Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81097 

1 84 FR 5969 (Feb. 25, 2019). 

2 85 FR 42782 (July 15, 2020) 

Issued in College Park, Georgia, on 

December 8, 2020. 

Andreese C. Davis, 

Manager, Airspace & Procedures Team 

South,Eastern Service Center, Air Traffic 

Organization. 

[FR Doc. 2020–27442 Filed 12–14–20; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 54 

[TD 9928] 

RIN 1545–BP67 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2590 

RIN 1210–AB89 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Part 147 

[CMS–9923–F] 

RIN 0938–AT49 

Grandfathered Group Health Plans and 

Grandfathered Group Health Insurance 

Coverage 

AGENCY: Internal Revenue Service, 

Department of the Treasury; Employee 

Benefits Security Administration, 

Department of Labor; Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services. 

ACTION: Final rules. 

SUMMARY: This document includes final 

rules regarding grandfathered group 

health plans and grandfathered group 

health insurance coverage that amend 

current rules to provide greater 

flexibility for certain grandfathered 

health plans to make changes to certain 

types of fixed- amount cost-sharing 

requirements without causing a loss of 

grandfather status under the Patient 

Protection and Affordable Care Act. 

DATES: 

Effective Date: These regulations are 

effective January 14, 2021. 

Applicability Date: These regulations 

are applicable June 15, 2021. 

FOR FURTHER INFORMATION CONTACT: 

William Fischer, Internal Revenue 

Service, Department of the Treasury, 

(202) 317–5500. 

Matthew Litton and Chelsea Cerio, 

Employee Benefits Security 

Administration, Department of Labor, 

(202) 693–8335. 

Cam Clemmons, Centers for Medicare 

& Medicaid Services, Department of 

Health and Human Services, (301) 492– 

4400. 

Customer Service Information: 

Individuals interested in obtaining 

information from the Department of 

Labor (DOL) concerning employmentbased health coverage laws may call the 

Employee Benefits Security 

Administration (EBSA) Toll-Free 

Hotline at 1–866–444–EBSA (3272) or 

visit the DOL’s website (www.dol.gov/ 

ebsa). In addition, information from the 

Department of Health and Human 

Services (HHS) regarding private health 

insurance coverage and non-federal 

governmental group health plans can be 

found on the Centers for Medicare & 

Medicaid Services (CMS) website 

(www.cms.gov/cciio), and information 

on healthcare reform can be found at 

www.HealthCare.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Purpose 

On January 20, 2017, the President 

issued Executive Order 13765, 

‘‘Minimizing the Economic Burden of 

the Patient Protection and Affordable 

Care Act Pending Repeal’’ (82 FR 8351) 

‘‘to minimize the unwarranted 

economic and regulatory burdens of the 

[Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 

Care and Education Reconciliation Act 

of 2010 (Pub. L. 111–152) (collectively, 

PPACA), as amended].’’ To meet these 

objectives, the President directed that 

the executive departments and agencies 

with authorities and responsibilities 

under PPACA, ‘‘to the maximum extent 

permitted by law . . . shall exercise all 

authority and discretion available to 

them to waive, defer, grant exemptions 

from, or delay the implementation of 

any provision or requirement of 

[PPACA] that would impose a fiscal 

burden on any state or a cost, fee, tax, 

penalty, or regulatory burden on 

individuals, families, healthcare 

providers, health insurers, patients, 

recipients of healthcare services, 

purchasers of health insurance, or 

makers of medical devices, products, or 

medications.’’ 

HHS, DOL, and the Department of the 

Treasury (collectively, the Departments) 

share interpretive jurisdiction over 

section 1251 of PPACA, which generally 

provides that certain group health plans 

and health insurance coverage existing 

as of March 23, 2010, the date of 

enactment of PPACA (referred to 

collectively in the statute as 

grandfathered health plans), are subject 

to only certain provisions of PPACA. 

Consistent with the objectives of 

Executive Order 13765, on February 25, 

2019, the Departments issued a request 

for information regarding grandfathered 

group health plans and grandfathered 

group health insurance coverage (2019 

RFI).1 The purpose of the 2019 RFI was 

to gather input from the public in order 

to better understand the challenges that 

group health plans and group health 

insurance issuers face in avoiding a loss 

of grandfather status, and to determine 

whether there are opportunities for the 

Departments to assist such plans and 

issuers, consistent with the law, in 

preserving the grandfather status of 

group health plans and group health 

insurance coverage in ways that would 

benefit plan participants and 

beneficiaries, employers, employee 

organizations, and other stakeholders. 

