[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Proposed Rules]
[Pages 42782-42803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14895]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-130081-19]
RIN 1545-BP67

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB89

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 147

[CMS-9923-P]
RIN 0938-AT49


Grandfathered Group Health Plans and Grandfathered Group Health 
Insurance Coverage

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Centers for 
Medicare & Medicaid Services, Department of Health and Human Services.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document is a notice of proposed rulemaking regarding 
grandfathered group health plans and grandfathered group health 
insurance coverage that would, if finalized, amend current rules to 
provide greater flexibility for certain grandfathered health plans to 
make changes to certain types of cost-sharing requirements without 
causing a loss of grandfather status.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on August 14, 2020.

ADDRESSES: Written comments may be submitted to the addresses specified 
below. Any comment that is submitted will be shared among the 
Departments. Please do not submit duplicates.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments are posted on the 
internet exactly as received and can be retrieved by most internet 
search engines. No deletions, modifications, or redactions will be made 
to the comments received, as they are public records. Comments may be 
submitted anonymously.
    In commenting, refer to file code RIN 1210-AB89. Because of staff 
and resource limitations, we cannot accept comments by facsimile (FAX) 
transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Office of Health Plan Standards and Compliance 
Assistance, Employee Benefits Security Administration, U.S. Department 
of Labor, Attention: RIN 1210-AB89, 200 Constitution Avenue NW, Room N-
5653, Washington, DC 20210.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, U.S. 
Department of Labor, Attention: RIN 1210-AB89, 200 Constitution Avenue 
NW, Room N-5653, Washington, DC 20210.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: William Fischer, Internal Revenue 
Service, Department of the Treasury, at (202) 317-5500.
    David Sydlik or Frank Kolb, Employee Benefits Security 
Administration, Department of Labor, at (202) 693-8335.
    Cam Clemmons, Centers for Medicare & Medicaid Services, Department 
of Health and Human Services, at (301) 492-4400.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor (DOL) concerning employment-
based health coverage laws may call the EBSA Toll-Free Hotline at 1-
866-444-EBSA (3272) or visit the DOL's website (www.dol.gov/ebsa). In 
addition, information from the Department of

[[Page 42783]]

Health and Human Services (HHS) on private health insurance coverage 
and on non-federal governmental group health plans can be found on the 
Centers for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio), and information on health care reform can be found at 
www.HealthCare.gov.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. 
Comments received before the close of the comment period are posted on 
the following website as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that website to view public comments.

I. Background

A. Purpose

    On January 20, 2017, the President issued Executive Order 13765, 
``Minimizing the Economic Burden of the Patient Protection and 
Affordable Care Act Pending Repeal'' (82 FR 8351) ``to minimize the 
unwarranted economic and regulatory burdens of the [Patient Protection 
and Affordable Care Act (Pub. L. 111-148) and the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, 
PPACA), as amended].'' To meet these objectives, the President directed 
that the executive departments and agencies with authorities and 
responsibilities under PPACA, ``to the maximum extent permitted by law 
. . . shall exercise all authority and discretion available to them to 
waive, defer, grant exemptions from, or delay the implementation of any 
provision or requirement of [PPACA] that would impose a fiscal burden 
on any State or a cost, fee, tax, penalty, or regulatory burden on 
individuals, families, healthcare providers, health insurers, patients, 
recipients of healthcare services, purchasers of health insurance, or 
makers of medical devices, products, or medications.''
    The Departments of Health and Human Services (HHS), Labor, and the 
Treasury (collectively, the Departments) share interpretive 
jurisdiction over section 1251 of PPACA, which generally provides that 
certain group health plans and health insurance coverage existing as of 
March 23, 2010, the date of enactment of PPACA (referred to 
collectively in the statute as grandfathered health plans), are subject 
to only certain provisions of PPACA. Consistent with the objectives of 
Executive Order 13765, on February 25, 2019, the Departments issued a 
request for information regarding grandfathered group health plans and 
grandfathered group health insurance coverage (2019 RFI).\1\ The 
purpose of the 2019 RFI was to gather input from the public in order to 
better understand the challenges that group health plans and group 
health insurance issuers face in avoiding a loss of grandfather status, 
and to determine whether there are opportunities for the Departments to 
assist such plans and issuers, consistent with the law, in preserving 
the grandfather status of group health plans and group health insurance 
coverage in ways that would benefit plan participants and 
beneficiaries, employers, employee organizations, and other 
stakeholders.
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    \1\ 84 FR 5969 (Feb. 25, 2019).
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    Based on feedback received from stakeholders who submitted comments 
in response to the 2019 RFI, the Departments are issuing this notice of 
proposed rulemaking that would, if finalized, amend current rules to 
provide greater flexibility for certain grandfathered health plans to 
make changes to certain types of cost-sharing requirements without 
causing a loss of grandfather status. In the Departments' view, these 
proposed amendments are appropriate because they would enable these 
plans to continue offering affordable coverage while also enhancing 
their ability to respond to rising healthcare costs. In some cases, the 
proposed amendments would also ensure that the plans are able to comply 
with minimum cost-sharing requirements for high deductible health plans 
(HDHPs) so enrolled individuals are eligible to contribute to health 
savings accounts (HSAs).
    These proposed rules would only address the requirements for 
grandfathered group health plans and grandfathered group health 
insurance coverage, and would not apply to or otherwise change the 
current requirements applicable to grandfathered individual health 
insurance coverage. With respect to individual health insurance 
coverage, it is the Departments' understanding that the number of 
individuals with grandfathered individual health insurance coverage has 
declined each year since PPACA was enacted. As one commenter noted, 
this decline in enrollment in grandfathered individual health insurance 
coverage will continue due to the natural churn that occurs, because 
most consumers stay in the individual market for less than five 
years.\2\ Compared to the number of individuals in grandfathered group 
health plans and group health insurance coverage, only a small number 
of individuals are enrolled in grandfathered individual health 
insurance coverage.\3\ The Departments are therefore of the view that 
any amendments to requirements for grandfathered individual health 
insurance coverage would be of limited utility.
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    \2\ The cause of this churn varies. For example, beginning a new 
job that offers group health insurance coverage may result in the 
natural transition from the individual market to the group market. 
Eligibility for Medicaid or Medicare can also result in a consumer 
leaving the individual market.
    \3\ HHS estimates that less than seven percent of enrollees in 
grandfathered plans have individual market coverage. This estimate 
is based on analysis of enrollment data issuers submitted in the HHS 
Health Insurance and Oversight System (HIOS) and the CMS External 
Data Gathering Environment (EDGE) for the 2018 plan year, as well as 
Kaiser Family Foundation estimates regarding the percentage of 
enrollees with employer-sponsored coverage that are covered by a 
grandfathered health plan.
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B. Grandfathered Group Health Plans and Grandfathered Group Health 
Insurance Coverage

    Section 1251 of PPACA provides that grandfathered health plans are 
subject to certain, but not all, provisions of PPACA for as long as 
they maintain their status as grandfathered health plans.\4\ For 
example, grandfathered health plans are subject neither to the 
requirement to cover certain preventive services without cost sharing 
under section 2713 of the Public Health Service Act (PHS Act), enacted 
by section 1001 of PPACA, nor to the annual limitation on cost sharing 
set forth under section 1302(c) of PPACA and section 2707(b) of the PHS 
Act, enacted by section 1201 of PPACA. If a plan were to lose its 
grandfather status, it would be required to comply with both 
provisions, in addition to several other requirements.
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    \4\ For a list of the market reform provisions applicable to 
grandfathered health plans under title XXVII of the PHS Act that 
PPACA added or amended and were incorporated into the Employee 
Retirement Income Security Act of 1974 (ERISA) and the Internal 
Revenue Code of 1986 (the Code), visit https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/grandfathered-health-plans-provisions-summary-chart.pdf.
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    On June 17, 2010, the Departments issued interim final rules with 
request for comments implementing section 1251 of PPACA.\5\ On November 
17, 2010, the Departments issued an amendment to the interim final 
rules with request for comments to permit certain changes in policies, 
certificates,

[[Page 42784]]

or contracts of insurance without a loss of grandfather status.\6\ 
Also, over the course of 2010 and 2011, the Departments released 
Affordable Care Act Implementation Frequently Asked Questions (FAQs) 
Parts I, II, IV, V, and VI to answer questions related to maintaining a 
plan's status as a grandfathered health plan.\7\ After consideration of 
the comments and feedback received from stakeholders, the Departments 
issued regulations on November 18, 2015, which finalized the interim 
final rules without substantial change and incorporated the 
clarifications that the Departments had previously provided in other 
guidance (2015 final rules).\8\
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    \5\ 75 FR 34538 (June 17, 2010).
    \6\ 75 FR 70114 (Nov. 17, 2010).
    \7\ See Affordable Care Act Implementation FAQs Part I, 
available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-i.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs.html; Affordable Care Act Implementation 
FAQs Part II, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-ii.pdf 
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs2.html; Affordable Care Act Implementation 
FAQs Part IV, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-iv.pdf 
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs4.html; Affordable Care Act Implementation 
FAQs Part V, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-v.pdf 
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html; and Affordable Care Act 
Implementation FAQs Part VI, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-vi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs6.html.
    \8\ 80 FR 72192 (Nov. 18, 2015), codified at 26 CFR 54.9815-
1251, 29 CFR 2590.715-1251, and 45 CFR 147.140.
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    In general, under the 2015 final rules, a group health plan or 
group health insurance coverage is considered grandfathered if it has 
continuously provided coverage for someone (not necessarily the same 
person, but at all times at least one person) since March 23, 2010, and 
if the plan (or its sponsor) or issuer has not taken certain actions.
    Under the 2015 final rules, certain changes to a group health plan 
or coverage do not result in a loss of grandfather status. For example, 
new employees and their families may enroll in a group health plan or 
group health insurance coverage without causing a loss of grandfather 
status. Further, the addition of a new contributing employer or a new 
group of employees of an existing contributing employer to a 
grandfathered multiemployer health plan will not affect the plan's 
grandfather status. Also, grandfather status is determined separately 
for each benefit package under a group health plan or coverage; thus, 
if any benefit package under the plan or coverage loses its grandfather 
status, it will not affect the grandfather status of the other benefit 
packages.
    The 2015 final rules specify when changes to the terms of a plan or 
coverage cause the plan or coverage to cease to be a grandfathered 
health plan. Specifically, the regulations outline certain changes to 
benefits, cost-sharing requirements, and contribution rates that will 
cause a plan or coverage to relinquish its grandfather status. There 
are six types of changes (measured from March 23, 2010) that will cause 
a group health plan or health insurance coverage to cease to be 
grandfathered:
    1. The elimination of all or substantially all benefits to diagnose 
or treat a particular condition;
    2. Any increase in a percentage cost-sharing requirement (such as 
coinsurance);
    3. Any increase in a fixed-amount cost-sharing requirement (other 
than a copayment) (such as a deductible or out-of-pocket maximum) that 
exceeds certain thresholds;
    4. Any increase in a fixed-amount copayment that exceeds certain 
thresholds;
    5. A decrease in contribution rate by an employer or employee 
organization toward the cost of coverage by more than five percentage 
points below the contribution rate for the coverage period that 
includes March 23, 2010; or
    6. The imposition of annual limits on the dollar value of all 
benefits for group health plans and insurance coverage that did not 
impose such a limit prior to March 23, 2010.
    The 2015 final rules provide different thresholds for the increases 
to different types of cost-sharing requirements that will cause a loss 
of grandfather status. The nominal dollar amount of a coinsurance 
obligation automatically rises when the cost of the healthcare benefit 
subject to the coinsurance obligation increases, so changes to the 
level of coinsurance (such as modifying a requirement that the patient 
pay 20 percent to a requirement that the patient pay 30 percent of 
inpatient surgery costs) could significantly alter the financial 
obligation of consumers and a plan or health insurance coverage. On the 
other hand, fixed-amount cost-sharing requirements (such as copayments 
and deductibles) do not automatically rise when healthcare costs 
increase. This means that changes to fixed-amount cost-sharing 
requirements (for example, modifying a $35 copayment to a $40 copayment 
for outpatient doctor visits) may be reasonable to keep pace with the 
rising cost of medical items and services. Accordingly, under the 2015 
final rules, any increase in a percentage cost-sharing requirement 
(such as coinsurance) causes a plan or health insurance coverage to 
cease to be a grandfathered health plan. With respect to fixed-amount 
cost-sharing requirements, however, there are two standards for 
permitted increases, one for fixed-amount cost-sharing requirements 
other than copayments (for example, deductibles and out-of-pocket 
maximums) and another for copayments.
    With respect to fixed-amount cost-sharing requirements other than 
copayments, a plan or coverage ceases to be a grandfathered health plan 
if there is an increase, since March 23, 2010, that is greater than the 
maximum percentage increase. For fixed-amount copayments, a plan or 
coverage ceases to be a grandfathered health plan if there is an 
increase, since March 23, 2010, in the copayment that exceeds the 
greater of (1) the maximum percentage increase or (2) five dollars 
increased by medical inflation. The 2015 final rules define the maximum 
percentage increase as medical inflation (from March 23, 2010) plus 15 
percentage points. For this purpose, medical inflation is defined by 
reference to the overall medical care component of the Consumer Price 
Index for All Urban Consumers, unadjusted (CPI-U), published by the 
Department of Labor using the 1982-1984 base of 100.
    For any change that causes a loss of grandfather status under the 
2015 final rules, the plan or coverage will cease to be a grandfathered 
plan when the change becomes effective, regardless of when the change 
is adopted.
    In addition, the 2015 final rules require that a grandfathered plan 
or coverage include a statement in any summary of benefits provided 
under the plan that it believes the plan or coverage is a grandfathered 
health plan, as well as provide contact information for questions and 
complaints. Failure to provide this disclosure results in a loss of 
grandfather status. The 2015 final rules further provide that, once 
grandfather status is relinquished, there is no opportunity to regain 
it.

