirement other
(2) Examples. The rules of this if the plan or health insurance coverage
paragraph (f) are illustrated by the than a copayment (for example, imposes an overall annual limit on the
following examples: deductible or out-of-pocket limit), dollar value of benefits.
determined as of the effective date of the (B) Decrease in limit for a plan or
Example 1. (i) Facts. A group health plan
maintained pursuant to a collective increase, causes a group health plan or coverage with only a lifetime limit. A
bargaining agreement provides coverage health insurance coverage to cease to be group health plan, or group health
through a group health insurance policy from a grandfathered health plan, if the total insurance coverage, that, on March 23,
Issuer W on March 23, 2010. The collective percentage increase in the cost-sharing 2010, imposed an overall lifetime limit
on the dollar value of all benefits but no (A) The changes are effective before as hours worked or tons of coal mined),
overall annual limit on the dollar value that date; the formula.
of all benefits ceases to be a (B) The changes are effective on or (4) Examples. The rules of this
grandfathered health plan if the plan or after that date pursuant to a legally paragraph (g) are illustrated by the
health insurance coverage adopts an binding contract entered into before that following examples:
overall annual limit at a dollar value date; Example 1. (i) Facts. On March 23, 2010,
that is lower than the dollar value of the (C) The changes are effective on or a grandfathered health plan has a
lifetime limit on March 23, 2010. after that date pursuant to a filing before coinsurance requirement of 20% for inpatient
(C) Decrease in limit for a plan or that date with a State insurance surgery. The plan is subsequently amended
coverage with an annual limit. A group department; or to increase the coinsurance requirement to
health plan, or group health insurance 25%.
(D) The changes are effective on or
coverage, that, on March 23, 2010, (ii) Conclusion. In this Example 1, the
after that date pursuant to written increase in the coinsurance requirement from
imposed an overall annual limit on the amendments to a plan that were 20% to 25% causes the plan to cease to be
dollar value of all benefits ceases to be adopted before that date. a grandfathered health plan.
a grandfathered health plan if the plan (3) Definitions(i) Medical inflation Example 2. (i) Facts. Before March 23,
or health insurance coverage decreases defined. For purposes of this paragraph 2010, the terms of a group health plan
the dollar value of the annual limit (g), the term medical inflation means the provide benefits for a particular mental
(regardless of whether the plan or health increase since March 2010 in the overall health condition, the treatment for which is
insurance coverage also imposed an medical care component of the a combination of counseling and prescription
overall lifetime limit on March 23, 2010 drugs. Subsequently, the plan eliminates
Consumer Price Index for All Urban benefits for counseling.
on the dollar value of all benefits). Consumers (CPIU) (unadjusted)
(2) Transitional rules(i) Changes (ii) Conclusion. In this Example 2, the plan
published by the Department of Labor ceases to be a grandfathered health plan
made prior to March 23, 2010. If a group
using the 19821984 base of 100. For because counseling is an element that is
health plan or health insurance issuer
this purpose, the increase in the overall necessary to treat the condition. Thus the
makes the following changes to the plan is considered to have eliminated
medical care component is computed by
terms of the plan or health insurance substantially all benefits for the treatment of
subtracting 387.142 (the overall medical
coverage, the changes are considered the condition.
care component of the CPIU
part of the terms of the plan or health Example 3. (i) Facts. On March 23, 2010,
(unadjusted) published by the
insurance coverage on March 23, 2010 a grandfathered health plan has a copayment
Department of Labor for March 2010,
even though they were not effective at requirement of $30 per office visit for
that time and such changes do not cause using the 19821984 base of 100) from specialists. The plan is subsequently
a plan or health insurance coverage to the index amount for any month in the amended to increase the copayment
cease to be a grandfathered health plan: 12 months before the new change is to requirement to $40. Within the 12-month
(A) Changes effective after March 23, take effect and then dividing that period before the $40 copayment takes effect,
amount by 387.142. the greatest value of the overall medical care
2010 pursuant to a legally binding
(ii) Maximum percentage increase component of the CPIU (unadjusted) is 475.
contract entered into on or before March (ii) Conclusion. In this Example 3, the
23, 2010; defined. For purposes of this paragraph
increase in the copayment from $30 to $40,
(B) Changes effective after March 23, (g), the term maximum percentage
expressed as a percentage, is 33.33% (4030
2010 pursuant to a filing on or before increase means medical inflation (as = 10; 10 30 = 0.3333; 0.3333 = 33.33%).
March 23, 2010 with a State insurance defined in paragraph (g)(3)(i) of this Medical inflation (as defined in paragraph
department; or section), expressed as a percentage, plus (g)(3)(i) of this section) from March 2010 is
(C) Changes effective after March 23, 15 percentage points. 0.2269 (475387.142 = 87.858; 87.858
2010 pursuant to written amendments (iii) Contribution rate defined. For 387.142 = 0.2269). The maximum percentage
to a plan that were adopted on or before purposes of paragraph (g)(1)(v) of this increase permitted is 37.69% (0.2269 =
March 23, 2010. section: 22.69%; 22.69% + 15% = 37.69%). Because
(ii) Changes made after March 23, (A) Contribution rate based on cost of 33.33% does not exceed 37.69%, the change
in the copayment requirement at that time
2010 and adopted prior to issuance of coverage. The term contribution rate does not cause the plan to cease to be a
regulations. If, after March 23, 2010, a based on cost of coverage means the grandfathered health plan.
group health plan or health insurance amount of contributions made by an Example 4. (i) Facts. Same facts as
issuer makes changes to the terms of the employer or employee organization Example 3, except the grandfathered health
plan or health insurance coverage and compared to the total cost of coverage, plan subsequently increases the $40