Based on feedback received from 

stakeholders who submitted comments 

in response to the 2019 RFI, the 

Departments issued a notice of proposed 

rulemaking on July 15, 2020 (referred to 

as the 2020 proposed rules), that would, 

if finalized, amend current rules to 

provide greater flexibility for certain 

grandfathered health plans to make 

changes to certain types of cost-sharing 

requirements without causing a loss of 

grandfather status.2 After careful 

consideration of the comments received, 

the Departments are issuing final rules 

that adopt the proposed amendments 

without substantive change. In the 

Departments’ view, these amendments 

are appropriate because they will enable 

these plans to continue offering 

affordable coverage while also 

enhancing their ability to respond to 

rising healthcare costs. In some cases, 

the amendments would also ensure that 

the plans are able to comply with 

minimum cost-sharing requirements for 

high deductible health plans (HDHPs) 

so enrolled individuals are eligible to 

contribute to health savings accounts 

(HSAs). 

The final rules only address the 

requirements for grandfathered group 

health plans and grandfathered group 

health insurance coverage and do not 

apply to or otherwise change the current 

requirements applicable to 

grandfathered individual health 

insurance coverage. With respect to 

individual health insurance coverage, it 

is the Departments’ understanding that 

the number of individuals with 

grandfathered individual health 

81098 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

3The cause of this churn varies. For example, 

beginning a new job that offers group health 

coverage may result in a transition from the 

individual market to group coverage. Eligibility for 

Medicaid or Medicare can also result in a consumer 

leaving the individual market. 

4HHS 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. 

5For a list of the market reform provisions 

applicable to grandfathered health plans under title 

XXVII of the PHS Act that PPACA added or 

amended and that were incorporated into the 

Employee Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code of 1986 (the 

Code), visit https://www.dol.gov/sites/default/files/ 

ebsa/laws-and-regulations/laws/affordable-careact/for-employers-and-advisers/grandfatheredhealth-plans-provisions-summary-chart.pdf. 

6 75 FR 34538 (June 17, 2010). 

7 75 FR 70114 (Nov. 17, 2010). 

8See 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-andFAQs/aca_implementation_faqs.html; Affordable 

Care Act Implementation FAQs Part II, available at 

https://www.dol.gov/sites/default/files/ebsa/aboutebsa/our-activities/resource-center/faqs/aca-partii.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-andFAQs/aca_implementation_faqs4.html; Affordable 

Care Act Implementation FAQs Part V, available at 

https://www.dol.gov/sites/default/files/ebsa/aboutebsa/our-activities/resource-center/faqs/aca-partv.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/FactSheets-and-FAQs/aca_implementation_faqs6.html. 

9 80 FR 72192 (Nov. 18, 2015), codified at 26 CFR 

54.9815–1251, 29 CFR 2590.715–1251, and 45 CFR 

147.140. 

insurance coverage has declined each 

year since PPACA was enacted. As one 

comment received in response to the 

2019 RFI noted, this decline in 

enrollment in grandfathered individual 

health insurance coverage will continue 

due to natural churn, because most 

consumers stay in the individual market 

for less than 5 years.3 Moreover, 

compared to the number of individuals 

in grandfathered group health plans and 

grandfathered group health insurance 

coverage, only a small number of 

individuals are enrolled in 

grandfathered individual health 

insurance coverage. 4 The Departments 

are therefore of the view that any 

amendments to requirements for 

grandfathered individual health 

insurance coverage would be of limited 

utility. 

B. Grandfathered Group Health Plans 

and Grandfathered Group Health 

Insurance Coverage 

Section 1251 of PPACA provides that 

grandfathered health plans are not 

subject to certain provisions of PPACA 

for as long as they maintain their status 

as grandfathered health plans.5 For 

example, grandfathered health plans are 

subject neither to the requirement to 

cover certain preventive services 

without cost sharing under section 2713 

of the Public Health Service Act (PHS 

Act), enacted by section 1001 of PPACA, 

nor to the annual limitation on cost 

sharing set forth under section 1302(c) 

of PPACA and section 2707(b) of the 

PHS Act, enacted by section 1201 of 

PPACA. If a plan were to lose its 

grandfather status, it would be required 

to comply with both provisions, in 

addition to several other requirements. 