C. 2019 Request for Information

    It is the Departments' understanding that the number of 
grandfathered group health plans and group health insurance policies 
has declined each year since the enactment of PPACA, but many employers 
continue to maintain grandfathered group health plans and coverage. The 
fact that a significant

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number of grandfathered group health plans and coverage remain 
indicates that some employers and issuers have found value in 
preserving grandfather status. Accordingly, on February 25, 2019, the 
Departments published in the Federal Register the 2019 RFI \9\ to 
gather input from the public in order to better understand the 
challenges that group health plans and group health insurance issuers 
face in avoiding a loss of grandfather status and to determine whether 
there are opportunities for the Departments to assist such plans and 
issuers, consistent with the law, in preserving the grandfather status 
of group health plans and group health insurance coverage in ways that 
would benefit plan participants and beneficiaries, employers, employee 
organizations, and other stakeholders.
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    \9\ 84 FR 5969 (Feb. 25, 2019), available at https://www.federalregister.gov/documents/2019/02/25/2019-03170/request-for-information-regarding-grandfathered-group-health-plans-and-grandfathered-group-health.
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    Comments submitted in response to the 2019 RFI provided information 
regarding grandfathered health plans that has informed these proposed 
rules. Commenters shared data regarding the prevalence of grandfathered 
group health plans and grandfathered group health insurance coverage, 
insights regarding the impact that grandfathered plans have had in 
terms of delivering benefits to participants and beneficiaries at a 
lower cost than non-grandfathered plans, and suggestions for potential 
amendments to the Departments' 2015 final rules that would provide more 
flexibility for a plan or coverage to retain grandfather status.
    Several commenters directed the Departments' attention to a Kaiser 
Family Foundation survey, which indicates that one out of every five 
firms that offered health benefits in 2018 offered at least one 
grandfathered health plan, and 16 percent of covered workers were 
enrolled in a grandfathered group health plan that year.\10\ One 
commenter indicated the incidence of grandfathered plan status differs 
by various types of plan sponsors. Another commenter cited survey data 
released in 2018 by the International Foundation of Employee Benefit 
Plans, which indicated that 57 percent of multiemployer plans are 
grandfathered, compared to 20 percent of private-sector plans and 30 
percent of public sector plans. However, a professional association 
with members who work with employer groups on health plan design and 
administration commented that their members have found far fewer 
grandfathered plans than survey results suggest are in existence and 
suggested that very large employers with self-funded plans may have a 
disproportionate share of grandfathered plans, as well as that some 
employers that have ``grandmothered'' plans or that previously had 
grandfathered plans may unintentionally be reporting incorrectly in 
surveys that they still have grandfathered plans.\11\
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    \10\ On September 25, 2019, the Kaiser Family Foundation issued 
its 2019 report, which showed little change since 2018 with respect 
to grandfathered plans. According to survey data, 22 percent of 
offering firms report having at least one grandfathered plan in 
2019, and 13 percent of covered workers were enrolled in a 
grandfathered health plan in 2019. See 2019 Employer Health Benefits 
Survey, Kaiser Family Foundation, available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/. See also 
2018 Employer Health Benefits Survey, Kaiser Family Foundation, 
available at https://www.kff.org/report-section/2018-employer-healthbenefits-survey-section-13-grandfathered-healthplans/.
    \11\ ``Grandmothered'' plans, also known as transitional plans, 
are certain non-grandfathered health insurance coverage in the small 
group and individual market that meet certain conditions. On 
November 14, 2013, CMS issued a letter to the State Insurance 
Commissioners outlining a policy under which, if permitted by the 
state, non-grandfathered small group and individual market health 
plans that were in effect on October 1, 2013, would send a notice to 
all individuals and small businesses that received or would 
otherwise receive a cancellation or termination notice with respect 
to the coverage, and the coverage would not be treated as being out 
of compliance with certain specified market reforms. CMS has 
extended this non-enforcement policy each year, with the most recent 
extension in effect until policy years beginning on or before 
October 1, 2021, provided that all such coverage comes into 
compliance by January 1, 2022. See Insurance Standards Bulletin 
Series--INFORMATION--Extension of Limited Non-Enforcement Policy 
through 2021 (January 31, 2020), available at https://www.cms.gov/files/document/extension-limited-non-enforcement-policy-through-calendar-year-2021.pdf.
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    Some commenters stated that grandfathered health plans are less 
comprehensive and provide fewer consumer protections than non-
grandfathered plans; thus, these commenters opined that the Departments 
should not amend the 2015 final rules to provide any greater 
flexibility for a plan or coverage to maintain grandfather status. 
Other commenters noted, however, that grandfathered plans often have 
lower premiums and cost-sharing requirements than non-grandfathered 
plans. One commenter gave examples of premium increases ranging from 10 
percent to 40 percent that grandfathered plan participants would 
experience if they transitioned to non-grandfathered group health 
plans. Several commenters also argued that grandfathered health plans 
do in fact offer comprehensive benefits and in some cases are even more 
generous than certain non-grandfathered plans that are subject to all 
the requirements of PPACA. Some commenters also stated that they have 
found that their grandfathered plans offer more robust provider 
networks than other coverage options that are available to them or that 
they want to ensure that they are able to keep receiving care from 
current in-network providers.
    Commenters who supported allowing greater flexibility for 
grandfathered health plans offered a range of suggestions on how the 
2015 final rules should be amended. For example, several commenters 
requested additional flexibility regarding plan or coverage changes 
that would constitute an elimination of substantially all benefits to 
diagnose or treat a condition, arguing that it is often difficult to 
discern what constitutes a benefit reduction given that the regulations 
apply a ``facts and circumstances'' standard. Some commenters requested 
flexibility to make certain changes so long as the grandfathered plan 
or coverage's actuarial value is not affected. Some commenters also 
stated that the 2015 final rules should be amended to permit decreases 
in contribution rates by employers and employee organizations by more 
than five percentage points to account for employers experiencing a 
business change or economic downturn and the difficulty issuers face in 
gathering necessary information from employers to know that their 
contribution rates have not decreased.
    Commenters also suggested amendments relating to the permitted 
changes in cost-sharing requirements for grandfathered health plans. 
These commenters generally argued that the 2015 final rules were too 
restrictive. Several commenters stated that relying on the medical care 
component of the CPI-U for purposes of those rules to account for 
inflation adjustments to the maximum percentage increase was misguided, 
and the methodology used to calculate the ``premium adjustment 
percentage'' (as defined in 45 CFR 156.130) would be more appropriate 
because it is tied to the increase in premiums for health insurance 
and, therefore, better reflects the increase in costs for health 
coverage. These commenters also noted that relying on the premium 
adjustment percentage would be consistent with the methodology used to 
adjust the annual limitation on cost sharing under section 1302(c) of 
PPACA and section 2707(b) of the PHS Act that applies to non-
grandfathered plans. Additionally, one commenter articulated a concern 
that the 2015 final rules eventually may preclude some grandfathered 
group health plans or issuers of grandfathered

[[Page 42786]]

group health insurance coverage from being able to make changes to 
cost-sharing requirements that are necessary for a plan to maintain its 
status as an HDHP within the meaning of section 223 of the Internal 
Revenue Code (Code), which would effectively mean that individuals 
covered by those plans would no longer be eligible to contribute to an 
HSA.

D. The Premium Adjustment Percentage

    Section 1302(c)(4) of PPACA directs the Secretary of HHS to 
determine an annual premium adjustment percentage, a measure of premium 
growth that is used to set the rate of increase for three parameters 
detailed in PPACA: (1) The maximum annual limitation on cost sharing 
(defined at 45 CFR 156.130(a)); (2) the required contribution 
percentage used to determine eligibility for certain exemptions under 
Code section 5000A (defined at 45 CFR 155.605(d)(2)); and (3) the 
employer shared responsibility payment amounts under Code section 
4980H(a) and (b) (see Code section 4980H(c)(5)). Section 1302(c)(4) of 
PPACA and 45 CFR 156.130(e) provide that the premium adjustment 
percentage is the percentage (if any) by which the average per capita 
premium for health insurance coverage for the preceding calendar year 
exceeds such average per capita premium for health insurance for 2013, 
and 45 CFR 156.130(e) provides that this percentage will be published 
in the annual HHS notice of benefit and payment parameters.
    To calculate the premium adjustment percentage for a benefit year, 
HHS calculates the percentage by which the average per capita premium 
for health insurance coverage for the preceding calendar year exceeds 
the average per capita premium for health insurance for 2013, and 
rounds the resulting percentage to 10 significant digits. The resulting 
premium index reflects cumulative, historic growth in premiums from 
2013 through the preceding year. HHS calculates the premium adjustment 
percentage using as a premium growth measure the most recently 
available, at the time of proposal in the annual HHS notice of benefit 
and payment parameters proposed rule, National Health Expenditure 
Accounts (NHEA) projection of per enrollee premiums for private health 
insurance, excluding Medigap and property and casualty insurance, for 
2013 and the preceding calendar year.\12\
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    \12\ 85 FR 29164, 29228 (May 14, 2020). The series used in the 
determinations of the adjustment percentages can be found in Table 
17 on the CMS website, which can be accessed by clicking the ``NHE 
Projections 2018-2027--Tables'' link located in the Downloads 
section at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. A detailed description of the 
NHE projection methodology is available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology.pdf.
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E. High Deductible Health Plans and HSA-Compatibility

    Section 223 of the Code permits eligible individuals to establish 
and contribute to HSAs. HSAs are tax-favored accounts established for 
the purpose of providing tax benefits to pay for qualified medical 
expenses on behalf of the account beneficiary, his or her spouse, and 
any dependents claimed. Among the requirements for an individual to 
qualify as an eligible individual under section 223(c)(1) of the Code 
(and thus to be eligible to make tax-favored contributions to an HSA) 
is the requirement that the individual be covered under an HDHP. An 
HDHP is a health plan that satisfies certain requirements with respect 
to minimum deductibles and maximum out-of-pocket expenses, which 
increase annually with cost-of-living adjustments. Generally, except 
for preventive care, an HDHP may not provide benefits for any year 
until the deductible for that year is met. Pursuant to section 223(g) 
of the Code, the minimum deductible for an HDHP is adjusted annually 
for cost-of-living based on changes in the CPI-U.

II. Overview of Proposed Rules

A. Introduction

    This notice of proposed rulemaking would, if finalized, amend the 
2015 final rules to provide greater flexibility for grandfathered group 
health plans and issuers of grandfathered group health insurance 
coverage to make certain changes without causing a loss of grandfather 
status. However, there is no authority for non-grandfathered plans to 
become grandfathered, and therefore these proposed rules would not 
provide any opportunity for a plan or coverage that has lost its 
grandfather status under the 2015 final rules to regain that status.
    In issuing these proposed rules, the Departments considered 
comments submitted in response to the 2019 RFI regarding ways that the 
2015 final rules should be amended. Many suggestions outlined in the 
comments are not being proposed here because, in the Departments' view, 
they would allow for such significant changes that the modified plan or 
coverage could not reasonably be described as being the same plan or 
coverage that was offered on March 23, 2010, for purposes of 
grandfather status. However, the commenters' arguments that there are 
better means of accounting for inflation in the standard for the 
maximum percentage increase that should be permitted to fixed-amount 
cost-sharing requirements were persuasive. The Departments also agree 
that, as one commenter highlighted, there is an opportunity to clarify 
that changes to fixed-amount cost-sharing requirements that are 
necessary for a plan to maintain its status as an HDHP should not cause 
a loss of grandfather status. Given that the 2015 final rules permit 
increases that are meant to account for inflation in healthcare costs 
over time, the Departments are of the view that these suggestions are 
reasonably narrow and consistent with the intent of the 2015 final 
rules to permit adjustments in response to inflation without causing a 
loss of grandfather status.
    Accordingly, these proposed rules would amend the 2015 final rules 
in two ways. First, these proposed rules include a new paragraph (g)(3) 
which would specify that grandfathered group health plans and 
grandfathered group health insurance coverage that are HDHPs may make 
changes to fixed-amount cost-sharing requirements that would otherwise 
cause a loss of grandfather status without causing a loss of 
grandfather status, but only to the extent those changes are necessary 
to comply with the requirements for HDHPs under section 223(c)(2) of 
the Code. Second, these proposed rules include a revised definition of 
``maximum percentage increase'' in redesignated paragraph (g)(4), which 
provides an alternative method of determining that amount based on the 
premium adjustment percentage. This alternative method would be 
available only for grandfathered group health plans and grandfathered 
group health insurance coverage with changes that are effective on or 
after the effective date of a final rule.
    The Departments request comments on all aspects of these proposed 
rules. In the preamble discussion that follows, the Departments also 
solicit comments on specific issues related to the proposed rules where 
stakeholder feedback would be particularly useful in evaluating whether 
and how to issue final rules.