the changes are adopted prior to June expressed as a percentage. The total cost copayment requirement to $45 for a later
14, 2010, the changes will not cause the of coverage is determined in the same plan year. Within the 12-month period before
plan or health insurance coverage to manner as the applicable premium is the $45 copayment takes effect, the greatest
cease to be a grandfathered health plan calculated under the COBRA value of the overall medical care component
of the CPIU (unadjusted) is 485.
if the changes are revoked or modified continuation provisions of section 604 (ii) Conclusion. In this Example 4, the
effective as of the first day of the first of ERISA, section 4980B(f)(4) of the increase in the copayment from $30 (the
plan year (in the individual market, Internal Revenue Code, and section copayment that was in effect on March 23,
policy year) beginning on or after 2204 of the PHS Act. In the case of a 2010) to $45, expressed as a percentage, is
September 23, 2010, and the terms of self-insured plan, contributions by an 50% (4530 = 15; 15 30 = 0.5; 0.5 = 50%).
the plan or health insurance coverage on employer or employee organization are Medical inflation (as defined in paragraph
that date, as modified, would not cause equal to the total cost of coverage minus (g)(3)(i) of this section) from March 2010 is
the plan or coverage to cease to be a the employee contributions towards the 0.2527 (485387.142 = 97.858; 97.858
grandfathered health plan under the total cost of coverage. 387.142 = 0.2527). The increase that would
cause a plan to cease to be a grandfathered
rules of this section, including (B) Contribution rate based on a health plan under paragraph (g)(1)(iv) of this
paragraph (g)(1) of this section. For this formula. The term contribution rate section is the greater of the maximum
purpose, changes will be considered to based on a formula means, for plans percentage increase of 40.27% (0.2527 =
have been adopted prior to June 14, that, on March 23, 2010, made 25.27%; 25.27% + 15% = 40.27%), or $6.26
2010 if: contributions based on a formula (such ($5 x 0.2527 = $1.26; $1.26 + $5 = $6.26).
Because 50% exceeds 40.27% and $15 on cost of coverage for 2010 is 80% ((5000 (h) Applicability date. The provisions
exceeds $6.26, the change in the copayment 1000)/5000) for self-only coverage and 67% of this section apply for plan years (in
requirement at that time causes the plan to ((12,0004000)/12,000) for family coverage. the individual market, policy years)
cease to be a grandfathered health plan. For a subsequent plan year, the COBRA beginning on or after September 23,
Example 5. (i) Facts. On March 23, 2010, premium is $6000 for self-only coverage and
a grandfathered health plan has a copayment $15,000 for family coverage. The employee
2010. See 147.140 of this part for
of $10 per office visit for primary care contributions for that plan year are $1200 for determining the application of this
providers. The plan is subsequently amended self-only coverage and $5000 for family section to grandfathered health plans.
to increase the copayment requirement to coverage. Thus, the contribution rate based 3. Section 147.140 is added to read as
$15. Within the 12-month period before the on cost of coverage is 80% ((60001200)/ follows:
$15 copayment takes effect, the greatest value 6000) for self-only coverage and 67%
of the overall medical care component of the ((15,0005000)/15,000) for family coverage. 147.140 Preservation of right to maintain
CPIU (unadjusted) is 415. (ii) Conclusion. In this Example 8, because existing coverage.
(ii) Conclusion. In this Example 5, the there is no change in the contribution rate
increase in the copayment, expressed as a based on cost of coverage, the plan retains its
(a) Definition of grandfathered health
percentage, is 50% (1510 = 5; 5 10 = 0.5; status as a grandfathered health plan. The plan coverage(1) In general(i)
0.5 = 50%). Medical inflation (as defined in result would be the same if all or part of the Grandfathered health plan coverage
paragraph (g)(3) of this section) from March employee contribution was made pre-tax means coverage provided by a group
2010 is 0.0720 (415.0387.142 = 27.858; through a cafeteria plan under section 125 of health plan, or a group or individual
27.858 387.142 = 0.0720). The increase that the Internal Revenue Code. health insurance issuer, in which an
would cause a plan to cease to be a Example 9. (i) Facts. Before March 23, individual was enrolled on March 23,
grandfathered health plan under paragraph 2010, Employer W and Individual B enter
(g)(1)(iv) of this section is the greater of the
2010 (for as long as it maintains that
into a legally binding employment contract status under the rules of this section). A
maximum percentage increase of 22.20% that promises B lifetime health coverage
(0.0720 = 7.20%; 7.20% + 15% = 22.20), or upon termination. Prior to termination, B is
group health plan or group health
$5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 = covered by Ws self-insured grandfathered insurance coverage does not cease to be
$5.36). The $5 increase in copayment in this group health plan. B is terminated after grandfathered health plan coverage
Example 5 would not cause the plan to cease March 23, 2010 and W purchases a new merely because one or more (or even all)
to be a grandfathered health plan pursuant to health insurance policy providing coverage individuals enrolled on March 23, 2010
paragraph (g)(1)(iv) of this section, which to B, consistent with the terms of the cease to be covered, provided that the
would permit an increase in the copayment employment contract. plan or group health insurance coverage
of up to $5.36. (ii) Conclusion. In this Example 9, because
Example 6. (i) Facts. The same facts as
has continuously covered someone
no individual is enrolled in the health since March 23, 2010 (not necessarily
Example 5, except on March 23, 2010, the insurance policy on March 23, 2010, it is not
grandfathered health plan has no copayment a grandfathered health plan.
the same person, but at all times at least
($0) for office visits for primary care one person). For purposes of this
providers. The plan is subsequently amended
3. Section 2590.7152714 is amended section, a plan or health insurance
to increase the copayment requirement to $5. by revising paragraph (h) to read as coverage that provides grandfathered
(ii) Conclusion. In this Example 6, medical follows: health plan coverage is referred to as a