On June 17, 2010, the Departments 

issued interim final rules with request 

for comments implementing section 

1251 of PPACA.6 On November 17, 

2010, the Departments issued an 

amendment to the interim final rules 

with request for comments to permit 

certain changes in policies, certificates, 

or contracts of insurance without a loss 

of grandfather status.7 Also, over the 

course of 2010 and 2011, the 

Departments released Affordable Care 

Act Implementation Frequently Asked 

Questions (FAQs) Parts I, II, IV, V, and 

VI to answer questions related to 

maintaining a plan’s status as a 

grandfathered health plan.8 After 

consideration of comments and 

feedback received from stakeholders, 

the Departments issued regulations on 

November 18, 2015, which finalized the 

interim final rules without substantial 

change and incorporated the 

clarifications that the Departments had 

previously provided in other guidance 

(2015 final rules).9

In general, under the 2015 final rules, 

a group health plan or group health 

insurance coverage is considered 

grandfathered if it was in existence, and 

has continuously provided coverage for 

someone (not necessarily the same 

person, but at all times at least one 

person) since March 23, 2010, provided 

the plan (or its sponsor) or issuer has 

not taken certain actions resulting in the 

plan relinquishing grandfather status. 

Under the 2015 final rules, certain 

changes to a group health plan or 

coverage do not result in a loss of 

grandfather status. For example, new 

employees and their families may enroll 

in a group health plan or group health 

insurance coverage without causing a 

loss of grandfather status. Further, the 

addition of a new contributing employer 

or a new group of employees of an 

existing contributing employer to a 

grandfathered multiemployer health 

plan will not affect the plan’s 

grandfather status. Also, grandfather 

status is determined separately for each 

benefit package option available under a 

group health plan or coverage; thus, if 

any benefit package under the plan or 

coverage loses its grandfather status, it 

will not affect the grandfather status of 

the other benefit packages, provided 

that any other changes do not exceed 

the other standards that cause a plan to 

relinquish grandfather status, as 

explained further in this preamble. 

The 2015 final rules specify the 

circumstances under which changes to 

the terms of a plan or coverage cause the 

plan or coverage to cease to be a 

grandfathered health plan. Specifically, 

the regulations outline certain changes 

to benefits, cost-sharing requirements, 

and contribution rates that will cause a 

plan or coverage to relinquish its 

grandfather status. There are six types of 

changes (measured from March 23, 

2010) that will cause a group health 

plan or health insurance coverage to 

cease to be grandfathered: 

1. The elimination of all or 

substantially all benefits to diagnose or 

treat a particular condition; 

2. Any increase in a percentage costsharing requirement (such as 

coinsurance); 

3. Any increase in a fixed-amount 

cost-sharing requirement (other than a 

copayment) (such as a deductible or outof-pocket maximum) that exceeds 

certain thresholds; 

4. Any increase in a fixed-amount 

copayment that exceeds certain 

thresholds; 

5. A decrease in contribution rate by 

an employer or employee organization 

toward the cost of coverage of any tier 

of coverage for any class of similarly 

situated individuals by more than five 

percentage points below the rate for the 

coverage period that includes March 23, 

2010; or 

6. The imposition of annual limits on 

the dollar value of all benefits for group 

health plans and insurance coverage 

that did not impose such a limit prior 

to March 23, 2010. 

The 2015 final rules provide different 

thresholds for the increases to different 

types of cost-sharing requirements that 

will cause a loss of grandfather status. 

The nominal dollar amount of a 

coinsurance obligation automatically 

rises when the cost of the healthcare 

benefit subject to the coinsurance 

obligation increases, so changes to the 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81099 

10See 2018 Employer Health Benefits Survey, 

Kaiser Family Foundation, available at https://

www.kff.org/report-section/2018-employerhealthbenefits-survey-section-13-grandfatheredhealthplans. On October 8, 2020, the Kaiser Family 

Foundation issued its 2020 report. According to 

survey data, 16 percent of offering firms report 

having at least one grandfathered plan in 2020, and 

14 percent of covered workers were enrolled in a 

grandfathered health plan in 2020. See 2020 

Employer Health Benefits Survey, Kaiser Family 

Foundation, available at http://files.kff.org/ 

attachment/Report-Employer-Health-Benefits-2020- 

Annual-Survey.pdf. 