B. Special Rule for Certain Grandfathered HDHPs

    As explained above, paragraph (g)(1) of the 2015 final rules 
identifies certain types of changes that will cause a plan or coverage 
to cease to be a grandfathered health plan, including

[[Page 42787]]

increases in cost-sharing requirements that exceed certain thresholds. 
However, cost-sharing requirements for a grandfathered group health 
plan or group health insurance coverage that is an HDHP must satisfy 
the minimum annual deductible requirement and maximum out-of-pocket 
expenses requirement under section 223(c)(2)(A) of the Code. These 
amounts are updated annually to reflect a cost-of-living adjustment and 
are published each year by the Internal Revenue Service.
    The annual cost-of-living adjustment to the required minimum 
deductible for an HDHP has not yet exceeded the maximum percentage 
increase that would cause an HDHP to lose grandfather status.\13\ 
Nevertheless, the Departments are of the view that there is value in 
providing assurance to grandfathered plans that if a grandfathered 
group health plan or group health insurance coverage that is an HDHP 
increases its fixed-amount cost-sharing requirements to meet a future 
adjusted minimum annual deductible requirement under section 
223(c)(2)(A) of the Code that is greater than the increase that would 
be permitted under paragraph (g)(1), such an increase would not cause 
the plan or coverage to relinquish its grandfather status. Otherwise, 
if such a conflict were to occur, the sponsor of the plan would have to 
decide whether to preserve the plan's grandfather status or its status 
as an HDHP. This would mean participants and beneficiaries would 
experience either substantial changes to their coverage (and likely 
premium increases) or a loss of eligibility to contribute to an HSA.
---------------------------------------------------------------------------

    \13\ For calendar year 2020, a ``high deductible health plan'' 
is defined under Code Sec.  223(c)(2)(A) as a health plan with an 
annual deductible that is not less than $1,400 for self-only 
coverage or $2,800 for family coverage, and the annual out-of-pocket 
expenses (deductibles, co-payments, and other amounts, but not 
premiums) for which do not exceed $6,900 for self-only coverage or 
$13,800 for family coverage. Rev. Proc. 2019-25. For calendar year 
2021, a ``high deductible health plan'' is defined under Code Sec.  
223(c)(2)(A) as a health plan with an annual deductible that is not 
less than $1,400 for self-only coverage or $2,800 for family 
coverage, and the annual out-of-pocket expenses (deductibles, co-
payments, and other amounts, but not premiums) for which do not 
exceed $7,000 for self-only coverage or $14,000 for family coverage. 
Rev. Proc. 2020-32.
---------------------------------------------------------------------------

    To address this potential conflict, these proposed rules include a 
new paragraph (g)(3), which provides that, with respect to a 
grandfathered group health plan or group health insurance coverage that 
is an HDHP, increases to fixed-amount cost-sharing requirements that 
otherwise would cause a loss of grandfather status would not cause the 
plan or coverage to relinquish its grandfather status, but only to the 
extent the increases are necessary to maintain its status as an HDHP 
under section 223(c)(2)(A) of the Code.\14\ Thus, increases with 
respect to such a plan or coverage that would otherwise cause a loss of 
grandfather status and that exceed the amount necessary to satisfy the 
minimum annual deductible requirement under section 223(c)(2)(A) of the 
Code would still cause a loss of grandfather status. These proposed 
rules would also add a new example 11 under paragraph (g)(5) to 
illustrate how this special rule would apply.
---------------------------------------------------------------------------

    \14\ Paragraph (g)(3) of the 2015 final rules would be 
renumbered as paragraph (g)(4), and subsequent paragraphs would be 
renumbered accordingly. Additionally, the proposed rules include 
conforming amendments to other paragraphs in the proposed rules to 
update all cross-references to those subparagraphs.
---------------------------------------------------------------------------

C. Definition of Maximum Percentage Increase

    The Departments agree with stakeholders who submitted comments on 
the 2019 RFI stating that the premium adjustment percentage (as defined 
at 45 CFR 156.130(e) and published for each year by HHS in the annual 
notice of benefit and payment parameters) may be a more appropriate 
measurement of changes in healthcare costs over time than medical 
inflation, as defined in the 2015 final rules.
    Under the 2015 final rules, medical inflation means the increase 
since March 2010 in the overall medical care component of the CPI-U 
published by the Department of Labor using the 1982-1984 base of 100. 
The medical care component of the CPI-U is a measure of the average 
change over time in the prices paid by urban consumers for medical 
care. Although the Departments continue to believe this is an 
appropriate measure for medical inflation in this context, the 
Departments recognize that the medical care component of CPI-U reflects 
not only changes in price for private insurance, but also for self-pay 
patients and Medicare, neither of which are reflected in the underlying 
costs for grandfathered group health plans and grandfathered group 
health insurance coverage. In contrast, the premium adjustment 
percentage reflects the cumulative, historic growth from 2013 through 
the preceding calendar year in premiums for only private health 
insurance, excluding Medigap and property and casualty insurance. 
Therefore, the Departments agree with comments that the premium 
adjustment percentage better reflects the increase in underlying costs 
for grandfathered group health plans and grandfathered group health 
insurance coverage. The Departments acknowledge that the premium 
adjustment percentage does not capture premium growth from 2010 to 
2013, and that it reflects increases in premiums in the individual 
market, which have increased more rapidly than premiums for group 
health plans and group health insurance. However, the Departments 
believe the premium adjustment percentage is the best existing measure 
to reflect the increase in underlying costs for grandfathered group 
health plans and grandfathered group health insurance coverage. 
Additionally, the Departments believe using a measure with which plans 
and issuers are already familiar would increase administrative 
simplicity. Nevertheless, the Departments seek comment on alternative 
measures that more accurately represent the increase in underlying 
costs for grandfathered group health plans and grandfathered group 
health insurance coverage.
    These proposed rules include an amended definition of the maximum 
percentage increase that provides an alternative standard that relies 
on the premium adjustment percentage, rather than medical inflation 
(which continues to be defined, for purposes of these rules, as the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers, unadjusted), to account for changes in healthcare 
costs over time. This alternative standard would not supplant the 
current standard; rather, it would be available to the extent it yields 
a greater result than the current standard, and it would apply only 
with respect to increases in fixed-amount cost-sharing requirements 
that are made effective on or after the effective date of the final 
rule. With respect to increases for group health plans and group health 
insurance coverage made effective on or after March 23, 2010, and 
before the effective date of the final rule, the maximum percentage 
increase would still be defined as medical inflation expressed as a 
percentage, plus 15 percentage points.\15\
---------------------------------------------------------------------------

    \15\ The amendments included in these proposed rules would apply 
only with respect to grandfathered group health plans and 
grandfathered group health insurance coverage. Because HHS 
regulations at 45 CFR 147.140 apply to both grandfathered individual 
and group health coverage, the amended definition of the maximum 
percentage increase in the HHS proposed regulations would also add a 
separate provision for individual health insurance coverage to show 
that the applicable definition remains unchanged.
---------------------------------------------------------------------------

    Thus, under these proposed rules, increases to fixed-amount cost-
sharing requirements for grandfathered group health plans and 
grandfathered group health insurance coverage that are made

[[Page 42788]]

effective on or after the effective date of the final rule, would cause 
the plan or coverage to cease to be a grandfathered health plan, if the 
total percentage increase in the cost-sharing requirement measured from 
March 23, 2010 exceeds the greater of (1) medical inflation, expressed 
as a percentage, plus 15 percentage points; or (2) the portion of the 
premium adjustment percentage, as defined in 45 CFR 156.130(e), that 
reflects the relative change between 2013 and the calendar year prior 
to the effective date of the increase (that is, the premium adjustment 
percentage minus 1), expressed as a percentage, plus 15 percentage 
points. These proposed rules would also add a new example 5 under 
paragraph (g)(5) to demonstrate how this alternative measure for 
determining the maximum percentage increase might apply in practice. 
Similar to other examples in paragraph (g)(5), the new example 5 
includes hypothetical numbers with respect to both the overall medical 
care component of the CPI-U and the premium adjustment percentage that 
do not relate to any specific time period and are used for illustrative 
purposes only. These proposed rules would also renumber examples 5-9 in 
paragraph (g)(5) to allow the inclusion of new example 5 and to revise 
examples 3-6 to clarify that these examples involve plan changes that 
become effective before the effective date of the final rule. These 
proposed revisions would ensure that the examples accurately reflect 
the other provisions of the rule.
    Stakeholders reviewing these proposed rules should look to official 
publications from the Bureau of Labor Statistics and HHS to identify 
the relevant overall medical care component of the CPI-U amount or 
premium adjustment percentage with respect to a change being considered 
by a grandfathered health plan.

III. Effective Date

    The amendments to the 2015 final rules that are included in these 
proposed rules would apply to grandfathered group health plans and 
grandfathered group health insurance coverage beginning 30 days after 
the publication of any final rules. The Departments solicit comment on 
this proposed effective date.

IV. Economic Impact Analysis and Paperwork Burden

A. Summary/Statement of Need

    Section 1251 of PPACA provides that certain group health plans and 
health insurance coverage existing on March 23, 2010, are not subject 
to certain provisions of PPACA as long as they maintain grandfather 
status. On February 25, 2019, the Departments published an RFI to 
gather information on grandfathered group health plans and 
grandfathered group health insurance coverage. Comments received from 
stakeholders in response to the 2019 RFI suggest that issuers and plan 
sponsors, as well as participants and beneficiaries, continue to value 
the option to continue grandfathered group health plan and 
grandfathered group health insurance coverage. The Departments are of 
the view that these proposed rules would be appropriate to provide 
certain grandfathered health plans greater flexibility to make changes 
to certain types of cost-sharing requirements without causing a loss of 
grandfather status. These changes would allow certain grandfathered 
group health plans and grandfathered group health insurance coverage to 
continue to be exempt from certain provisions of PPACA and allow those 
plans' participants and beneficiaries to maintain their current 
coverage.
    In drafting these proposed rules, the Departments attempted to 
balance a number of competing interests. For example, the Departments 
sought to balance providing greater flexibility to grandfathered group 
health plans and grandfathered group health insurance coverage that 
would enable these plans and coverage to continue offering quality, 
affordable coverage to participants and beneficiaries against ensuring 
that the proposed policies would not allow for such significant changes 
that the plan or coverage could not reasonably be described as being 
the same plan or coverage that was offered on March 23, 2010. 
Additionally, the Departments sought to allow grandfathered group 
health plans and grandfathered group health insurance coverage to 
better account for rising healthcare costs, including ensuring that 
grandfathered group HDHPs are able to maintain their grandfather 
status, while continuing to comply with minimum cost-sharing 
requirements for HDHPs, so that the individuals enrolled in the HDHPs 
are eligible to contribute to an HSA. In previous rulemaking, the 
Departments recognized that many group health plans and issuers make 
changes to the terms of plans or health insurance coverage on an annual 
basis: premiums fluctuate, provider networks and drug formularies 
change, employer and employee contributions and cost-sharing 
requirements change, and covered items and services may vary. Without 
some flexibility to make adjustments while retaining grandfather 
status, the ability of many individuals to maintain their current 
coverage would be frustrated, because much of the grandfathered group 
health plan coverage would quickly cease to be regarded as the same 
health plan or health insurance coverage in existence on March 23, 
2010. At the same time, allowing plans to make unfettered changes while 
retaining grandfather status would be inconsistent with Congress's 
intent in enacting PPACA.\16\
---------------------------------------------------------------------------

    \16\ 75 FR 34538, 34546 (June 17, 2010).
---------------------------------------------------------------------------

    These proposed rules, if finalized, would amend the 2015 final 
rules to provide greater flexibility for grandfathered group health 
plans and issuers of grandfathered group health insurance coverage in 
two ways. First, the proposed rules would specify that any 
grandfathered group health plan and grandfathered group health 
insurance coverage that is an HDHP may make changes to fixed-amount 
cost-sharing requirements that would otherwise cause a loss of 
grandfather status without causing a loss of grandfather status, but 
only to the extent those changes are necessary to comply with the 
requirements for HDHPs under section 223(c)(2) of the Code. Second, 
these proposed rules would include a revised definition of ``maximum 
percentage increase,'' which provides an alternative method of 
determining that amount that is based on the premium adjustment 
percentage.

B. Overall Impact

    The Departments have examined the impacts of these proposed rules 
as required by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993), Executive Order 13563 on Improving Regulation and 
Regulatory Review (January 18, 2011), the Regulatory Flexibility Act 
(RFA) (September 19, 1980, Pub. L. 96-354), section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999), the Congressional Review 
Act (5 U.S.C. 804(2)), and Executive Order 13771 on Reducing Regulation 
and Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits,

[[Page 42789]]

reducing costs, harmonizing rules, and promoting flexibility. A 
regulatory impact analysis must be prepared for rules with economically 
significant effects ($100 million or more in any one year).
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule (1) 
having an annual effect on the economy of $100 million or more in any 
one year, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. A 
regulatory impact analysis must be prepared for major rules with 
economically significant effects ($100 million or more in any one 
year), and a ``significant'' regulatory action is subject to Office of 
Management and Budget (OMB) review. As discussed below regarding their 
anticipated effects, these proposals are not likely to have economic 
impacts of $100 million or more in any one year, and therefore do not 
meet the definition of ``economically significant'' under Executive 
Order 12866. OMB has determined, however, that the actions are 
significant within the meaning of section 3(f)(4) of the Executive 
Order. Therefore, OMB has reviewed these proposed rules and the 
Departments have provided the following assessment of their impact.

C. Impact Estimates of Grandfathered Group Health Plans and 
Grandfathered Group Health Insurance Coverage Provisions and Accounting 
Table

    These proposed rules, if finalized, would amend the 2015 final 
rules to provide greater flexibility for grandfathered group health 
plan sponsors and issuers of grandfathered group health insurance 
coverage to make certain changes to cost-sharing requirements without 
causing a loss of grandfather status. The proposed rules would specify 
that issuers or sponsors of any grandfathered group health plan and 
grandfathered group health insurance coverage that is an HDHP may make 
changes to fixed-amount cost-sharing requirements that would otherwise 
cause a loss of grandfather status without causing a loss of 
grandfather status, but only to the extent those changes are necessary 
to comply with the requirements for HDHPs under section 223(c)(2) of 
the Code. The proposed rules would also revise the definition of 
``maximum percentage increase'' to provide an alternative method of 
determining that amount that is based on the premium adjustment 
percentage. In accordance with OMB Circular A-4, Table 1 depicts an 
accounting statement summarizing the Departments' assessment of the 
benefits, costs, and transfers associated with this regulatory action.
    The Departments are unable to quantify all benefits, costs, and 
transfers of these proposed rules. The effects in Table 1 reflect non-
quantified impacts and estimated direct monetary costs and transfers 
resulting from the provisions of these proposed rules for plans, 
issuers, participants, and beneficiaries.