inflation (as defined in paragraph (g)(3)(i) of grandfathered health plan. The rules of
2590.7152714 Eligibility of children until
this section) from March 2010 is 0.0720 this section apply separately to each
at least age 26.
(415.0387.142 = 27.858; 27.858 387.142
= 0.0720). The increase that would cause a * * * * * benefit package made available under a
plan to cease to be a grandfathered health (h) Applicability date. The provisions group health plan or health insurance
plan under paragraph (g)(1)(iv)(A) of this of this section apply for plan years coverage.
section is $5.36 ($5 x 0.0720 = $0.36; $0.36 beginning on or after September 23, (ii) Subject to the rules of paragraph
+ $5 = $5.36). The $5 increase in copayment 2010. See 2590.7151251 of this Part (f) of this section for collectively
in this Example 6 is less than the amount for determining the application of this bargained plans, if an employer or
calculated pursuant to paragraph (g)(1)(iv)(A) employee organization enters into a new
of this section of $5.36. Thus, the $5 increase
section to grandfathered health plans.
policy, certificate, or contract of
in copayment does not cause the plan to
DEPARTMENT OF HEALTH AND insurance after March 23, 2010
cease to be a grandfathered health plan.
Example 7. (i) Facts. On March 23, 2010, HUMAN SERVICES (because, for example, any previous
a self-insured group health plan provides two policy, certificate, or contract of
45 CFR Chapter I
tiers of coverageself-only and family. The insurance is not being renewed), then
employer contributes 80% of the total cost of For the reasons stated in the preamble, that policy, certificate, or contract of
coverage for self-only and 60% of the total the Department of Health and Human insurance is not a grandfathered health
cost of coverage for family. Subsequently, the Services amends 45 CFR part 147 as plan with respect to the individuals in
employer reduces the contribution to 50% for follows: the group health plan.
family coverage, but keeps the same (2) Disclosure of grandfather status
contribution rate for self-only coverage. PART 147HEALTH INSURANCE
(ii) Conclusion. In this Example 7, the
(i) To maintain status as a grandfathered
REFORM REQUIREMENTS FOR THE health plan, a plan or health insurance
decrease of 10 percentage points for family
coverage in the contribution rate based on GROUP AND INDIVIDUAL HEALTH coverage must include a statement, in
cost of coverage causes the plan to cease to INSURANCE MARKETS any plan materials provided to a
be a grandfathered health plan. The fact that
1. The authority citation for part 147 participant or beneficiary (in the
the contribution rate for self-only coverage individual market, primary subscriber)
remains the same does not change the result. continues to read as follows:
describing the benefits provided under
Example 8. (i) Facts. On March 23, 2010, Authority: Secs. 2701 through 2763, 2791, the plan or health insurance coverage,
a self-insured grandfathered health plan has and 2792 of the Public Health Service Act (42 that the plan or coverage believes it is
a COBRA premium for the 2010 plan year of USC 300gg through 300gg63, 300gg91, and
$5000 for self-only coverage and $12,000 for 300gg92), as amended.
a grandfathered health plan within the
family coverage. The required employee meaning of section 1251 of the Patient
contribution for the coverage is $1000 for 2. Section 147.120 is amended by Protection and Affordable Care Act and
self-only coverage and $4000 for family revising paragraph (h) to read as must provide contact information for
coverage. Thus, the contribution rate based follows: questions and complaints.
(ii) The following model language can be through a group health insurance policy from transferor plan would cause a loss of
used to satisfy this disclosure requirement: Issuer X on March 23, 2010. For the plan year grandfather status under the provisions
This [group health plan or health insurance beginning January 1, 2012, the plan enters of paragraph (g)(1) of this section; and
issuer] believes this [plan or coverage] is a into a new policy with Issuer Z. (C) There was no bona fide
grandfathered health plan under the Patient (ii) Conclusion. In this Example 1, for the
employment-based reason to transfer the
Protection and Affordable Care Act (the plan year beginning January 1, 2012, the
Affordable Care Act). As permitted by the group health insurance coverage issued by Z employees into the transferee plan. For
Affordable Care Act, a grandfathered health is not a grandfathered health plan under the this purpose, changing the terms or cost
plan can preserve certain basic health rules of paragraph (a)(1)(ii) of this section of coverage is not a bona fide
coverage that was already in effect when that because the policy issued by Z did not employment-based reason.
law was enacted. Being a grandfathered provide coverage on March 23, 2010. (3) Examples. The rules of this
health plan means that your [plan or policy] Example 2. (i) Facts. A group health plan paragraph (b) are illustrated by the
may not include certain consumer not maintained pursuant to a collective following examples:
protections of the Affordable Care Act that bargaining agreement offers three benefit
apply to other plans, for example, the packages on March 23, 2010. Option F is a Example 1. (i) Facts. A group health plan
requirement for the provision of preventive self-insured option. Options G and H are offers two benefit packages on March 23,
health services without any cost sharing. insured options. Beginning July 1, 2013, the 2010, Options F and G. During a subsequent
open enrollment period, some of the
However, grandfathered health plans must plan replaces the issuer for Option H with a
employees enrolled in Option F on March 23,
comply with certain other consumer new issuer.
2010 switch to Option G.
protections in the Affordable Care Act, for (ii) Conclusion. In this Example 2, the
(ii) Conclusion. In this Example 1, the
example, the elimination of lifetime limits on coverage under Option H is not
group health coverage provided under
benefits. grandfathered health plan coverage as of July
Option G remains a grandfathered health
Questions regarding which protections 1, 2013, consistent with the rule in paragraph
plan under the rules of paragraph (b)(1) of
apply and which protections do not apply to (a)(1)(ii) of this section. Whether the coverage
this section because employees previously
a grandfathered health plan and what might under Options F and G is grandfathered