11 ‘‘Grandmothered’’ plans, also known as 

transitional plans, are certain non-grandfathered 

health insurance coverage in the small group and 

individual market that meet certain conditions. On 

November 14, 2013, CMS issued a letter to the State 

Insurance Commissioners outlining a policy under 

which, if permitted by the state, non-grandfathered 

small group and individual market health plans that 

were in effect on October 1, 2013, could continue 

and would not be treated as being out of 

compliance with certain specified PPACA market 

reforms under certain conditions. CMS has 

extended this non-enforcement policy each 

subsequent year, with the most recent extension in 

effect until policy years beginning on or before 

October 1, 2021, provided that all such coverage 

comes into compliance by January 1, 2022. See 

Insurance Standards Bulletin Series— 

INFORMATION—Extension of Limited NonEnforcement Policy through 2021 (January 31, 

2020), available at https://www.cms.gov/files/ 

document/extension-limited-non-enforcementpolicy-through-calendar-year-2021.pdf. 

level of coinsurance (such as modifying 

a requirement that the patient pay 20 

percent to a requirement that the patient 

pay 30 percent of inpatient surgery 

costs) can significantly alter the balance 

of financial obligations between 

participants and beneficiaries and a 

plan or health insurance coverage. On 

the other hand, fixed-amount costsharing 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 costsharing 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-ofpocket maximums) and another for 

copayments. 

With respect to fixed-amount costsharing requirements other than 

copayments, a plan or coverage ceases 

to be a grandfathered health plan if 

there is an increase, since March 23, 

2010, that is greater than the maximum 

percentage increase. The 2015 final 

rules define the maximum percentage 

increase as medical inflation (from 

March 23, 2010) plus 15 percentage 

points. For this purpose, medical 

inflation is defined by reference to the 

overall medical care component of the 

Consumer Price Index for All Urban 

Consumers, unadjusted (CPI–U), 

published by the DOL using the 1982– 

1984 base of 100. 

For fixed-amount copayments, a plan 

or coverage ceases to be a grandfathered 

health plan if there is an increase, since 

March 23, 2010, in the copayment that 

exceeds the greater of (1) the maximum 

percentage increase (calculated in the 

same manner as for fixed amount costsharing requirements other than 

copayments) or (2) five dollars (as 

increased by medical inflation). 

For any change that causes a loss of 

grandfather status under the 2015 final 

rules, the plan or coverage will cease to 

be a grandfathered plan when the 

change becomes effective, regardless of 

when the change is adopted. 

In addition, the 2015 final rules 

require that a grandfathered plan or 

coverage both include a statement in 

any summary of benefits provided 

under the plan that it believes the plan 

or coverage is a grandfathered health 

plan and provide contact information 

for questions and complaints. Failure to 

provide this disclosure results in a loss 

of grandfather status. The 2015 final 

rules further provide that, once 

grandfather status is relinquished, there 

is no opportunity to regain it. 

C. 2019 Request for Information 

It is the Departments’ understanding 

that the number of grandfathered group 

health plans and grandfathered group 

health insurance policies has declined 

each year since the enactment of 

PPACA, but many employers continue 

to maintain grandfathered group health 

plans and coverage. That a significant 

number of grandfathered group health 

plans and coverage remain indicates 

that some employers and issuers have 

found value in preserving grandfather 

status. Accordingly, on February 25, 

2019, the Departments published the 

2019 RFI to gather input from the public 

in order to better understand the 

challenges that group health plans and 

group health insurance issuers face in 

avoiding the loss of grandfather status 

and to determine whether there are 

opportunities for the Departments to 

assist such plans and issuers, consistent 

with the law, in preserving the 

grandfather status of group health plans 

and group health insurance coverage in 

ways that would benefit plan 

participants and beneficiaries, 

employers, employee organizations, and 

other stakeholders. 

Comments submitted in response to 

the 2019 RFI provided information 

regarding grandfathered health plans 

that helped inform the 2020 proposed 

rules. Commenters shared data 

regarding the prevalence of 

grandfathered group health plans and 

grandfathered group health insurance 

coverage, insights regarding the impact 

that grandfathered plans have had in 

terms of delivering benefits to 

participants and beneficiaries at a lower 

cost than non-grandfathered plans, and 

suggestions for potential amendments to 

the Departments’ 2015 final rules that 

would provide more flexibility for a 

plan or coverage to retain grandfather 

status. 