                        Table 1--Accounting Table
------------------------------------------------------------------------
                                Benefits
-------------------------------------------------------------------------
Non-Quantified:
     Allows sponsors of grandfathered group health plans and
     grandfathered group health insurance coverage more flexibility to
     make changes to certain fixed-amount cost-sharing requirements
     without losing grandfather status.
     Allows participants and beneficiaries in grandfathered
     group health plans and grandfathered group health insurance
     coverage to maintain coverage they are familiar with and
     potentially provides continuity of care by not requiring them to
     change their health plan to one that may not include their current
     provider(s).
     Ensures plan sponsors are able to comply with minimum cost-
     sharing requirements for HDHPs and allows participants and
     beneficiaries to maintain their coverage and eligibility to
     contribute to an HSA.
     Decreases the likelihood that plan sponsors would cease
     offering health benefits due to a lack of flexibility to make
     changes to certain fixed cost-sharing amounts without losing
     grandfather status.
------------------------------------------------------------------------


 
                                       Primary estimate                       Discount rate
               Costs:                     (million)         Year dollar         (percent)        Period covered
----------------------------------------------------------------------------------------------------------------
                                                  $7.95               2020                  7          2021-2025
                                     ---------------------------------------------------------------------------
Annualized Monetized ($/year).......       7.40 million               2020                  3          2021-2025
----------------------------------------------------------------------------------------------------------------


 
 
-------------------------------------------------------------------------
Quantitative:
     Regulatory review costs of $34.9 million, incurred in 2020
     only, by grandfathered group health plan coverage sponsors and
     issuers.
Non-Quantified:
     Potential increase in adverse health outcomes if a
     participant or beneficiary would forego treatment because the
     necessary services became unaffordable due to an increase in cost
     sharing.
     Potential increase in adverse health outcomes if there is
     an increase in the uninsured rate if participants and beneficiaries
     choose to cancel their coverage because of the increases in cost-
     sharing requirements associated with grandfathered group health
     plans and grandfathered group health insurance coverage.
     If an employer would have otherwise switched to a non-
     grandfathered plan, potential increase in adverse health outcomes
     if a participant or beneficiary foregoes treatment for medical
     conditions that are not covered by their grandfathered group health
     plan and grandfathered group health insurance coverage but that
     would have been covered by non-grandfathered health plan coverage
     subject to PPACA.
------------------------------------------------------------------------

[[Page 42790]]

 
                                Transfers
------------------------------------------------------------------------
Non-Quantified:
 In grandfathered group health plans and grandfathered group
 health insurance coverage that utilize the expanded flexibilities to
 increase fixed-amount cost-sharing requirements, potential transfers
 occur from participants and beneficiaries with resulting higher out-of-
 pocket costs to participants and beneficiaries with no or low out-of-
 pocket costs and nonparticipants through potentially lower premiums and
 correspondingly smaller wage adjustments to pay for the premiums.
     If an employer would have otherwise switched to a non-
     grandfathered plan with expanded benefits, potential transfers
     occur from participants and beneficiaries who would have benefited
     from these expanded benefits to others in the plan who would not
     have benefited from these expanded benefits through lower premiums
     and correspondingly smaller wage adjustments.
------------------------------------------------------------------------

    Table 1 provides the anticipated benefits, costs, and transfers 
(quantitative and non-quantified) to sponsors and issuers of 
grandfathered health plan coverage, participants and beneficiaries 
enrolled in grandfathered plans, as well as nonparticipants. The 
following section describes the benefits, costs, and transfers to 
grandfathered group health plan sponsors, issuers of grandfathered 
group health insurance coverage, and those individuals enrolled in such 
plans.
    These proposed rules propose a new paragraph (g)(3) which would 
specify that grandfathered group health plans and grandfathered group 
health insurance coverage that are HDHPs may increase fixed-amount 
cost-sharing requirements that otherwise would cause a loss of 
grandfather status, without causing the plan or coverage to relinquish 
its grandfather status, but only to the extent the increases are 
necessary to comply with the requirements for HDHPs under section 
223(c)(2) of the Code. Additionally, the proposed rules propose a 
revised definition of ``maximum percentage increase'' in redesignated 
paragraph (g)(4) to provide an alternative method of determining that 
amount that is based on the premium adjustment percentage.
Economic Impacts of Retaining or Relinquishing Grandfather Status and 
Affected Entities and Individuals
    The Departments estimate that there are 2.4 million ERISA-covered 
plans offered by private employers that cover an estimated 134.7 
million participants and beneficiaries in those private employer-
sponsored plans.\17\ Similarly, the Departments estimate that there are 
83,500 state and local governments that offer health coverage to their 
employees, with an estimated 42.8 million participants and 
beneficiaries in those employer-sponsored plans.\18\
---------------------------------------------------------------------------

    \17\ The Department of Labor estimates based on the 2018 Medical 
Expenditure Panel Survey Insurance Component (MEPS-IC), available at 
https://meps.ahrq.gov/data_stats/summ_tables/insr/national/series_1/2018/ic18_ia_g.pdf; Health Insurance Coverage Bulletin: Abstract of 
Auxiliary Data for the March 2016 Annual Social and Economic 
Supplement to the Current Population Survey, Table 3C, available at 
https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf.
    \18\ 2017 Census of Governments, Government Organization Report, 
available at https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html; 2017 MEPS-IC State and Local Government data, 
available for query at https://meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC/startup; Health Insurance Coverage Bulletin: Abstract of 
Auxiliary Data for the March 2016 Annual Social and Economic 
Supplement to the Current Population Survey, Table 3C, available at 
https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf.
---------------------------------------------------------------------------

    The 2019 Employer Health Benefits Survey reports that 22 percent of 
firms offering health benefits have at least one health plan or benefit 
package option that is a grandfathered plan, and 13 percent of covered 
workers are enrolled in grandfathered plans.\19\ Using the above 
information, the Departments estimate that, of those firms offering 
health benefits, 527,000 sponsor ERISA-covered plans (2.4 million * 
0.22) that are grandfathered (or include a grandfathered benefit 
package option) and cover 17.5 million participants and beneficiaries 
(134.7 million * 0.13). The Departments further estimate there are 
18,400 state and local governments (83,500 * 0.22) offering at least 
one grandfathered health plan and 5.6 million participants and 
beneficiaries (42.8 million * 0.13) covered by a grandfathered state or 
local government plan.
---------------------------------------------------------------------------

    \19\ The Departments note that comments received in response to 
the 2019 RFI and summarized earlier in this preamble described data 
obtained from Kaiser Family Foundation 2018 Employer Health Benefits 
Survey. See supra note 9. For the purposes of this regulatory impact 
analysis, the Departments used more recent data from the same 
survey. See Kaiser Family Foundation, ``2019 Employer Health 
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/.
---------------------------------------------------------------------------

    Although the 2019 Employer Health Benefits Survey reports that 26 
percent of firms offering health benefits offered an HDHP and 23 
percent of covered workers were enrolled in HDHPs, the Departments 
believe the 2010 Employer Health Benefits Survey provides a better 
estimate of the prevalence of HDHPs in the grandfathered group market 
as it provides an estimate for the number of potential HDHPs that would 
have been able to obtain and maintain grandfather status. The 2010 
Employer Health Benefits Survey reports that 12 percent of firms 
offering health benefits offered an HDHP, and 6 percent of covered 
workers were enrolled in HDHPs.\20\
---------------------------------------------------------------------------

    \20\ Kaiser Family Foundation, ``2010 Employer Health Benefits 
Survey.'' Available at: https://www.kff.org/wp-content/uploads/2013/04/8085.pdf.
---------------------------------------------------------------------------

Benefits
    The Departments believe that the economic effects of these proposed 
rules would ultimately depend on any decisions made by grandfathered 
plan sponsors (including sponsors of grandfathered HDHPs) and the 
preferences of plan participants and beneficiaries. To determine the 
value of retaining a health plan's grandfather status, each group plan 
sponsor must determine whether the plan, under the rules applicable to 
grandfathered health plan coverage, would continue to be more or less 
favorable than the plan, under the rules applicable to non-
grandfathered group health plans. This determination would depend on 
such factors as the respective prices of grandfathered and non-
grandfathered health plans, the willingness of grandfathered group 
health plans' covered populations to pay for benefits and protections 
available under non-grandfathered health plans, and their willingness 
to accept any increases in out-of-pocket costs due to changes to 
certain types of cost-sharing requirements. The Departments are of the 
view that providing the proposed flexibilities to make changes to 
certain types of cost-sharing requirements in grandfathered group 
health plans and grandfathered group health insurance coverage without 
causing a loss of grandfather status would enable plan sponsors and 
issuers to continue to offer quality, affordable coverage to their 
participants and beneficiaries while taking into account rising health 
care costs.
    The Departments anticipate that the premium adjustment percentage 
index will continue to experience faster growth than medical CPI-U, and 
therefore believe that providing the proposed alternative method of 
determining the ``maximum percentage

[[Page 42791]]

increase'' would, over time, give grandfathered group health plans and 
grandfathered group health insurance coverage the flexibility to make 
changes to the plans' fixed-amount cost-sharing requirements (such as 
copayments, deductibles, and out-of-pocket limits) that would have 
previously resulted in the loss of grandfather status. Thus, the 
Departments believe that these proposed rules would allow sponsors of 
those grandfathered health plans to continue to provide the coverage 
with which their participants and beneficiaries are familiar and 
comfortable, without the unnecessary burden of finding other coverage.
    As noted previously in the preamble, some commenters suggested that 
their grandfathered plans offer more robust provider networks than 
other coverage options available to them or that they want to ensure 
that participants and beneficiaries are able to keep receiving care 
from current in-network providers. The Departments agree that providing 
the proposed flexibilities could help participants and beneficiaries 
maintain their current provider and service networks. If providers 
continue participating in the grandfathered plans' networks, this 
continuity offers participants and beneficiaries the ability to 
continue current and future care through those providers with whom they 
have built relationships.
    As discussed previously in the preamble, one commenter on the 2019 
RFI articulated a concern that the 2015 final rules may eventually 
preclude some sponsors and issuers of grandfathered group health plans 
and grandfathered group health insurance coverage from being able to 
make changes to fixed-amount cost-sharing requirements necessary to 
maintain a plan's HDHP status. For participants and beneficiaries, this 
would mean they could experience either substantial changes to their 
coverage (and likely premium increases) or a loss of eligibility to 
contribute to an HSA. The Departments expect that, under the 2015 final 
rules, there may be limited circumstances in which grandfathered group 
health plans and grandfathered group health insurance coverage that is 
an HDHP (grandfathered HDHP) is unable to simultaneously maintain its 
grandfather status and satisfy the requirements for HDHPs under section 
223(c)(2) of the Code. To reduce the likelihood of this potential 
scenario, these proposed rules would allow a grandfathered HDHP to make 
changes to fixed-amount cost-sharing requirements that otherwise could 
cause a loss of grandfather status without causing a loss of 
grandfather status, but only to the extent the increases are necessary 
to comply with the requirements for HDHPs under section 223(c)(2) of 
the Code.
    The Departments are of the view that providing this flexibility to 
grandfathered HDHPs will allow them to preserve their grandfather 
status even if they increase their cost-sharing requirements to meet a 
future adjusted minimum annual deductible requirement under section 
223(c)(2)(A) of the Code beyond the increase that would be permitted 
under paragraph (g)(1) of the 2015 final rules. Under section 223(g) of 
the Code, the required minimum deductible for an HDHP is adjusted for 
cost-of-living based on changes in the overall economy. Historically, 
the allowed increases under the 2015 final rules, which are based on 
changes in medical care costs (medical CPI-U), have exceeded increases 
based on changes in the overall economy (CPI-U), which are used to 
adjust the HDHP minimum deductible. Using ten years of projections from 
the President's FY 2021 Budget, medical-CPI-U is expected to grow 
faster than CPI-U. Further, because the allowed increases under the 
2015 final rules are based on the cumulative effect over a period of 
years, it is unlikely that using medical CPI-U to index deductibles 
would result in lower deductibles than using CPI-U as required under 
section 223(g) of the Code. Therefore, the Departments note that, to 
the extent these trends continue, it is unlikely that an increase 
required under section 223 of the Code for a plan to remain an HDHP 
would exceed the allowed increases under the 2015 final rules. 
Furthermore, to the extent that the revised definition of ``maximum 
percentage increase'' in these proposed rules would allow the 
deductible to grow as fast, or faster, than under the 2015 final rules, 
grandfathered HDHPs may not need to avail themselves of the additional 
flexibility provided in these proposed rules. Nevertheless, the 
Departments are of the view that affording this flexibility would make 
the rules more transparent to sponsors of grandfathered HDHPs. Thus, 
the proposed regulations would allow participants and beneficiaries 
enrolled in those plans to maintain their current coverage, continue 
contributing to any existing HSA, and potentially realize any reduction 
in premiums that may result from changes in cost-sharing requirements.
Costs and Transfers
    The Departments recognize there may be costs associated with these 
proposed rules that are difficult to quantify given the lack of 
information and data. For example, the Departments do not have data 
related to the current annual out-of-pocket costs for participants and 
beneficiaries in grandfathered group HDHPs or other grandfathered group 
health plans and grandfathered group health insurance coverage. The 
Departments recognize that as medical care costs increase, some 
participants and beneficiaries in grandfathered health plans could face 
higher out-of-pocket costs for services that may be excluded by such 
plans, but that would be required or covered by non-grandfathered group 
health plans and group health insurance coverage subject to PPACA. It 
is possible these increased costs could be (partially) offset by lower 
premiums from participation in the grandfathered plans. Further, 
participants and beneficiaries who would otherwise be covered by a non-
grandfathered plan could potentially face increases in adverse health 
outcomes if they chose to forego treatment because certain services are 
not covered by their grandfathered group plan or grandfathered group 
health insurance coverage. The Departments cannot accurately predict 
the number of grandfathered health plans and group health insurance 
coverage that would retain their grandfather status should they choose 
to avail themselves of the flexibilities provided in these proposed 
rules. The 2019 Employer Health Benefits Survey reports no significant 
change from 2018 in the number of firms offering at least one 
grandfathered health plan or the number of covered individuals.\21\ A 
large change would have indicated that the current rules were too 
restrictive and that a relaxation of those rules would have a big 
effect. The actual small change suggests the opposite. Therefore, the 
Departments do not expect a significant impact on the number of 
grandfathered plans or group health insurance coverage as a result of 
these proposed rules.
---------------------------------------------------------------------------

    \21\ Kaiser Family Foundation, ``2019 Employer Health Benefits 
Survey,'' available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/.
---------------------------------------------------------------------------

    For those plans that would continue to maintain their grandfather 
status as a result of the flexibilities in these proposed rules, the 
participants and beneficiaries would continue to have coverage and may 
experience lower premiums when compared to non-grandfathered group 
health plans. Although some participants and beneficiaries would pay 
higher cost-sharing amounts, these increased costs may be partially 
offset by reduced