enrolled in Option F are allowed to enroll in
cause a plan to change from grandfathered health plan coverage is determined under the
Option G as new employees.
health plan status can be directed to the plan rules of this section, including paragraph (g) Example 2. (i) Facts. Same facts as
administrator at [insert contact information]. of this section. If the plan enters into a new Example 1, except that the plan sponsor
[For ERISA plans, insert: You may also policy, certificate, or contract of insurance for eliminates Option F because of its high cost
contact the Employee Benefits Security Option G, Option Gs status as a and transfers employees covered under
Administration, U.S. Department of Labor at grandfathered health plan would cease under Option F to Option G. If instead of
18664443272 or www.dol.gov/ebsa/ paragraph (a)(1)(ii) of this section. transferring employees from Option F to
healthreform. This Web site has a table Option G, Option F was amended to match
summarizing which protections do and do
(b) Allowance for new employees to
join current plan(1) In general. the terms of Option G, then Option F would
not apply to grandfathered health plans.] [For cease to be a grandfathered health plan.
individual market policies and nonfederal Subject to paragraph (b)(2) of this
(ii) Conclusion. In this Example 2, the plan
governmental plans, insert: You may also section, a group health plan (including did not have a bona fide employment-based
contact the U.S. Department of Health and health insurance coverage provided in reason to transfer employees from Option F
Human Services at www.healthreform.gov.] connection with the group health plan) to Option G. Therefore, Option G ceases to
(3) Documentation of plan or policy that provided coverage on March 23, be a grandfathered health plan with respect
terms on March 23, 2010. To maintain 2010 and has retained its status as a to all employees. (However, any other benefit
status as a grandfathered health plan, a grandfathered health plan (consistent package maintained by the plan sponsor is
with the rules of this section, including analyzed separately under the rules of this
group health plan, or group or section.)
individual health insurance coverage, paragraph (g) of this section) is
must, for as long as the plan or health grandfathered health plan coverage for offers two benefit packages on March 23,
insurance coverage takes the position new employees (whether newly hired or 2010, Options H and I. On March 23, 2010,
that it is a grandfathered health plan newly enrolled) and their families Option H provides coverage only for
(i) Maintain records documenting the enrolling in the plan after March 23, employees in one manufacturing plant.
terms of the plan or health insurance 2010. Subsequently, the plant is closed, and some
coverage in connection with the (2) Anti-abuse rules(i) Mergers and employees in the closed plant are moved to
coverage in effect on March 23, 2010, acquisitions. If the principal purpose of another plant. The employer eliminates
a merger, acquisition, or similar Option H and the employees that are moved
and any other documents necessary to are transferred to Option I. If instead of
verify, explain, or clarify its status as a business restructuring is to cover new
transferring employees from Option H to
grandfathered health plan; and individuals under a grandfathered Option I, Option H was amended to match
(ii) Make such records available for health plan, the plan ceases to be a the terms of Option I, then Option H would
examination upon request. grandfathered health plan. cease to be a grandfathered health plan.
(4) Family members enrolling after (ii) Change in plan eligibility. A group (ii) Conclusion. In this Example 3, the plan
March 23, 2010. With respect to an health plan or health insurance coverage has a bona fide employment-based reason to
individual who is enrolled in a group (including a benefit package under a transfer employees from Option H to Option
health plan or health insurance coverage group health plan) ceases to be a I. Therefore, Option I does not cease to be a
on March 23, 2010, grandfathered health grandfathered health plan if grandfathered health plan.
plan coverage includes coverage of (A) Employees are transferred into the (c) General grandfathering rule(1)
family members of the individual who plan or health insurance coverage (the Except as provided in paragraphs (d)
enroll after March 23, 2010 in the transferee plan) from a plan or health and (e) of this section, subtitles A and
grandfathered health plan coverage of insurance coverage under which the C of title I of the Patient Protection and
the individual. employees were covered on March 23, Affordable Care Act (and the
(5) Examples. The rules of this 2010 (the transferor plan); amendments made by those subtitles,
paragraph (a) are illustrated by the (B) Comparing the terms of the and the incorporation of those
following examples: transferee plan with those of the amendments into ERISA section 715
Example 1. (i) Facts. A group health plan transferor plan (as in effect on March 23, and Internal Revenue Code section
not maintained pursuant to a collective 2010) and treating the transferee plan as 9815) do not apply to grandfathered
bargaining agreement provides coverage if it were an amendment of the health plan coverage. Accordingly, the
provisions of PHS Act sections 2701, For plan years beginning on or after grandfathered health plan with respect to
2702, 2703, 2705, 2706, 2707, 2709 January 1, 2014, the provisions of PHS existing employees and new employees and
(relating to coverage for individuals Act section 2714 apply with respect to their families because the coverage is
maintained pursuant to a collective
participating in approved clinical trials, a grandfathered health plan that is a
bargaining agreement ratified prior to March
as added by section 10103 of the Patient group health plan without regard to 23, 2010 that has not terminated.
Protection and Affordable Care Act), whether an adult child is eligible to Example 2. (i) Facts. Same facts as
2713, 2715A, 2716, 2717, 2719, and enroll in any other coverage. Example 1, except the coverage with Y is
2719A, as added or amended by the (f) Effect on collectively bargained renewed under a new collective bargaining
Patient Protection and Affordable Care plans(1) In general. In the case of agreement effective January 1, 2012, with the
Act, do not apply to grandfathered health insurance coverage maintained only changes since March 23, 2010 being