Several commenters directed the 

Departments’ attention to a Kaiser 

Family Foundation survey, which 

indicates that one out of every five firms 

that offered health benefits in 2018 

offered at least one grandfathered health 

plan, and 16 percent of covered workers 

were enrolled in a grandfathered group 

health plan that year.10 One commenter 

indicated the incidence of grandfathered 

plan status differs by various types of 

plan sponsors. Another commenter 

cited survey data released in 2018 by 

the International Foundation of 

Employee Benefit Plans, which 

indicated that 57 percent of 

multiemployer plans are grandfathered, 

compared to 20 percent of other privatesector plans and 30 percent of publicsector plans. However, a professional 

association with members who work 

with employer groups on health plan 

design and administration commented 

that their members have found far fewer 

grandfathered plans than survey results 

suggest exist and suggested that very 

large employers with self-funded plans 

may sponsor a disproportionate share of 

grandfathered plans, as well as that 

some employers that have 

‘‘grandmothered’’ plans or that 

previously had grandfathered plans may 

unintentionally be reporting incorrectly 

in surveys that they still sponsor 

grandfathered plans. 11

Some commenters stated that 

grandfathered health plans are less 

comprehensive and provide fewer 

consumer protections than nongrandfathered plans; thus, these 

commenters opined that the 

Departments should not amend the 2015 

final rules to provide greater flexibility 

for a plan or coverage to maintain 

grandfather status. Other commenters 

noted, however, that grandfathered 

81100 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

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/StatisticsTrends-and-Reports/NationalHealthExpendData/ 

NationalHealthAccountsProjected.html. A detailed 

description of the NHE projection methodology is 

available at https://www.cms.gov/ResearchStatistics-Data-and-Systems/Statistics-Trends-andReports/NationalHealthExpendData/Downloads/ 

ProjectionsMethodology.pdf. 

13The Tax Cuts and Jobs Act, Public Law 115– 

97, 131 Stat. 2054 (Dec. 22, 2017), amended section 

1(f)(3) of the Code to use the C–CPI–U rather than 

CPI–U for certain inflation adjustments for tax years 

beginning after December 31, 2017. 

plans often have lower premiums and 

cost-sharing requirements than nongrandfathered plans. One commenter 

gave examples of premium increases 

ranging from 10 percent to 40 percent 

that grandfathered plan participants 

would experience if they transitioned to 

non-grandfathered group health plans. 

Several commenters also stated that 

grandfathered health plans do in fact 

offer comprehensive benefits and in 

some cases are even more generous than 

certain non-grandfathered plans that are 

subject to all the requirements of 

PPACA. Some commenters also stated 

that their grandfathered plans offer more 

robust provider networks than other 

coverage options that are available to 

them or that access to a grandfathered 

plan ensures that they are able to keep 

receiving care from current in-network 

providers. 

Commenters who supported allowing 

greater flexibility for grandfathered 

health plans offered a range of 

suggestions regarding how the 

Departments should amend the 2015 

final rules. For example, several 

commenters requested additional 

flexibility regarding plan or coverage 

changes that would constitute an 

elimination of substantially all benefits 

to diagnose or treat a condition, stating 

that it is often difficult to discern what 

constitutes a benefit reduction given 

that the regulations apply a ‘‘facts and 

circumstances’’ standard. Some 

commenters requested flexibility to 

make certain changes so long as the 

grandfathered plan or coverage’s 

actuarial value is not affected. Some 

commenters also stated that the 2015 

final rules should be amended to permit 

decreases in contribution rates by 

employers and employee organizations 

by more than five percentage points to 

account for employers experiencing a 

business change or economic downturn. 

Commenters also suggested 

amendments relating to the permitted 

changes in cost-sharing requirements for 

grandfathered plans. These commenters 

generally argued that the 2015 final 

rules were too restrictive. Several 

commenters stated that relying on the 

medical care component of the CPI–U 

for purposes of those rules to account 

for inflation adjustments to the 

maximum percentage increase was 

misguided, and the methodology used 

to calculate the ‘‘premium adjustment 

percentage’’ (as defined in 45 CFR 

156.130) would be more appropriate 

because it is tied to the increase in 

premiums for health insurance and, 

therefore, better reflects the increase in 

costs for health coverage. These 

commenters also noted that relying on 

the premium adjustment percentage 

would be consistent with the 

methodology used to adjust the annual 

limitation on cost sharing under section 

1302(c) of PPACA and section 2707(b) 

of the PHS Act that applies to nongrandfathered plans. Additionally, one 

commenter articulated a concern that 

the 2015 final rules eventually may 

preclude some grandfathered group 

health plans or issuers of grandfathered 

group health insurance coverage from 

being able to make changes to costsharing requirements that are necessary 

for a plan to maintain its status as an 

HDHP within the meaning of section 

223 of the Code, which would 

effectively mean that individuals 

covered by those plans would no longer 

be eligible to contribute to an HSA. 