[[Page 42792]]

employee premiums, and indirectly through wage adjustments that reflect 
reduced employer contributions due to the lower premiums. In contrast, 
individuals who have low or no medical expenses, along with 
nonparticipants, would be unlikely to experience increased cost-sharing 
amounts and may benefit from lower employee premiums, and indirectly 
through wage adjustments.
    The Departments recognize there would be transfers associated with 
these proposed rules that are difficult to quantify given the lack of 
information and data. The Departments realize that if plan sponsors 
avail themselves of the flexibilities in these proposed rules, some 
participants and beneficiaries of grandfathered group health plans and 
grandfathered group health insurance coverage could potentially see 
increases in out-of-pocket costs depending on the changes made to their 
plans. Additionally, participants and beneficiaries in a grandfathered 
HDHP could face increases in the plan's deductible if plans increase 
their fixed-amount cost-sharing requirements to meet a future adjusted 
minimum annual deductible requirement beyond the increase that would be 
permitted under paragraph (g)(1). Changes in costs associated with 
increased deductibles or other cost sharing would be a transfer from 
participants and beneficiaries with high out-of-pocket costs to 
participants and beneficiaries with low or no out-of-pocket costs and 
to nonparticipants, as the related premium reductions could affect 
wages.
    Due to the overall lack of information and data related to what 
plan sponsors would choose to do, the Departments are unable to 
accurately determine the overall economic impact, but the Departments 
anticipate that the overall impact would be minimal. However, there is 
a large degree of uncertainty regarding the effect of the proposed 
rules on any potential changes to cost sharing at the plan level so 
actual experience could differ.
Revenue Impact of Proposed Rules
    This section of the preamble discusses the revenue impact of the 
proposed rules, considers a variety of approaches that employers 
offering grandfathered health plan coverage might take in the future if 
the 2015 final rules are not amended, and compares the revenue impact 
of each approach under the 2015 final rules with the revenue impact 
under the proposed rules.
a. Employees Who Would Have Remained in Grandfathered Plans and 
Coverage Without the Proposed Rules
    If the 2015 final rules are not amended, some employers might 
choose to continue to maintain their grandfathered health plan 
coverage. This subsection discusses the revenue impact that the 
proposed rules may have on this group of employers and employees.
    Under the proposed rules, grandfathered group health plans and 
grandfathered group health insurance coverage would be allowed to 
increase fixed-amount cost-sharing requirements (such as copayments, 
deductibles, and out-of-pocket limits) at a somewhat higher rate than 
under the 2015 final rules, which may result in a premium reduction (or 
similar cost reduction for a self-insured plan). Specifically, for 
increases in fixed-amount cost sharing on or after the effective date 
of these rules, if finalized, grandfathered group health plans and 
grandfathered group health insurance coverage could use an alternative 
standard for determining the maximum percentage increase that relies on 
the premium adjustment percentage, rather than medical inflation, to 
the extent that it yields a greater result than the current standard 
under the 2015 final rules.
    The premium adjustment percentage is estimated to be about three 
percentage points higher than medical inflation in 2026, using FY2021 
President's Budget projections of medical CPI and National Health 
Expenditures premium projections. Therefore, as of that year, fixed-
amount copayments, deductibles, and out-of-pocket limits could be three 
percentage points higher under the proposed rules than under the 2015 
final rules. However, a plan that increases fixed-amount cost sharing 
to the maximum amount allowed under the proposed rules is likely to 
realize only a small reduction in premiums. This is because plans incur 
most of their costs for a relatively small fraction of participants--
that is, from high-cost individuals. Because high-cost individuals 
generally exceed the out-of-pocket limit for the year, they are only 
modestly affected by higher out-of-pocket limits. Low-cost individuals 
are more likely to be affected by an increase in fixed-amount cost 
sharing, but they incur a small portion of the overall costs. 
Therefore, the impact of the proposed rules for a particular plan will 
depend on the parameters of covered benefits under the plan, as well as 
the distribution of expenditures for the plan participants. In 
addition, increased cost sharing could result in participants and 
beneficiaries making fewer visits to providers (that is, lower 
utilization), which could result in lower medical costs for some 
individuals, but higher costs for others who delay important visits. If 
individuals generally would forgo relatively unimportant visits, but 
continue to go to providers when crucial, premiums could decline even 
more, but this outcome is uncertain.
    Because of the Federal tax exclusion for employer-sponsored 
coverage, a premium reduction would increase tax revenues due to 
reduced employer contributions and employee pre-tax contributions made 
through a cafeteria plan. However, some employees might partially 
offset their increases in out-of-pocket payments through increased pre-
tax contributions to health flexible spending arrangements (FSAs) or 
HSAs. Those increases in pre-tax contributions to health FSAs and HSAs 
would reduce tax revenues. Therefore, the potential increase in tax 
revenues from premium reductions is affected by whether employees 
increase their contributions to health FSAs and HSAs. To the extent 
that employers would have continued to offer a grandfathered plan 
without changes to the 2015 final rules, under the proposed rules, tax 
revenues would be expected to increase slightly on net as a result of 
premium reductions. Further, there would be additional revenue gains to 
the extent that higher out-of-pocket payments discourage employees from 
continuing participation in the employer's plan.
b. Employees Who Would No Longer Have Been Covered by Grandfathered 
Plans or Coverage Without the Proposed Rules
    If the 2015 final rules are not amended, some employers might 
choose to change their insured grandfathered plans to self-insured, 
non-grandfathered plans, rather than continue to comply with the 2015 
final rules, which would result in little, if any, revenue change. 
Thus, with respect to these employers, the adoption of the proposed 
rules would have little, if any, revenue effect.
    Alternatively, assuming the 2015 final rules are not amended, an 
employer might switch to a fully insured non-grandfathered non-HDHP 
plan. With respect to small employers, employees who would transfer to 
the non-grandfathered plan could improve the risk pool or make it 
worse. An employer with a healthy population might be more likely to 
self-insure, whereas a small employer with a less healthy population 
might be more likely to join an insurance pool.
    Although the type of benefits covered in the new, non-grandfathered 
plans

[[Page 42793]]

(whether self-insured or fully insured) would likely be broader in some 
ways, such as for preventive care, the share of costs covered by the 
plan would likely decrease due to higher cost sharing. Presumably, if 
the 2015 final rules are not amended, an employer would not make the 
switch from a grandfathered plan to a non-grandfathered plan unless the 
overall cost of providing benefits would decrease, which would cause 
some revenue gain. (Again, though, the revenue gain could be partially 
offset by increases in the employees' pre-tax contributions to health 
FSAs or HSAs.) On the other hand, if the proposed rules enabled an 
employer that otherwise might switch to a non-grandfathered plan to 
retain its grandfathered plan, this revenue gain would not occur, 
resulting in a revenue loss compared to the status quo under the 2015 
final rules. As a further variation, if the employer retained its 
grandfathered plan under the proposed rules, rather than switching to 
an HDHP, the revenue loss would be smaller than if the employer had 
switched to a non-HDHP. Indeed, this could even result in a revenue 
gain depending on the magnitude of tax-preferred contributions that the 
employees would have made to HSAs.
    Without the change to the 2015 final rules, some employers might 
replace their grandfathered plan with an individual coverage health 
reimbursement arrangement (individual coverage HRA). If the employer 
contributed a similar dollar amount to the individual coverage HRA as 
it currently does to the grandfathered plan, the employees' tax 
exclusion would be at least roughly the same as for the grandfathered 
plan. Moreover, the employees offered the individual coverage HRA would 
be as likely to be ``firewalled'' from obtaining a premium tax credit 
as if they had continued to participate in the grandfathered plan. 
Thus, under this scenario, there would be very little revenue effect 
from the proposed rules.
c. Termination of Employer-Sponsored Coverage
    If the 2015 final rules are not amended, some employers might drop 
health coverage altogether and opt instead to make an employer shared 
responsibility payment, if required under section 4980H of the Code, 
which may result in an increase in federal revenue. In this case, all 
affected employees would qualify for a special enrollment period to 
enroll in other group coverage, if available, or individual health 
insurance coverage on or off the Exchange. Those employees with 
household incomes between 100-400 percent of the federal poverty level 
may qualify for financial assistance to help pay for their Exchange 
coverage and related healthcare expenses, which would increase federal 
outlays, as discussed further below. Others may have household incomes 
too high to be eligible for a premium tax credit or might receive a 
smaller tax subsidy through the income-related premium tax credit than 
through an employer-sponsored health insurance tax exclusion. 
Accordingly, if these employers continued their grandfathered plan 
under the proposed rules, there may be an associated revenue loss. 
Other employees could purchase individual health insurance coverage, 
but receive a premium tax credit that is greater than the value of the 
tax exclusion for their current employer plans. For this population, 
the proposed rules may result in a revenue gain. However, this is 
likely a small population for an employer that is currently offering a 
grandfathered plan.
    Despite the availability of a special enrollment period, some 
affected employees might forgo enrolling in alternative health coverage 
and become uninsured or might opt instead to purchase short-term, 
limited-duration insurance. In this case, these employees would no 
longer receive a tax exclusion for the grandfathered plan, which along 
with an employer shared responsibility payment, if any, may result in 
an increase in federal revenue. However, if these employees were to 
remain covered under a grandfathered plan as a result of this proposed 
rule, there may be a loss in federal revenue for this group.
    Overall, there are a number of potential revenue effects of the 
proposed rules, some of which could offset each other. Additionally, 
there is a large degree of uncertainty, including uncertainty with 
regard to how many plans would continue as grandfathered plans if the 
2015 final rules are not amended, what alternatives would be chosen by 
the employers who do not keep grandfathered plans, and how many plans 
would make plan design changes as a result of the proposed rules. As a 
result, it is unclear whether these effects in the aggregate would 
result in a revenue gain or revenue loss. Because the employer market 
is so large, even a small percentage change to aggregate premiums can 
result in large revenue changes. Nevertheless, the Departments are of 
the view that overall net effects are likely to be relatively small. 
The Departments seek comments on the impact estimates in this analysis.
Regulatory Review Costs
    Affected entities will need to understand the requirements of these 
proposed rules, if finalized, before they can avail themselves of any 
of the proposed flexibilities. Sponsors and issuers of grandfathered 
group health plan coverage would be responsible for ensuring compliance 
with these proposed rules should they seek to make changes to their 
plans' cost-sharing requirements. The Departments estimate the burden 
for the regulatory review to be incurred by the 546,234 grandfathered 
plan sponsors and issuers of grandfathered group health insurance 
coverage.
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret these proposed rules, if 
finalized, the Departments should estimate the cost associated with 
regulatory review. Due to the uncertainty involved with accurately 
quantifying the number of entities that will review and interpret these 
proposed rules, the Departments assume that the total number of 
grandfathered group health plan coverage sponsors and issuers that 
would be able to avail themselves and comply with these proposed rules 
would be a fair estimate of the number of entities affected.
    The Departments acknowledge that this assumption may understate or 
overstate the costs of reviewing these proposed rules. It is possible 
that not all affected entities will review these rules, if finalized, 
in detail, and that others may seek the assistance of outside counsel 
to read and interpret the rules. For example, firms providing or 
sponsoring a grandfathered plan may not read the rules, if finalized, 
but might rely upon the issuer or a third-party administrator (TPA), if 
self-funded, to read and interpret the rules. For these reasons, the 
Departments are of the view that the number of grandfathered group 
health plan coverage sponsors and issuers would be a fair estimate of 
the number of reviewers of these proposed rules. The Departments 
welcome any comments on the approach in estimating the number of 
affected entities that will review and interpret these proposed rules, 
if finalized.
    Using the wage information from the Bureau of Labor and Statistics 
(BLS) for a Compensation and Benefits Manager (Code 11-3141), the 
Departments estimate that the cost of reviewing this rule is $127.74 
per hour, including overhead and fringe benefits.\22\

[[Page 42794]]

Assuming an average reading speed, the Departments estimate that it 
would take approximately 0.5 hour for the staff to review and interpret 
these proposed rules, if finalized; therefore, the Departments estimate 
that the cost of reviewing and interpreting these proposed rules, if 
finalized, for each grandfathered group health plan coverage sponsor 
and issuer is approximately $63.87. Thus, the Departments estimate that 
the overall cost for the estimated 546,234 grandfathered group health 
plan coverage sponsors and issuers would be $34,887,965.58 ($63.87 
*546,234 total number of estimated grandfathered plan sponsors and 
issuers).\23\
---------------------------------------------------------------------------

    \22\ Wage information is available at https://www.bls.gov/oes/current/oes_nat.htm. Hourly wage rate is determining by multiplying 
the mean hourly wage by 100 percent to account for overhead and 
fringe benefits. The mean hourly wage for a Compensation and Benefit 
Manager (Code 11-3141) is $63.38, when multiplied by 100 percent 
results in a total adjusted hourly wage of $127.74.
    \23\ Total number of grandfathered plan sponsors and issuers of 
grandfathered group health insurance coverage, discussed earlier in 
the preamble, was derived from the total number of ERISA covered 
plan sponsors multiplied by the percentage of entities offering 
grandfathered health plans (2.4 million * 0.22 = 527,000), the 
number of state and local governments multiplied by the percentage 
of entities offering grandfathered health plans (83,500 * 0.22 = 
18,400), and the 834 issuers offering at least one grandfathered 
health plan (527,000 + 18,400 + 843 = 546,234).
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D. Regulatory Alternatives Considered

    In developing the policies contained in these proposed rules, the 
Departments considered alternatives to the presented proposals. In the 
following paragraphs, the Departments discuss the key regulatory 
alternatives considered.
    The Departments considered whether to modify each of the six types 
of changes, measured from March 23, 2010, that cause a group health 
plan or health insurance coverage to cease to be grandfathered. To 
provide more flexibility regarding changes to fixed cost-sharing 
requirements, the Departments considered revising the definition of 
maximum percentage increase to increase the allowed percentage points 
that are added to medical inflation. However, the Departments are of 
the view that the proposed policy allows for the desired flexibility, 
while better reflecting underlying costs for grandfathered group health 
plans and group health insurance coverage. The Departments acknowledge 
that the premium adjustment percentage, which the Departments propose 
to incorporate into the definition of ``maximum percentage increase,'' 
reflects the changes in premiums in both the individual and group 
market, and that individual market premiums have increased faster than 
premiums in the group market. Due to the comparative sizes of the 
individual and group markets, however, the historically faster growth 
in the individual market has had a minimal impact on the premium 
adjustment percentage index. Therefore, the Departments believe that 
the premium adjustment percentage is an appropriate measure to 
incorporate into the definition of ``maximum percentage increase.''
    Another option the Departments considered was allowing a decrease 
in contribution rates by an employer or employee organization without 
triggering a loss of grandfather status. Under the 2015 final rules, an 
employer or employee organization cannot decrease contribution rates 
based on cost of coverage toward the cost of any tier of coverage for 
any class of similarly situated individuals by more than five 
percentage points below the contribution rate for the coverage period 
that included March 23, 2010 without losing grandfather status. The 
Departments considered permitting group health plans and health 
insurance coverage with grandfather status to decrease the contribution 
rates by more than five percentage points. This would increase employer 
flexibility, but the Departments were concerned that a decrease in the 
contribution rate could change the plan or coverage to such an extent 
that the plan or coverage could not reasonably be described as being 
the same plan or coverage that was offered on March 23, 2010. As a 
result, this option was not included in the proposed rules.
    Another option the Departments considered was allowing a change to 
annual dollar limits for a group health plan or health insurance 
coverage without triggering a loss of grandfather status. Under the 
2015 final rules, a group health plan or group health insurance 
coverage that did not have an annual dollar limit on March 23, 2010, 
may not establish an annual dollar limit for any individual, whether 
provided in-network or out-of-network, without relinquishing 
grandfather status. If the plan or coverage had an annual dollar limit 
on March 23, 2010, it may not decrease the limit. Although for plan 
years beginning on or after January 1, 2014, group health plans and 
health insurance issuers generally may no longer impose annual or 
lifetime dollar limits on essential health benefits, permitting changes 
to annual dollar limits on benefits that are not essential health 
benefits may still represent a significant change to participants and 
beneficiaries who need the benefits on which a limit is applied. 
Therefore, this option was not included in the proposed rules.
    The Departments considered options to offset cost-sharing 
requirement changes by allowing sponsors of group health plans and 
issuers of group health insurance coverage to increase different types 
of cost-sharing requirements as long as any increase is offset by 
lowering another cost-sharing requirement to preserve the plan's 
actuarial value. As discussed in previous rulemaking, however, an 
actuarial equivalency standard would allow a plan or coverage to make 
fundamental changes to the benefit design, potentially conflicting with 
the goal of allowing participants and beneficiaries to retain health 
plans they like, and still retain grandfather status.\24\ There would 
also be significant complexity involved in defining and determining 
actuarial value for these purposes, as well as significant burdens 
associated with administering and ensuring compliance with such rules. 
Therefore, the Departments did not include this option in the proposed 
rules.
---------------------------------------------------------------------------