health plans. In addition, the provisions pursuant to one or more collective changes that do not cause the plan to cease
bargaining agreements between to be a grandfathered health plan under the
of PHS Act section 2704, and PHS Act rules of this section, including paragraph (g)
section 2711 insofar as it relates to employee representatives and one or of this section.
annual limits, do not apply to more employers that was ratified before (ii) Conclusion. In this Example 2, the
grandfathered health plans that are March 23, 2010, the coverage is group health plan remains a grandfathered
individual health insurance coverage. grandfathered health plan coverage at health plan pursuant to the rules of this
(2) To the extent not inconsistent with least until the date on which the last of section. Moreover, the group health
the rules applicable to a grandfathered the collective bargaining agreements insurance policy provided by Y remains a
health plan, a grandfathered health plan relating to the coverage that was in grandfathered health plan under the rules of
must comply with the requirements of effect on March 23, 2010 terminates. this section, including paragraph (g) of this
section.
the PHS Act, ERISA, and the Internal Any coverage amendment made
Revenue Code applicable prior to the pursuant to a collective bargaining (g) Maintenance of grandfather
changes enacted by the Patient agreement relating to the coverage that status(1) Changes causing cessation of
Protection and Affordable Care Act. amends the coverage solely to conform grandfather status. Subject to paragraph
(d) Provisions applicable to all to any requirement added by subtitles A (g)(2) of this section, the rules of this
grandfathered health plans. The and C of title I of the Patient Protection paragraph (g)(1) describe situations in
provisions of PHS Act section 2711 and Affordable Care Act (and the which a group health plan or health
insofar as it relates to lifetime limits, amendments made by those subtitles, insurance coverage ceases to be a
and the provisions of PHS Act sections and the incorporation of those grandfathered health plan.
2712, 2714, 2715, and 2718, apply to amendments into ERISA section 715 (i) Elimination of benefits. The
grandfathered health plans for plan and Internal Revenue Code section elimination of all or substantially all
years (in the individual market, policy 9815) is not treated as a termination of benefits to diagnose or treat a particular
years) beginning on or after September the collective bargaining agreement. condition causes a group health plan or
23, 2010. The provisions of PHS Act After the date on which the last of the health insurance coverage to cease to be
section 2708 apply to grandfathered collective bargaining agreements a grandfathered health plan. For this
health plans for plan years (in the relating to the coverage that was in purpose, the elimination of benefits for
individual market, policy years) effect on March 23, 2010 terminates, the any necessary element to diagnose or
beginning on or after January 1, 2014. determination of whether health treat a condition is considered the
(e) Applicability of PHS Act sections insurance coverage maintained pursuant elimination of all or substantially all
2704, 2711, and 2714 to grandfathered to a collective bargaining agreement is benefits to diagnose or treat a particular
group health plans and group health grandfathered health plan coverage is condition.
insurance coverage(1) The provisions made under the rules of this section (ii) Increase in percentage cost-
of PHS Act section 2704 as it applies other than this paragraph (f) (comparing sharing requirement. Any increase,
with respect to enrollees who are under the terms of the health insurance measured from March 23, 2010, in a
19 years of age, and the provisions of coverage after the date the last collective percentage cost-sharing requirement
PHS Act section 2711 insofar as it bargaining agreement terminates with (such as an individuals coinsurance
relates to annual limits, apply to the terms of the health insurance requirement) causes a group health plan
grandfathered health plans that are coverage that were in effect on March or health insurance coverage to cease to
group health plans (including group 23, 2010) and, for any changes in be a grandfathered health plan.
health insurance coverage) for plan insurance coverage after the termination (iii) Increase in a fixed-amount cost-
years beginning on or after September of the collective bargaining agreement, sharing requirement other than a
23, 2010. The provisions of PHS Act under the rules of paragraph (a)(1)(ii) of copayment. Any increase in a fixed-
section 2704 apply generally to this section. amount cost-sharing requirement other
grandfathered health plans that are (2) Examples. The rules of this than a copayment (for example,
group health plans (including group paragraph (f) are illustrated by the deductible or out-of-pocket limit),
health insurance coverage) for plan following examples: determined as of the effective date of the
years beginning on or after January 1, increase, causes a group health plan or
2014. maintained pursuant to a collective health insurance coverage to cease to be
(2) For plan years beginning before bargaining agreement provides coverage a grandfathered health plan, if the total
January 1, 2014, the provisions of PHS through a group health insurance policy from percentage increase in the cost-sharing
Act section 2714 apply in the case of an Issuer W on March 23, 2010. The collective requirement measured from March 23,
adult child with respect to a
bargaining agreement has not been amended 2010 exceeds the maximum percentage
grandfathered health plan that is a and will not expire before December 31, increase (as defined in paragraph
group health plan only if the adult child 2011. The group health plan enters into a (g)(3)(ii) of this section).
is not eligible to enroll in an eligible new group health insurance policy with (iv) Increase in a fixed-amount
Issuer Y for the plan year starting on January
employer-sponsored health plan (as 1, 2011. copayment. Any increase in a fixed-
defined in section 5000A(f)(2) of the (ii) Conclusion. In this Example 1, the amount copayment, determined as of
Internal Revenue Code) other than a group health plan, and the group health the effective date of the increase, causes
grandfathered health plan of a parent. insurance policy provided by Y, remains a a group health plan or health insurance