D. The Premium Adjustment Percentage 

Section 1302(c)(4) of PPACA directs 

the Secretary of HHS to determine an 

annual premium adjustment percentage, 

a measure of premium growth that is 

used to set the rate of increase for three 

parameters detailed in PPACA: (1) The 

maximum annual limitation on cost 

sharing (defined at 45 CFR 156.130(a)); 

(2) the required contribution percentage 

used to determine eligibility for certain 

exemptions under section 5000A of the 

Code (defined at 45 CFR 155.605(d)(2)); 

and (3) the employer shared 

responsibility payment amounts under 

section 4980H(a) and (b) of the Code 

(see section 4980H(c)(5) of the Code). 

Section 1302(c)(4) of PPACA and 45 

CFR 156.130(e) provide that the 

premium adjustment percentage is the 

percentage (if any) by which the average 

per capita premium for health insurance 

coverage for the preceding calendar year 

exceeds such average per capita 

premium for health insurance for 2013, 

and 45 CFR 156.130(e) provides that 

this percentage will be published 

annually by HHS. 

To calculate the premium adjustment 

percentage for a benefit year, HHS 

calculates the percentage by which the 

average per capita premium for health 

insurance coverage for the preceding 

calendar year exceeds the average per 

capita premium for health insurance for 

2013 and rounds the resulting 

percentage to 10 significant digits. The 

resulting premium index reflects 

cumulative, historic growth in 

premiums from 2013 through the 

preceding year. HHS calculates the 

premium adjustment percentage using 

as a premium growth measure the most 

recently available National Health 

Expenditure Accounts (NHEA) 

projection of per enrollee premiums for 

private health insurance (excluding 

Medigap and property and casualty 

insurance) at the time of publication of 

the premium adjustment percentage.12

E. High Deductible Health Plans and 

HSA-compatibility 

Section 223 of the Code permits 

eligible individuals to establish and 

contribute to HSAs. HSAs are taxfavored accounts established for the 

purpose of accumulating funds to pay 

for qualified medical expenses on behalf 

of the account beneficiary, his or her 

spouse, and any claimed dependents. In 

order for an individual to qualify as an 

eligible individual under section 

223(c)(1) of the Code (and thus to be 

eligible to make tax-favored 

contributions to an HSA) the individual 

must be covered under an HDHP. An 

HDHP is a health plan that satisfies 

certain requirements with respect to 

minimum deductibles and maximum 

out-of-pocket expenses, which increase 

annually with cost-of-living 

adjustments. Generally, except for 

preventive care, an HDHP may not 

provide benefits for any year until the 

deductible for that year is met. Pursuant 

to section 223(g) of the Code, the 

minimum deductible for an HDHP is 

adjusted annually for cost of living 

based on changes in the Chained 

Consumer Price Index for All Urban 

Consumers (C–CPI–U).13

F. 2020 Proposed Rules 

On July 15, 2020, the Departments 

issued the 2020 proposed rules that 

would, if finalized, amend the 2015 

final rules to provide greater flexibility 

for grandfathered group health plans 

and issuers of grandfathered group 

health insurance coverage to make 

certain changes without causing a loss 

of grandfather status. However, there is 

no authority for non-grandfathered 

plans to become grandfathered. 

Therefore, the 2020 proposed rules did 

not provide any opportunity for a plan 

or coverage that has lost its grandfather 

status under the 2015 final rules to 

regain that status. 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81101 

In issuing the 2020 proposed rules, 

the Departments considered comments 

submitted in response to the 2019 RFI 

regarding ways that the 2015 final rules 

could be amended. The Departments 

did not include in the 2020 proposed 

rules many suggestions outlined in 

those comments because, in the 

Departments’ view, those suggestions 

would have allowed for such significant 

changes that the modified plan or 

coverage could not reasonably be 

described as being the same plan or 

coverage that existed on March 23, 

2010, for purposes of grandfather status. 