    \24\ 75 FR 34538, 34547 (June 17, 2010).
---------------------------------------------------------------------------

    The Departments considered changing the date of measurement for 
calculating whether changes to group health plans or health insurance 
coverage will cause a loss of grandfather status. For example, instead 
of looking at the cumulative change from March 23, 2010, the rules 
could measure the annual increases, starting from the effective date of 
the proposed rules, if finalized. However, the Departments concluded 
that this option could limit flexibility for some employers. For 
example, some employers might want to keep the terms of the plan the 
same for a few years and then make a more significant change later.
    The Departments also considered making changes to the 2015 final 
rules to encourage more cost-effective care. One option the Departments 
considered to encourage cost-effective care was allowing greater cost 
sharing for brand name drugs if a generic becomes available. However, 
the Departments decided not to make this change because allowing 
greater cost-sharing for brand name drugs when a generic becomes 
available does not result in loss of grandfather status under the 2015 
final rules.\25\ Another option the Departments considered was allowing 
unlimited changes to cost sharing for out-of-network benefits. However, 
the Departments are concerned that unlimited discretion to change cost-

[[Page 42795]]

sharing requirements for out-of-network benefits could result in 
changes to plans of such a magnitude that they no longer resemble the 
plan as it existed as of March 23, 2010. Additionally, the Departments 
decided that the proposal to change the applicable index for medical 
inflation provides sufficient flexibility for fixed cost-sharing 
requirements. This option would give flexibility to grandfathered plans 
with respect to all fixed-amount cost-sharing requirements, including 
for out-of-network benefits.
---------------------------------------------------------------------------

    \25\ 80 FR 72192, 72197, 72198 (Nov. 18, 2015).
---------------------------------------------------------------------------

E. Collection of Information Requirements

    These proposed rules do not impose new information collection 
requirements; that is, reporting, recordkeeping, or third-party 
disclosure requirements. Consequently, there is no need for OMB review 
under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.). Though the proposed rules do not contain any new 
information collection requirements, the Departments are continuing the 
current requirements that grandfathered plans maintain records 
documenting the terms of the plan in effect on March 23, 2010, include 
a statement in any summary of benefits that the plan or coverage 
believes it is grandfathered health plan coverage and provide contact 
information for participants to direct questions and complaints. 
Additionally, the Departments are continuing the requirement that a 
grandfathered group health plan that is changing health insurance 
issuers is required to provide the succeeding health insurance issuer 
documentation of plan terms under the prior health insurance coverage 
sufficient to make a determination whether the standards of paragraph 
26 CFR 54.9815-1251(g)(1), 29 CFR 2590.715-1251(g)(1) and 45 CFR 
147.140(g)(1) are exceeded and that insured group health plans (or 
multiemployer plans) that are grandfathered plans are required to 
notify the issuer (or multiemployer plan) if the contribution rate 
changes at any point during the plan year. The Departments do not 
anticipate that the proposed provisions would make a substantive or 
material modification to the collections currently approved under the 
collection of information OMB control number 0938-1093 (CMS-10325), OMB 
control number 1210-0140 (DOL), and OMB control number 1545-2178 
(Department of the Treasury).

F. Regulatory Flexibility Act

    The Regulatory Flexibility Act, (5 U.S.C. 601, et seq.), requires 
agencies to prepare an initial regulatory flexibility analysis to 
describe the impact of proposed rules on small entities, unless the 
head of the agency can certify that the rules would not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity.'' HHS uses a change in revenues of more than three to 
five percent as its measure of significant economic impact on a 
substantial number of small entities.
    These proposed rules would amend the 2015 final rules to allow 
greater flexibility for grandfathered group health plans and issuers of 
grandfathered group health insurance coverage. Specifically, the 
proposed rules would specify that grandfathered group health plans that 
are HDHPs may make changes to fixed-amount cost-sharing requirements 
that would otherwise cause a loss of grandfather status without causing 
a loss of grandfather status, but only to the extent those changes are 
necessary to comply with the requirements for being HDHPs under section 
223(c)(2) of the Code. The proposed rules would also include a revised 
definition of ``maximum percentage increase'' that would provide an 
alternative method of determining the ``maximum percentage increase'' 
that is based on the premium adjustment percentage.

G. Impact of Regulations on Small Business--Department of Health and 
Human Services and the Department of Labor

    The Departments are of the view that health insurance issuers would 
be classified under the North American Industry Classification System 
code 524114 (Direct Health and Medical Insurance Carriers). According 
to SBA size standards, entities with average annual receipts of $41.5 
million or less would be considered small entities for these North 
American Industry Classification System codes. Issuers could possibly 
be classified in 621491 (HMO Medical Centers) and, if this is the case, 
the SBA size standard would be $35 million or less.\26\ Few, if any, 
insurance companies underwriting comprehensive health insurance 
policies (in contrast, for example, to travel insurance policies or 
dental discount policies) fall below these size thresholds. Based on 
data from MLR annual report submissions for the 2018 MLR reporting 
year, approximately 84 out of 498 issuers of health insurance coverage 
nationwide had total premium revenue of $41.5 million or less.\27\ This 
estimate may overstate the actual number of small health insurance 
companies that may be affected, since over 72 percent of these small 
companies belong to larger holding groups. Most, if not all, of these 
small companies are likely to have non-health lines of business that 
will result in their revenues exceeding $41.5 million, and it is likely 
not all of these companies offer grandfathered plans. The Departments 
do not expect any of these 84 potentially small entities to experience 
a change in revenues of more than three to five percent as a result of 
these proposed rules. Therefore, the Departments do not expect the 
provisions of these proposed rules to affect a substantial number of 
small entities. Due to the lack of knowledge regarding what small 
entities may decide to do with regard to the provisions proposed in 
these proposed rules, the Departments are not able to accurately 
ascertain the economic effects on small entities. However, the 
Departments believe that the flexibilities provided for in these 
proposed rules would result in overall benefits for small entities by 
allowing them to make changes to certain cost-sharing requirements 
within limits and maintain their current grandfathered group health 
plans. The Departments seek comment on ways that the proposed rules may 
impose additional costs and burdens on small entities.
---------------------------------------------------------------------------

    \26\ ``Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes.'' U.S. Small Business 
Administration, available at https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf.
    \27\ ``Medical Loss Ratio Data and System Resources.'' CCIIO, 
available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    For purposes of analysis under the RFA, the Employee Benefits 
Security Administration (EBSA) continues to consider a small entity to 
be an employee benefit plan with fewer than 100 participants.\28\ The 
basis of this definition is found in section 104(a)(2)

[[Page 42796]]

of ERISA, which permits the Secretary of Labor to prescribe simplified 
annual reports for pension plans that cover fewer than 100 
participants. Under section 104(a)(3), the Secretary of Labor may also 
provide for exemptions or simplified annual reporting and disclosure 
for welfare benefit plans. Pursuant to the authority of section 
104(a)(3), the Department of Labor has previously issued at 29 CFR 
2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10 
certain simplified reporting provisions and limited exemptions from 
reporting and disclosure requirements for small plans, including 
unfunded or insured welfare plans covering fewer than 100 participants 
and satisfying certain other requirements. Further, while some large 
employers may have small plans, in general small employers maintain 
most small plans. Thus, EBSA believes that assessing the impact of 
these proposed rules on small plans is an appropriate substitute for 
evaluating the effect on small entities. The definition of small entity 
considered appropriate for this purpose differs, however, from a 
definition of small business that is based on size standards 
promulgated by the Small Business Administration (SBA) (13 CFR 121.201) 
pursuant to the Small Business Act (15 U.S.C. 631 et seq.). Therefore, 
EBSA requests comments on the appropriateness of the size standard used 
in evaluating the impact of these proposed rules on small entities.
---------------------------------------------------------------------------

    \28\ The Department of Labor consulted with the Small Business 
Administration in making this determination as required by 5 U.S.C. 
603(c) and 13 CFR 121.903(c).
---------------------------------------------------------------------------

H. Impact of Regulations on Small Business--Department of the Treasury

    Pursuant to section 7805(f) of the Code, these proposed rules have 
been submitted to the Chief Counsel for Advocacy of the SBA for comment 
on their impact on small business.

I. Effects on Small Rural Hospitals

    Section 1102(b) of the Social Security Act (SSA) (42 U.S.C. 1302) 
requires agencies to prepare a regulatory impact analysis if a rule may 
have a significant impact on the operations of a substantial number of 
small rural hospitals. This analysis must conform to the provisions of 
section 603 of the RFA. For purposes of section 1102(b) of the SSA, the 
HHS defines a small rural hospital as a hospital that is located 
outside of a metropolitan statistical area and has fewer than 100 beds. 
These proposed rules would not affect small rural hospitals. Therefore, 
the Departments have determined that these proposed rules would not 
have a significant impact on the operations of a substantial number of 
small rural hospitals.

J. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain actions before issuing a proposed rule that includes any 
federal mandate that may result in expenditures in any one year by 
state, local, or tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2020, that threshold is approximately $156 million.
    While the Departments recognize that some state, local, and tribal 
governments may sponsor grandfathered health plan coverage, the 
Departments do not expect any state, local, or tribal government to 
incur any additional costs associated with these proposed rules, if 
finalized. The Departments estimate that any costs associated with the 
proposed rules if finalized would not exceed the $156 million 
threshold. Thus, the Departments conclude that these proposed rules 
would not impose an unfunded mandate on state, local, or tribal 
governments or the private sector.

K. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a proposed rule that imposes 
substantial direct costs on state and local governments, preempts state 
law, or otherwise has federalism implications. Federal agencies 
promulgating regulations that have federalism implications must consult 
with state and local officials and describe the extent of their 
consultation and the nature of the concerns of state and local 
officials in the preamble to the regulation.
    In the Departments' view, these proposed rules do not have any 
federalism implications. They simply provide grandfathered plan 
sponsors and issuers more flexibility to increase fixed-amount cost-
sharing requirements and to make changes to fixed-amount cost-sharing 
requirements in grandfathered group health plans and grandfathered 
group health insurance coverage that are HDHPs to the extent those 
changes are necessary to comply with the requirements for HDHPs under 
section 223(c)(2) of the Code, without causing the plan or coverage to 
relinquish its grandfather status. The Departments recognize that some 
state, local, and tribal governments may sponsor grandfathered health 
plan coverage. The proposed rules would provide these entities with 
additional flexibility.
    In general, through section 514, ERISA supersedes state laws to the 
extent that they relate to any covered employee benefit plan, and 
preserves state laws that regulate insurance, banking, or securities. 
While ERISA prohibits states from regulating a plan as an insurance or 
investment company or bank, the preemption provisions of section 731 of 
ERISA and section 2724 of the PHS Act (implemented in 29 CFR 
2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements in 
title XXVII of the PHS Act (including those enacted by PPACA) are not 
to be ``construed to supersede any provision of state law which 
establishes, implements, or continues in effect any standard or 
requirement solely relating to health insurance issuers in connection 
with group health insurance coverage except to the extent that such 
standard or requirement prevents the application of a ``requirement of 
a federal standard.'' The conference report accompanying HIPAA 
indicates that this is intended to be the ``narrowest'' preemption of 
states laws (see House Conf. Rep. No. 104-736, at 205, reprinted in 
1996 U.S. Code Cong. & Admin. News 2018). States may continue to apply 
state law requirements to health insurance issuers except to the extent 
that such requirements prevent the application of PHS Act requirements 
that are the subject of this rulemaking. Accordingly, states have 
significant latitude to impose requirements on health insurance issuers 
that are more restrictive than the federal law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the states, the 
Departments have engaged in efforts to consult with and work 
cooperatively with affected states, including participating in 
conference calls with and attending conferences of the National 
Association of Insurance Commissioners, and consulting with state 
insurance officials on an individual basis. While developing these 
proposed rules, the Departments attempted to balance the states' 
interests in regulating health insurance issuers with Congress' intent 
to provide uniform minimum protections to consumers in every state. By 
doing so, it is the Departments' view that they have complied with the 
requirements of Executive Order 13132.
    Pursuant to the requirements set forth in section 8(a) of Executive 
Order 13132, and by the signatures affixed to these proposed rules, the 
Departments certify that the Department of Treasury,

[[Page 42797]]

Employee Benefits Security Administration, and the Centers for Medicare 
& Medicaid Services have complied with the requirements of Executive 
Order 13132 for the attached proposed rules in a meaningful and timely 
manner.

L. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017, and 
requires that the costs associated with significant new regulations 
``shall, to the extent permitted by law, be offset by the elimination 
of existing costs associated with at least two prior regulations.'' The 
designation of these proposed rules under Executive Order 13771--as a 
regulatory action, a deregulatory action, or neither--will be informed 
by comments received.