coverage to cease to be a grandfathered value of the lifetime limit on March 23, binding contract entered into before that
health plan, if the total increase in the 2010. date;
copayment measured from March 23, (C) Decrease in limit for a plan or (C) The changes are effective on or
2010 exceeds the greater of: coverage with an annual limit. A group after that date pursuant to a filing before
(A) An amount equal to $5 increased health plan, or group or individual that date with a State insurance
by medical inflation, as defined in health insurance coverage, that, on department; or
paragraph (g)(3)(i) of this section (that March 23, 2010, imposed an overall (D) The changes are effective on or
is, $5 times medical inflation, plus $5), annual limit on the dollar value of all after that date pursuant to written
or benefits ceases to be a grandfathered amendments to a plan that were
(B) The maximum percentage increase health plan if the plan or health adopted before that date.
(as defined in paragraph (g)(3)(ii) of this insurance coverage decreases the dollar (3) Definitions(i) Medical inflation
section), determined by expressing the value of the annual limit (regardless of defined. For purposes of this paragraph
total increase in the copayment as a whether the plan or health insurance (g), the term medical inflation means the
percentage. coverage also imposed an overall increase since March 2010 in the overall
(v) Decrease in contribution rate by lifetime limit on March 23, 2010 on the medical care component of the
employers and employee dollar value of all benefits). Consumer Price Index for All Urban
organizations(A) Contribution rate (2) Transitional rules(i) Changes Consumers (CPIU) (unadjusted)
based on cost of coverage. A group made prior to March 23, 2010. If a group published by the Department of Labor
health plan or group health insurance using the 19821984 base of 100. For
health plan or health insurance issuer
coverage ceases to be a grandfathered this purpose, the increase in the overall
makes the following changes to the
health plan if the employer or employee medical care component is computed by
terms of the plan or health insurance
organization decreases its contribution subtracting 387.142 (the overall medical
coverage, the changes are considered
rate based on cost of coverage (as care component of the CPIU
part of the terms of the plan or health
defined in paragraph (g)(3)(iii)(A) of this (unadjusted) published by the
insurance coverage on March 23, 2010
section) towards the cost of any tier of Department of Labor for March 2010,
even though they were not effective at
coverage for any class of similarly using the 19821984 base of 100) from
that time and such changes do not cause
situated individuals (as described in the index amount for any month in the
a plan or health insurance coverage to
section 146.121(d) of this subchapter) by 12 months before the new change is to
cease to be a grandfathered health plan:
more than 5 percentage points below the take effect and then dividing that
contribution rate for the coverage period (A) Changes effective after March 23,
amount by 387.142.
that includes March 23, 2010. 2010 pursuant to a legally binding (ii) Maximum percentage increase
(B) Contribution rate based on a contract entered into on or before March defined. For purposes of this paragraph
formula. A group health plan or group 23, 2010; (g), the term maximum percentage
health insurance coverage ceases to be (B) Changes effective after March 23, increase means medical inflation (as
a grandfathered health plan if the 2010 pursuant to a filing on or before defined in paragraph (g)(3)(i) of this
employer or employee organization March 23, 2010 with a State insurance section), expressed as a percentage, plus
decreases its contribution rate based on department; or 15 percentage points.
a formula (as defined in paragraph (C) Changes effective after March 23, (iii) Contribution rate defined. For
(g)(3)(iii)(B) of this section) towards the 2010 pursuant to written amendments purposes of paragraph (g)(1)(v) of this
cost of any tier of coverage for any class to a plan that were adopted on or before section:
of similarly situated individuals (as March 23, 2010. (A) Contribution rate based on cost of
described in section 146.121(d) of this (ii) Changes made after March 23, coverage. The term contribution rate
subchapter) by more than 5 percent 2010 and adopted prior to issuance of based on cost of coverage means the
below the contribution rate for the regulations. If, after March 23, 2010, a amount of contributions made by an
coverage period that includes March 23, group health plan or health insurance employer or employee organization
2010. issuer makes changes to the terms of the compared to the total cost of coverage,
(vi) Changes in annual limits(A) plan or health insurance coverage and expressed as a percentage. The total cost
Addition of an annual limit. A group the changes are adopted prior to June of coverage is determined in the same
health plan, or group or individual 14, 2010, the changes will not cause the manner as the applicable premium is
health insurance coverage, that, on plan or health insurance coverage to calculated under the COBRA
March 23, 2010, did not impose an cease to be a grandfathered health plan continuation provisions of section 604
overall annual or lifetime limit on the if the changes are revoked or modified of ERISA, section 4980B(f)(4) of the
dollar value of all benefits ceases to be effective as of the first day of the first Internal Revenue Code, and section
a grandfathered health plan if the plan plan year (in the individual market, 2204 of the PHS Act. In the case of a
or health insurance coverage imposes an policy year) beginning on or after self-insured plan, contributions by an
overall annual limit on the dollar value September 23, 2010, and the terms of employer or employee organization are
of benefits. the plan or health insurance coverage on equal to the total cost of coverage minus
(B) Decrease in limit for a plan or that date, as modified, would not cause the employee contributions towards the
coverage with only a lifetime limit. A the plan or coverage to cease to be a total cost of coverage.
group health plan, or group or grandfathered health plan under the (B) Contribution rate based on a
individual health insurance coverage, rules of this section, including formula. The term contribution rate
that, on March 23, 2010, imposed an paragraph (g)(1) of this section. For this
based on a formula means, for plans