The Departments were persuaded, 

however, by commenters’ statements 

that there are better means of accounting 

for inflation in the standard for the 

maximum percentage increase that 

should be permitted to fixed-amount 

cost-sharing requirements. The 

Departments also agreed that, as one 

commenter on the 2019 RFI highlighted, 

there is an opportunity to specify that 

changes to fixed-amount cost-sharing 

requirements that are necessary for a 

plan to maintain its status as an HDHP 

should not cause a loss of grandfather 

status. Given that the 2015 final rules 

permit increases that are meant to 

account for inflation in healthcare costs 

over time, the Departments were of the 

view that those suggestions were 

reasonably narrow and consistent with 

the intent of the 2015 final rules to 

permit adjustments in response to 

inflation without causing a loss of 

grandfather status. 

Accordingly, the Departments 

proposed to amend the 2015 final rules 

in two ways. First, the 2020 proposed 

rules included a new paragraph (g)(3), 

which specified that grandfathered 

group health plans and grandfathered 

group health insurance coverage that are 

HDHPs may make changes to fixedamount cost-sharing requirements that 

would otherwise cause a loss of 

grandfather status without causing a 

loss of grandfather status, but only to 

the extent those changes are necessary 

to comply with the requirements for 

HDHPs under section 223(c)(2)(A) of the 

Code. Second, the 2020 proposed rules 

included a revised definition of 

‘‘maximum percentage increase’’ at 

redesignated paragraph (g)(4), which 

provided an alternative method of 

determining that amount based on the 

premium adjustment percentage. Under 

the 2020 proposed rules, this alternative 

method would be available only for 

grandfathered group health plans and 

grandfathered group health insurance 

coverage with changes that are effective 

on or after the applicability date of a 

final rule. 

The Departments requested comments 

on all aspects of the 2020 proposed 

rules, as well as on specific issues 

related to the 2020 proposed rules 

where stakeholder feedback would be 

particularly useful in evaluating 

whether to issue final rules, and what 

the content of any final rules should be. 

The comment period for the 2020 

proposed rules closed on August 14, 

2020. The Departments received 13 

comments. After careful consideration 

of these comments, for the reasons 

explained further in the preamble, the 

Departments are issuing the final rules, 

which finalize the 2020 proposed rules 

without substantive change. 

II. Overview of the Final Rules 

A. General Response to Public 

Comments on the 2020 Proposed Rules 

Some commenters expressed support 

for the 2020 proposed rules because the 

2020 proposed rules would allow 

grandfathered group health plans and 

issuers offering grandfathered group 

health insurance coverage to make 

certain key changes without causing a 

loss of grandfather status. One 

commenter noted that providing more 

flexibility to maintain grandfather status 

should help both plan sponsors and 

participants. This commenter 

highlighted that plan sponsors could 

continue to avoid the costs and burdens 

associated with compliance with the 

additional requirements applicable to 

non-grandfathered plans while plan 

participants and beneficiaries could 

retain their current coverage instead of 

finding alternate coverage and 

potentially experiencing greater 

increases in cost sharing or reductions 

in benefits. 

The final rules will allow 

grandfathered group health plan 

sponsors and issuers of grandfathered 

group health insurance coverage more 

flexibility to make changes to certain 

types of cost-sharing requirements 

without causing a loss of grandfather 

status. The Departments view this 

flexibility as a way to enable plan 

sponsors and issuers to continue to offer 

quality, affordable coverage to their 

participants and beneficiaries while 

appropriately taking into account rising 

healthcare costs. The Departments also 

are of the view that providing this 

flexibility will help participants and 

beneficiaries in grandfathered group 

health plans maintain their current 

coverage, including their provider and 

service network(s). Further, the final 

rules will provide participants and 

beneficiaries with the ability to 

maintain access to affordable coverage 

options offered by their employers or 

unions by ensuring that employers and 

other plan sponsors have the ability to 

more appropriately account for the 

rising costs of healthcare due to 

inflation. 