V. Statutory Authority

    The Department of the Treasury regulations are proposed to be 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor regulations are proposed to be adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 
1191b, and 1191c; section 101(g), Public Law 104-191, 110 Stat. 1936; 
section 401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); 
section 512(d), Public Law 110-343, 122 Stat. 3881; section 1001, 1201, 
and 1562(e), Public Law 111-148, 124 Stat. 119, as amended by Public 
Law 111-152, 124 Stat. 1029; Secretary of Labor's Order 6-2009, 74 FR 
21524 (May 7, 2009).
    The Department of Health and Human Services regulations are 
proposed to be adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

Sunita Lough,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed at Washington DC, this 6th day of July, 2020.
Jeanne Klinefelter Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration, 
U.S. Department of Labor.
    Dated: July 1, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 6, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Amendments to the Regulations

    Accordingly, the Internal Revenue Service, Department of the 
Treasury, proposes to amend 26 CFR part 54 as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805.
* * * * *
0
Par. 2. Section 54.9815-1251, as amended:
0
a. By revising the first sentence of paragraph (g)(1) introductory 
text;
0
b. By revising paragraphs (g)(1)(iii), (g)(1)(iv)(A) and (B), and 
(g)(1)(v);
0
c. By redesignating paragraphs (g)(3) and (4) as paragraphs (g)(4) and 
(5);
0
d. By adding a new paragraph (g)(3);
0
e. By revising newly redesignated paragraphs (g)(4)(i) and (ii);
0
f. In newly redesignated paragraph (g)(5), by revising Examples 3 and 
4;
0
g. In newly redesignated paragraph (g)(5), by redesignating Examples 5 
through 9 as Examples 6 through 10;
0
h. In newly redesignated paragraph (g)(5), by adding a new Example 5;
0
i. In newly redesignated paragraph (g)(5), by revising newly 
redesignated Examples 6 through 10;
0
j. In newly redesignated paragraph (g)(5), by adding Example 11.
    The revisions and additions read as follows:


Sec.  54.9815-1251   Preservation of right to maintain existing 
coverage.

* * * * *
    (g) * * *
    (1) * * * Subject to paragraphs (g)(2) and (3) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan. * * *
* * * * *
    (iii) Increase in a fixed-amount cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
pocket limit), determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be 
a grandfathered health plan, if the total percentage increase in the 
cost-sharing requirement measured from March 23, 2010 exceeds the 
maximum percentage increase (as defined in paragraph (g)(4)(ii) of this 
section).
    (iv) * * *
    (A) An amount equal to $5 increased by medical inflation, as 
defined in paragraph (g)(4)(i) of this section (that is, $5 times 
medical inflation, plus $5), or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(4)(ii) of this section), determined by expressing the total 
increase in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution rate based on cost of coverage (as defined 
in paragraph (g)(4)(iii)(A) of this section) towards the cost of any 
tier of coverage for any class of similarly situated individuals (as 
described in Sec.  54.9802(d)) by more than 5 percentage points below 
the contribution rate for the coverage period that includes March 23, 
2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health 
plan if the employer or employee organization decreases its 
contribution rate based on a formula (as defined in paragraph 
(g)(4)(iii)(B) of this section) towards the cost of any tier of 
coverage for any class of similarly situated individuals (as described 
in Sec.  54.9802(d)) by more than 5 percent below the contribution rate 
for the coverage period that includes March 23, 2010.
* * * * *

[[Page 42798]]

    (3) Special rule for certain grandfathered high deductible health 
plans. With respect to a grandfathered group health plan or group 
health insurance coverage that is a high deductible health plan within 
the meaning of section 223(c)(2), increases to fixed-amount cost-
sharing requirements that otherwise would cause a loss of grandfather 
status will not cause the plan or coverage to relinquish its 
grandfather status, but only to the extent such increases are necessary 
to maintain its status as a high deductible health plan under section 
223(c)(2)(A).
    (4) * * *
    (i) Medical inflation defined. For purposes of this paragraph (g), 
the term medical inflation means the increase since March 2010 in the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers (CPI-U) (unadjusted) published by the Department of 
Labor using the 1982-1984 base of 100. For this purpose, the increase 
in the overall medical care component is computed by subtracting 
387.142 (the overall medical care component of the CPI-U (unadjusted) 
published by the Department of Labor for March 2010, using the 1982-
1984 base of 100) from the index amount for any month in the 12 months 
before the new change is to take effect and then dividing that amount 
by 387.142.
    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means:
    (A) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after March 23, 2010, 
and before [the effective date of final rule], medical inflation (as 
defined in paragraph (g)(4)(i) of this section), expressed as a 
percentage, plus 15 percentage points; and
    (B) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after [effective date of 
final rule], the greater of:
    (1) Medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points; or
    (2) The portion of the premium adjustment percentage, as defined in 
45 CFR 156.130(e), that reflects the relative change between 2013 and 
the calendar year prior to the effective date of the increase (that is, 
the premium adjustment percentage minus 1), expressed as a percentage, 
plus 15 percentage points.
* * * * *
    (5) * * *

    Example 3. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment requirement of $30 per office visit for 
specialists. The plan is subsequently amended to increase the copayment 
requirement to $40, effective before [effective date of final rule]. 
Within the 12-month period before the $40 copayment takes effect, the 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40-30 = 10; 10 / 
30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(4)(i) of this section) from March 2010 is 0.2269 (475-
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3, except the 
grandfathered group health plan subsequently increases the $40 
copayment requirement to $45 for a later plan year, effective before 
[effective date of final rule]. Within the 12-month period before the 
$45 copayment takes effect, the greatest value of the overall medical 
care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(4)(i) of this 
section) from March 2010 is 0.2527 (485-387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be 
a grandfathered health plan under paragraph (g)(1)(iv) of this section 
is the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 (5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. Same facts as Example 4, except the 
grandfathered group health plan increases the copayment requirement to 
$45, effective after [effective date of final rule]. The greatest value 
of the overall medical care component of the CPI-U (unadjusted) in the 
preceding 12-month period is still 485. In the calendar year that 
includes the effective date of the increase, the applicable portion of 
the premium adjustment percentage is 36%.
    (ii) Conclusion. In this Example 5, the grandfathered health plan 
may increase the copayment by the greater of: Medical inflation, 
expressed as a percentage, plus 15 percentage points; or the applicable 
portion of the premium adjustment percentage for the calendar year that 
includes the effective date of the increase, plus 15 percentage points. 
The latter amount is greater because it results in a 51% maximum 
percentage increase (36% + 15% = 51%) and, as demonstrated in Example 
4, determining the maximum percentage increase using medical inflation 
yields a result of 40.27%. The increase in the copayment, expressed as 
a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 50%). Because 
the 50% increase in the copayment is less than the 51% maximum 
percentage increase, the change in the copayment requirement at that 
time does not cause the plan to cease to be a grandfathered health 
plan.
    Example 6. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment of $10 per office visit for primary care 
providers. The plan is subsequently amended to increase the copayment 
requirement to $15, effective before [effective date of final rule]. 
Within the 12-month period before the $15 copayment takes effect, the 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 415.
    (ii) Conclusion. In this Example 6, the increase in the copayment, 
expressed as a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). 
Medical inflation (as defined in paragraph (g)(4)(i) of this section) 
from March 2010 is 0.0720 (415.0-387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a group plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20%), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 would not 
cause the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) of this section, which would permit an increase in 
the copayment of up to $5.36.
    Example 7. (i) Facts. The same facts as Example 6, except on March 
23, 2010, the grandfathered health plan has no copayment ($0) for 
office visits for primary care providers. The plan is

[[Page 42799]]

subsequently, amended to increase the copayment requirement to $5, 
effective before [effective date of final rule].
    (ii) Conclusion. In this Example 7, medical inflation (as defined 
in paragraph (g)(4)(i) of this section) from March 2010 is 0.0720 
(415.0-387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that 
would cause a plan to cease to be a grandfathered health plan under 
paragraph (g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36; 
$0.36 + $5 = $5.36). The $5 increase in copayment in this Example 7 is 
less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of 
this section of $5.36. Thus, the $5 increase in copayment does not 
cause the plan to cease to be a grandfathered health plan.
    Example 8. (i) Facts. On March 23, 2010, a self-insured group 
health plan provides two tiers of coverage--self-only and family. The 
employer contributes 80% of the total cost of coverage for self-only 
and 60% of the total cost of coverage for family. Subsequently, the 
employer reduces the contribution to 50% for family coverage, but keeps 
the same contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 8, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. 
The fact that the contribution rate for self-only coverage remains the 
same does not change the result.
    Example 9. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5,000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1,000 for self-only 
coverage and $4,000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for 
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage. 
For a subsequent plan year, the COBRA premium is $6,000 for self-only 
coverage and $15,000 for family coverage. The employee contributions 
for that plan year are $1,200 for self-only coverage and $5,000 for 
family coverage. Thus, the contribution rate based on cost of coverage 
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
    (ii) Conclusion. In this Example 9, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125.
    Example 10. (i) Facts. A group health plan not maintained pursuant 
to a collective bargaining agreement offers three benefit packages on 
March 23, 2010. Option F is a self-insured option. Options G and H are 
insured options. Beginning July 1, 2013, the plan increases coinsurance 
under Option H from 10% to 15%.
    (ii) Conclusion. In this Example 10, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).
    Example 11. (i) Facts. A group health plan that is a grandfathered 
health plan and also a high deductible health plan within the meaning 
of section 223(c)(2) had a $2,400 deductible for family coverage on 
March 23, 2010. The plan is subsequently amended after [effective date 
of final rule] to increase the deductible limit by the amount that is 
necessary to comply with the requirements for a plan to qualify as a 
high deductible health plan under section 223(c)(2)(A), but that 
exceeds the maximum percentage increase.
    (ii) Conclusion. In this Example 11, the increase in the deductible 
at that time does not cause the plan to cease to be a grandfathered 
health plan because the increase was necessary for the plan to continue 
to satisfy the definition of a high deductible health plan under 
section 223(c)(2)(A).

DEPARTMENT OF LABOR

Employee Benefits Security Administration

    Accordingly, the Department of Labor proposes to amend 29 CFR part 
2590 as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS.

0
3. The authority citation for part 2590 continues to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; 
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's 
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).

0
4. Amend Sec.  2590.715-1251:
0
a. By revising the first sentence of paragraph (g)(1) introductory 
text;
0
b. By revising paragraphs (g)(1)(iii), (g)(1)(iv)(A) and (B), and 
(g)(1)(v);
0
c. By redesignating paragraphs (g)(3) and (4) as paragraphs (g)(4) and 
(5);
0
d. By adding a new paragraph (g)(3);
0
e. By revising newly redesignated paragraphs (g)(4)(i) and (ii);
0
f. In newly redesignated paragraph (g)(5), by revising Examples 3 and 
4;
0
g. In newly redesignated paragraph (g)(5), by redesignating Examples 5 
through 9 as Examples 6 through 10;
0
h. In newly redesignated paragraph (g)(5), by adding a new Example 5;
0
i. In newly redesignated paragraph (g)(5), by revising newly 
redesignated Examples 6 through 10;
0
j. In newly redesignated paragraph (g)(5), by adding Example 11.
    The revisions and additions read as follows:


Sec.  2590.715-1251   Preservation of right to maintain existing 
coverage.

* * * * *
    (g) * * *
    (1) * * * Subject to paragraphs (g)(2) and (3) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan. * * *
* * * * *
    (iii) Increase in a fixed-amount cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
pocket limit), determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be 
a grandfathered health plan, if the total percentage increase in the 
cost-sharing requirement measured from March 23, 2010 exceeds the 
maximum percentage increase (as defined in paragraph (g)(4)(ii) of this 
section).
    (iv) * * *
    (A) An amount equal to $5 increased by medical inflation, as 
defined in paragraph (g)(4)(i) of this section (that is, $5 times 
medical inflation, plus $5), or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(4)(ii) of this section), determined by expressing the total 
increase in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution

[[Page 42800]]

rate based on cost of coverage (as defined in paragraph (g)(4)(iii)(A) 
of this section) towards the cost of any tier of coverage for any class 
of similarly situated individuals (as described in Sec.  2590.702(d)) 
by more than 5 percentage points below the contribution rate for the 
coverage period that includes March 23, 2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health 
plan if the employer or employee organization decreases its 
contribution rate based on a formula (as defined in paragraph 
(g)(4)(iii)(B) of this section) towards the cost of any tier of 
coverage for any class of similarly situated individuals (as described 
in Sec.  2590.702(d)) by more than 5 percent below the contribution 
rate for the coverage period that includes March 23, 2010.
* * * * *
    (3) Special rule for certain grandfathered high deductible health 
plans. With respect to a grandfathered group health plan or group 
health insurance coverage that is a high deductible health plan within 
the meaning of section 223(c)(2) of the Internal Revenue Code, 
increases to fixed-amount cost-sharing requirements that otherwise 
would cause a loss of grandfather status will not cause the plan or 
coverage to relinquish its grandfather status, but only to the extent 
such increases are necessary to maintain its status as a high 
deductible health plan under section 223(c)(2)(A) of the Internal 
Revenue Code.
    (4) * * *
    (i) Medical inflation defined. For purposes of this paragraph (g), 
the term medical inflation means the increase since March 2010 in the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers (CPI-U) (unadjusted) published by the Department of 
Labor using the 1982-1984 base of 100. For this purpose, the increase 
in the overall medical care component is computed by subtracting 
387.142 (the overall medical care component of the CPI-U (unadjusted) 
published by the Department of Labor for March 2010, using the 1982-
1984 base of 100) from the index amount for any month in the 12 months 
before the new change is to take effect and then dividing that amount 
by 387.142.
    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means:
    (A) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after March 23, 2010, 
and before [the effective date of final rule], medical inflation (as 
defined in paragraph (g)(4)(i) of this section), expressed as a 
percentage, plus 15 percentage points; and
    (B) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after [effective date of 
final rule], the greater of:
    (1) Medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points; or
    (2) The portion of the premium adjustment percentage, as defined in 
45 CFR 156.130(e), that reflects the relative change between 2013 and 
the calendar year prior to the effective date of the increase (that is, 
the premium adjustment percentage minus 1), expressed as a percentage, 
plus 15 percentage points.
* * * * *
    (5) * * *
    Example 3. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment requirement of $30 per office visit for 
specialists. The plan is subsequently amended to increase the copayment 
requirement to $40, effective before [effective date of final rule]. 
Within the 12-month period before the $40 copayment takes effect, the 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40-30 = 10; 10 / 
30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(4)(i) of this section) from March 2010 is 0.2269 (475-
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3, except the 
grandfathered group health plan subsequently increases the $40 
copayment requirement to $45 for a later plan year, effective before 
[effective date of final rule]. Within the 12-month period before the 
$45 copayment takes effect, the greatest value of the overall medical 
care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(4)(i) of this 
section) from March 2010 is 0.2527 (485-387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be 
a grandfathered health plan under paragraph (g)(1)(iv) of this section 
is the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 (5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. Same facts as Example 4, except the 
grandfathered group health plan increases the copayment requirement to 
$45, effective after [effective date of final rule]. The greatest value 
of the overall medical care component of the CPI-U (unadjusted) in the 
preceding 12-month period is still 485. In the calendar year that 
includes the effective date of the increase, the applicable portion of 
the premium adjustment percentage is 36%.
    (ii) Conclusion. In this Example 5, the grandfathered health plan 
may increase the copayment by the greater of: Medical inflation, 
expressed as a percentage, plus 15 percentage points; or the applicable 
portion of the premium adjustment percentage for the calendar year that 
includes the effective date of the increase, plus 15 percentage points. 
The latter amount is greater because it results in a 51% maximum 
percentage increase (36% + 15% = 51%) and, as demonstrated in Example 
4, determining the maximum percentage increase using medical inflation 
yields a result of 40.27%. The increase in the copayment, expressed as 
a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 50%). Because 
the 50% increase in the copayment is less than the 51% maximum 
percentage increase, the change in the copayment requirement at that 
time does not cause the plan to cease to be a grandfathered health 
plan.
    Example 6. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment of $10 per office visit for primary care 
providers. The plan is subsequently amended to increase the copayment 
requirement to $15, effective before [effective date of final rule]. 
Within the 12-month period before the $15 copayment takes effect, the 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 415.
    (ii) Conclusion. In this Example 6, the increase in the copayment, 
expressed as