overall lifetime limit on the dollar value purpose, changes will be considered to that, on March 23, 2010, made
of all benefits but no overall annual have been adopted prior to June 14, contributions based on a formula (such
limit on the dollar value of all benefits 2010 if: as hours worked or tons of coal mined),
ceases to be a grandfathered health plan (A) The changes are effective before the formula.
if the plan or health insurance coverage that date; (4) Examples. The rules of this
adopts an overall annual limit at a (B) The changes are effective on or paragraph (g) are illustrated by the
dollar value that is lower than the dollar after that date pursuant to a legally following examples:
Example 1. (i) Facts. On March 23, 2010, 0.2527 (485 387.142 = 97.858; 97.858 tiers of coverageself-only and family. The
a grandfathered health plan has a 387.142 = 0.2527). The increase that would employer contributes 80% of the total cost of
coinsurance requirement of 20% for inpatient cause a plan to cease to be a grandfathered coverage for self-only and 60% of the total
surgery. The plan is subsequently amended health plan under paragraph (g)(1)(iv) of this cost of coverage for family. Subsequently, the
to increase the coinsurance requirement to section is the greater of the maximum employer reduces the contribution to 50% for
25%. percentage increase of 40.27% (0.2527 = family coverage, but keeps the same
(ii) Conclusion. In this Example 1, the 25.27%; 25.27% + 15% = 40.27%), or $6.26 contribution rate for self-only coverage.
increase in the coinsurance requirement from ($5 0.2527 = $1.26; $1.26 + $5 = $6.26). (ii) Conclusion. In this Example 7, the
20% to 25% causes the plan to cease to be Because 50% exceeds 40.27% and $15 decrease of 10 percentage points for family
a grandfathered health plan. exceeds $6.26, the change in the copayment coverage in the contribution rate based on
Example 2. (i) Facts. Before March 23, requirement at that time causes the plan to cost of coverage causes the plan to cease to
2010, the terms of a group health plan cease to be a grandfathered health plan. be a grandfathered health plan. The fact that
provide benefits for a particular mental Example 5. (i) Facts. On March 23, 2010, the contribution rate for self-only coverage
health condition, the treatment for which is a grandfathered health plan has a copayment remains the same does not change the result.
a combination of counseling and prescription of $10 per office visit for primary care
Example 8. (i) Facts. On March 23, 2010,
drugs. Subsequently, the plan eliminates providers. The plan is subsequently amended
a self-insured grandfathered health plan has
benefits for counseling. to increase the copayment requirement to
a COBRA premium for the 2010 plan year of
(ii) Conclusion. In this Example 2, the plan $15. Within the 12-month period before the
ceases to be a grandfathered health plan $15 copayment takes effect, the greatest value $5000 for self-only coverage and $12,000 for
because counseling is an element that is of the overall medical care component of the family coverage. The required employee
necessary to treat the condition. Thus the CPIU (unadjusted) is 415. contribution for the coverage is $1000 for
plan is considered to have eliminated (ii) Conclusion. In this Example 5, the self-only coverage and $4000 for family
substantially all benefits for the treatment of increase in the copayment, expressed as a coverage. Thus, the contribution rate based
the condition. percentage, is 50% (15 10 = 5; 5 10 = on cost of coverage for 2010 is 80% ((5000
Example 3. (i) Facts. On March 23, 2010, 0.5; 0.5 = 50%). Medical inflation (as defined 1000)/5000) for self-only coverage and
a grandfathered health plan has a copayment in paragraph (g)(3) of this section) from 67% ((12,000 4000)/12,000) for family
requirement of $30 per office visit for March 2010 is 0.0720 (415.0 387.142 = coverage. For a subsequent plan year, the
specialists. The plan is subsequently 27.858; 27.858 387.142 = 0.0720). The COBRA premium is $6000 for self-only
amended to increase the copayment increase that would cause a plan to cease to coverage and $15,000 for family coverage.
requirement to $40. Within the 12-month be a grandfathered health plan under The employee contributions for that plan
period before the $40 copayment takes effect, paragraph (g)(1)(iv) of this section is the year are $1200 for self-only coverage and
the greatest value of the overall medical care greater of the maximum percentage increase $5000 for family coverage. Thus, the
component of the CPIU (unadjusted) is 475. of 22.20% (0.0720 = 7.20%; 7.20% + 15% = contribution rate based on cost of coverage is
(ii) Conclusion. In this Example 3, the 22.20), or $5.36 ($5 0.0720 = $0.36; $0.36 80% ((6000 1200)/6000) for self-only
increase in the copayment from $30 to $40, + $5 = $5.36). The $5 increase in copayment coverage and 67% ((15,000 5000)/15,000)
expressed as a percentage, is 33.33% (40 in this Example 5 would not cause the plan for family coverage.
30 = 10; 10 30 = 0.3333; 0.3333 = 33.33%). to cease to be a grandfathered health plan (ii) Conclusion. In this Example 8, because
Medical inflation (as defined in paragraph pursuant to paragraph (g)(1)(iv) this section, there is no change in the contribution rate
(g)(3)(i) of this section) from March 2010 is which would permit an increase in the based on cost of coverage, the plan retains its
0.2269 (475 387.142 = 87.858; 87.858 copayment of up to $5.36. status as a grandfathered health plan. The
387.142 = 0.2269). The maximum percentage Example 6. (i) Facts. The same facts as result would be the same if all or part of the
increase permitted is 37.69% (0.2269 = Example 5, except on March 23, 2010, the employee contribution was made pre-tax
22.69%; 22.69% + 15% = 37.69%). Because grandfathered health plan has no copayment through a cafeteria plan under section 125 of
33.33% does not exceed 37.69%, the change ($0) for office visits for primary care the Internal Revenue Code.
in the copayment requirement at that time providers. The plan is subsequently amended Example 9. (i) Facts. Before March 23,
does not cause the plan to cease to be a to increase the copayment requirement to $5. 2010, Employer W and Individual B enter
grandfathered health plan. (ii) Conclusion. In this Example 6, medical into a legally binding employment contract
Example 4. (i) Facts. Same facts as inflation (as defined in paragraph (g)(3)(i) of that promises B lifetime health coverage
Example 3, except the grandfathered health this section) from March 2010 is 0.0720 upon termination. Prior to termination, B is
plan subsequently increases the $40 (415.0 387.142 = 27.858; 27.858 387.142 covered by Ws self-insured grandfathered
copayment requirement to $45 for a later = 0.0720). The increase that would cause a group health plan. B is terminated after
plan year. Within the 12-month period before plan to cease to be a grandfathered health March 23, 2010 and W purchases a new
the $45 copayment takes effect, the greatest plan under paragraph (g)(1)(iv)(A) of this health insurance policy providing coverage
value of the overall medical care component section is $5.36 ($5 0.0720 = $0.36; $0.36 to B, consistent with the terms of the
of the CPIU (unadjusted) is 485. + $5 = $5.36). The $5 increase in copayment employment contract.
(ii) Conclusion. In this Example 4, the in this Example 6 is less than the amount (ii) Conclusion. In this Example 9, because
increase in the copayment from $30 (the calculated pursuant to paragraph (g)(1)(iv)(A) no individual is enrolled in the health
copayment that was in effect on March 23, of this section of $5.36. Thus, the $5 increase insurance policy on March 23, 2010, it is not
2010) to $45, expressed as a percentage, is in copayment does not cause the plan to a grandfathered health plan.
50% (45 30 = 15; 15 30 = 0.5; 0.5 = 50%). cease to be a grandfathered health plan.
Medical inflation (as defined in paragraph Example 7. (i) Facts. On March 23, 2010, [FR Doc. 201014488 Filed 61410; 11:15 am]
(g)(3)(i) of this section) from March 2010 is a self-insured group health plan provides two BILLING CODE 483001P, 451029P, 412001P