[[Page 42801]]

a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). Medical 
inflation (as defined in paragraph (g)(4)(i) of this section) from 
March 2010 is 0.0720 (415.0-387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a group plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20%), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 would not 
cause the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) of this section, which would permit an increase in 
the copayment of up to $5.36.
    Example 7. (i) Facts. The same facts as Example 6, except on March 
23, 2010, the grandfathered health plan has no copayment ($0) for 
office visits for primary care providers. The plan is subsequently, 
amended to increase the copayment requirement to $5, effective before 
[effective date of final rule].
    (ii) Conclusion. In this Example 7, medical inflation (as defined 
in paragraph (g)(4)(i) of this section) from March 2010 is 0.0720 
(415.0-387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that 
would cause a plan to cease to be a grandfathered health plan under 
paragraph (g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36; 
$0.36 + $5 = $5.36). The $5 increase in copayment in this Example 7 is 
less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of 
this section of $5.36. Thus, the $5 increase in copayment does not 
cause the plan to cease to be a grandfathered health plan.
    Example 8. (i) Facts. On March 23, 2010, a self-insured group 
health plan provides two tiers of coverage--self-only and family. The 
employer contributes 80% of the total cost of coverage for self-only 
and 60% of the total cost of coverage for family. Subsequently, the 
employer reduces the contribution to 50% for family coverage, but keeps 
the same contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 8, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. 
The fact that the contribution rate for self-only coverage remains the 
same does not change the result.
    Example 9. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5,000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1,000 for self-only 
coverage and $4,000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for 
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage. 
For a subsequent plan year, the COBRA premium is $6,000 for self-only 
coverage and $15,000 for family coverage. The employee contributions 
for that plan year are $1,200 for self-only coverage and $5,000 for 
family coverage. Thus, the contribution rate based on cost of coverage 
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
    (ii) Conclusion. In this Example 9, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125 of the Internal Revenue Code.
    Example 10. (i) Facts. A group health plan not maintained pursuant 
to a collective bargaining agreement offers three benefit packages on 
March 23, 2010. Option F is a self-insured option. Options G and H are 
insured options. Beginning July 1, 2013, the plan increases coinsurance 
under Option H from 10% to 15%.
    (ii) Conclusion. In this Example 10, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).
    Example 11. (i) Facts. A group health plan that is a grandfathered 
health plan and also a high deductible health plan within the meaning 
of section 223(c)(2) of the Internal Revenue Code had a $2,400 
deductible for family coverage on March 23, 2010. The plan is 
subsequently amended after [effective date of final rule] to increase 
the deductible limit by the amount that is necessary to comply with the 
requirements for a plan to qualify as a high deductible health plan 
under section 223(c)(2)(A) of the Internal Revenue Code, but that 
exceeds the maximum percentage increase.
    (ii) Conclusion. In this Example 11, the increase in the deductible 
at that time does not cause the plan to cease to be a grandfathered 
health plan because the increase was necessary for the plan to continue 
to satisfy the definition of a high deductible health plan under 
section 223(c)(2)(A) of the Internal Revenue Code.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

    For the reasons stated in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR part 147 as set forth 
below:

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
5. The authority citation for part 147 continues to read as follows:

    Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92, as amended.

0
6. Section 147.140 is amended:
0
a. By revising the first sentence of paragraph (g)(1) introductory 
text;
0
b. By revising paragraphs (g)(1)(iii), (g)(1)(iv)(A) and (B), and 
(g)(1)(v);
0
c. By redesignating paragraphs (g)(3) and (4) as paragraphs (g)(4) and 
(5);
0
d. By adding a new paragraph (g)(3);
0
e. By revising newly redesignated paragraphs (g)(4)(i) and (ii);
0
f. In newly redesignated paragraph (g)(5), by revising Examples 3 and 
4;
0
g. In newly redesignated paragraph (g)(5), by redesignating Examples 5 
through 9 as Examples 6 through 10;
0
h. In newly redesignated paragraph (g)(5), by adding a new Example 5;
0
i. In newly redesignated paragraph (g)(5), by revising newly 
redesignated Examples 6 through 10; and
0
j. In newly redesignated paragraph (g)(5), by adding Example 11.
    The revisions and additions read as follows:


Sec.  147.140   Preservation of right to maintain existing coverage.

* * * * *
    (g) * * *
    (1) * * * Subject to paragraphs (g)(2) and (3) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan. * * *
* * * * *
    (iii) Increase in a fixed-amount cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
pocket limit), determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be 
a grandfathered health plan, if the total percentage increase in the 
cost-sharing requirement measured from March 23, 2010 exceeds the 
maximum percentage

[[Page 42802]]

increase (as defined in paragraph (g)(4)(ii) of this section).
    (iv) * * *
    (A) An amount equal to $5 increased by medical inflation, as 
defined in paragraph (g)(4)(i) of this section (that is, $5 times 
medical inflation, plus $5), or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(4)(ii) of this section), determined by expressing the total 
increase in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution rate based on cost of coverage (as defined 
in paragraph (g)(4)(iii)(A) of this section) towards the cost of any 
tier of coverage for any class of similarly situated individuals (as 
described in Sec.  146.121(d) of this subchapter) by more than 5 
percentage points below the contribution rate for the coverage period 
that includes March 23, 2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health 
plan if the employer or employee organization decreases its 
contribution rate based on a formula (as defined in paragraph 
(g)(4)(iii)(B) of this section) towards the cost of any tier of 
coverage for any class of similarly situated individuals (as described 
in Sec.  146.121(d) of this subchapter) by more than 5 percent below 
the contribution rate for the coverage period that includes March 23, 
2010.
* * * * *
    (3) Special rule for certain grandfathered high deductible health 
plans. With respect to a grandfathered group health plan or group 
health insurance coverage that is a high deductible health plan within 
the meaning of section 223(c)(2) of the Internal Revenue Code, 
increases to fixed-amount cost-sharing requirements that otherwise 
would cause a loss of grandfather status will not cause the plan or 
coverage to relinquish its grandfather status, but only to the extent 
such increases are necessary to maintain its status as a high 
deductible health plan under section 223(c)(2)(A) of the Internal 
Revenue Code.
    (4) * * *
    (i) Medical inflation defined. For purposes of this paragraph (g), 
the term medical inflation means the increase since March 2010 in the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers (CPI-U) (unadjusted) published by the Department of 
Labor using the 1982-1984 base of 100. For this purpose, the increase 
in the overall medical care component is computed by subtracting 
387.142 (the overall medical care component of the CPI-U (unadjusted) 
published by the Department of Labor for March 2010, using the 1982-
1984 base of 100) from the index amount for any month in the 12 months 
before the new change is to take effect and then dividing that amount 
by 387.142.
    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means:
    (A) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after March 23, 2010, 
and before [the effective date of final rule], medical inflation (as 
defined in paragraph (g)(4)(i) of this section), expressed as a 
percentage, plus 15 percentage points;
    (B) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after [effective date of 
final rule], the greater of:
    (1) Medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points; or
    (2) The portion of the premium adjustment percentage, as defined in 
Sec.  156.130(e) of this subchapter, that reflects the relative change 
between 2013 and the calendar year prior to the effective date of the 
increase (that is, the premium adjustment percentage minus 1), 
expressed as a percentage, plus 15 percentage points; and
    (C) With respect to increases for individual health insurance 
coverage, medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points.
* * * * *
    (5) * * *
    Example 3. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment requirement of $30 per office visit for 
specialists. The plan is subsequently amended to increase the copayment 
requirement to $40, effective before [effective date of final rule]. 
Within the 12-month period before the $40 copayment takes effect, the 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40-30 = 10; 10 / 
30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(4)(i) of this section) from March 2010 is 0.2269 (475-
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3, except the 
grandfathered group health plan subsequently increases the $40 
copayment requirement to $45 for a later plan year, effective before 
[effective date of final rule]. Within the 12-month period before the 
$45 copayment takes effect, the greatest value of the overall medical 
care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(4)(i) of this 
section) from March 2010 is 0.2527 (485-387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be 
a grandfathered health plan under paragraph (g)(1)(iv) of this section 
is the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 (5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. Same facts as Example 4, except the 
grandfathered group health plan increases the copayment requirement to 
$45, effective after [effective date of final rule]. The greatest value 
of the overall medical care component of the CPI-U (unadjusted) in the 
preceding 12-month period is still 485. In the calendar year that 
includes the effective date of the increase, the applicable portion of 
the premium adjustment percentage is 36%.
    (ii) Conclusion. In this Example 5, the grandfathered health plan 
may increase the copayment by the greater of: Medical inflation, 
expressed as a percentage, plus 15 percentage points; or the applicable 
portion of the premium adjustment percentage for the calendar year that 
includes the effective date of the increase, plus 15 percentage points. 
The latter amount is greater because it results in a 51% maximum

[[Page 42803]]

percentage increase (36% + 15% = 51%) and, as demonstrated in Example 
4, determining the maximum percentage increase using medical inflation 
yields a result of 40.27%. The increase in the copayment, expressed as 
a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 50%). Because 
the 50% increase in the copayment is less than the 51% maximum 
percentage increase, the change in the copayment requirement at that 
time does not cause the plan to cease to be a grandfathered health 
plan.
    Example 6. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment of $10 per office visit for primary care 
providers. The plan is subsequently amended to increase the copayment 
requirement to $15, effective before [effective date of final rule]. 
Within the 12-month period before the $15 copayment takes effect, the 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 415.
    (ii) Conclusion. In this Example 6, the increase in the copayment, 
expressed as a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). 
Medical inflation (as defined in paragraph (g)(4)(i) of this section) 
from March 2010 is 0.0720 (415.0-387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a group plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20%), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 would not 
cause the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) of this section, which would permit an increase in 
the copayment of up to $5.36.
    Example 7. (i) Facts. The same facts as Example 6, except on March 
23, 2010, the grandfathered health plan has no copayment ($0) for 
office visits for primary care providers. The plan is subsequently, 
amended to increase the copayment requirement to $5, effective before 
[effective date of final rule].
    (ii) Conclusion. In this Example 7, medical inflation (as defined 
in paragraph (g)(4)(i) of this section) from March 2010 is 0.0720 
(415.0-387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that 
would cause a plan to cease to be a grandfathered health plan under 
paragraph (g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36; 
$0.36 + $5 = $5.36). The $5 increase in copayment in this Example 7 is 
less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of 
this section of $5.36. Thus, the $5 increase in copayment does not 
cause the plan to cease to be a grandfathered health plan.
    Example 8. (i) Facts. On March 23, 2010, a self-insured group 
health plan provides two tiers of coverage--self-only and family. The 
employer contributes 80% of the total cost of coverage for self-only 
and 60% of the total cost of coverage for family. Subsequently, the 
employer reduces the contribution to 50% for family coverage, but keeps 
the same contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 8, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. 
The fact that the contribution rate for self-only coverage remains the 
same does not change the result.
    Example 9. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5,000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1,000 for self-only 
coverage and $4,000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for 
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage. 
For a subsequent plan year, the COBRA premium is $6,000 for self-only 
coverage and $15,000 for family coverage. The employee contributions 
for that plan year are $1,200 for self-only coverage and $5,000 for 
family coverage. Thus, the contribution rate based on cost of coverage 
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
    (ii) Conclusion. In this Example 9, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125 of the Internal Revenue Code.
    Example 10. (i) Facts. A group health plan not maintained pursuant 
to a collective bargaining agreement offers three benefit packages on 
March 23, 2010. Option F is a self-insured option. Options G and H are 
insured options. Beginning July 1, 2013, the plan increases coinsurance 
under Option H from 10% to 15%.
    (ii) Conclusion. In this Example 10, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).
    Example 11. (i) Facts. A group health plan that is a grandfathered 
health plan and also a high deductible health plan within the meaning 
of section 223(c)(2) of the Internal Revenue Code had a $2,400 
deductible for family coverage on March 23, 2010. The plan is 
subsequently amended after [effective date of final rule] to increase 
the deductible limit by the amount that is necessary to comply with the 
requirements for a plan to qualify as a high deductible health plan 
under section 223(c)(2)(A) of the Internal Revenue Code, but that 
exceeds the maximum percentage increase.
    (ii) Conclusion. In this Example 11, the increase in the deductible 
at that time does not cause the plan to cease to be a grandfathered 
health plan because the increase was necessary for the plan to continue 
to satisfy the definition of a high deductible health plan under 
section 223(c)(2)(A) of the Internal Revenue Code.

[FR Doc. 2020-14895 Filed 7-10-20; 8:45 am]
BILLING CODE P