75 Fed. Reg. 34,538, 34,553 (June 17, 2010)

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75 Fed. Reg. 34,538, 34,553 (June 17, 2010)

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Thursday,

June 17, 2010

Department of the Treasury

Department of Health and

Group Health Plans and Health Insurance

two participants who are current

objective of preserving the ability to

(g)(1)(ii) provides that any increase in a

26 CFR 54.98151251T, 29 CFR

covered by individual health insurance

10 Medical inflation is defined in these interim 11 Available at http://www.whitehouse.gov/omb/

regulations by reference to the overall medical care circulars/a004/a-4.pdf.

TABLE 2ACCOUNTING TABLE

Costs Low-end Mid-range High-end Year dollar Discount rate Period

Annualized ............................................... 22.0 25.6 27.9 2010 7% 20112013

to offer any plan.

16704882. The effect of quality information on

22 The analysis is limited to firms that responded

presented here. exceeded at least one cost-sharing threshold and

28 Adele M. Kirk. The Individual Insurance

inspect such documents to verify the (http://www.reginfo.gov/public/do/ b. Record-Keeping Requirement

holders was obtained from the 2009 Current

to estimate the percentage of state and local

group health plan) ceases to be a

Issuer W on March 23, 2010. The collective

examination upon request.

based on a formula means, for plans

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