Several commenters did not support 

the 2020 proposed rules and urged the 

Departments not to finalize them. These 

commenters generally stated that 

finalizing the 2020 proposed rules 

would allow employers to continue to 

offer plans that do not provide 

comprehensive benefits while placing 

an increased financial burden on 

participants and beneficiaries. The 

commenters also noted that 

grandfathered group health plans lack 

certain essential patient protections, and 

that the consequences of not having 

complete information about 

grandfathered coverage will be 

especially detrimental for patients with 

complex medical conditions. These 

commenters further asserted that 

ensuring access to robust coverage and 

benefits such as preventive services and 

maternity care is especially important 

and that, in light of the ongoing COVID– 

19 pandemic, now is not an appropriate 

time to allow changes that could shift 

more costs to consumers. 

While the Departments appreciate 

these concerns, the Departments are of 

the view that finalizing the 2020 

proposed rules strikes a proper balance 

between preserving plans’, issuers’, 

participants’, and beneficiaries’ ability 

to maintain existing coverage with the 

goals of expanding access to and 

improving the quality of health 

coverage. The Departments are also of 

the view that the final rules 

appropriately support the goal of 

promoting greater choice in coverage, 

especially in light of rising healthcare 

costs. While grandfathered health plans 

are not required to comply with all 

PPACA market reform provisions, there 

are many PPACA consumer protections 

that are applicable to all group health 

plans and issuers offering group health 

insurance coverage, regardless of 

grandfather status, including the 

prohibition on preexisting condition 

exclusions, the prohibition on waiting 

periods that exceed 90 days, the 

prohibition on lifetime or annual dollar 

limits, the prohibition on rescissions, 

and the requirement for plans and 

issuers that offer dependent coverage of 

children to do so up to age 26. Further, 

grandfathered group health plans and 

issuers of grandfathered group health 

insurance coverage are not prohibited 

from providing coverage consistent with 

any of the PPACA market provisions 

that apply to non-grandfathered group 

health plans and may add that coverage 

without relinquishing grandfather 

81102 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

14The Departments continue to work with 

employers and individuals to help them understand 

the new laws and regulatory relief and to benefit 

from them, as intended. On April 11, 2020, the 

Departments issued FAQs Part 42 regarding 

implementation of the Families First Coronavirus 

Response Act (FFCRA), and the Coronavirus Aid, 

Relief, and Economic Security (CARES) Act, and 

other health coverage issues related to COVID–19 

available at: https://www.dol.gov/sites/dolgov/files/ 

ebsa/about-ebsa/our-activities/resource-center/faqs/ 

aca-part-42.pdf. In this guidance, the Departments 

strongly encourage all group health plans and 

health insurance issuers to promote the use of 

telehealth and other remote care services. The 

Departments’ guidance also provides enforcement 

relief that allows plans and issuer to make changes 

to increase telehealth benefits more quickly than is 

possible under current law. Specifically, the 

Departments will not enforce regulations that 

generally require plans and issuers to provide 60 

days’ advance notice of certain changes to plan 

terms and prohibit issuers from making mid-year 

modifications to health insurance products, with 

respect to any change that adds benefits or reduces 

or eliminates cost-sharing requirements for 

telehealth services and other remote care services. 

On June 23, 2020, the Departments issued a second 

round of FAQs, Part 43, providing further guidance 

regarding requirements of the FFCRA and the 

CARES Act and related issues available at: https:// 

www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/ 

our-activities/resource-center/faqs/aca-part-43.pdf. 

In light of the critical need to minimize the risk of 

exposure to and community spread of COVID–19, 

the FAQs provide a statement of temporary 

enforcement relief regarding certain requirements 

that would otherwise apply in order to allow large 

employers to offer stand-alone telehealth benefits to 

employees who are not eligible for the employer’s 

primary group health plan. Furthermore, the 

Departments of Labor and the Treasury published 

a Joint Notice—Extension of Certain Timeframes for 

Employee Benefit Plans, Participants, and 

Beneficiaries (85 FR 26351) on May 4, 2020, https:// 

www.govinfo.gov/content/pkg/FR-2020-05-04/pdf/ 

2020-09399.pdf. The Joint Notice extends 

timeframes for requesting special enrollment in a 

group health plan, the COBRA election period, and 

COBRA premium due dates, and certain timeframes 

relating to benefit claims appeals. On May 14, 2020, 

HHS published guidance that announced that HHS 

concurred with the relief specified in the Joint 

Notice and would adopt a temporary policy of 

relaxed enforcement to extend similar timeframes 

otherwise applicable to non-Federal governmental 

group health plans and health insurance issuers 

offering coverage in connection with a group health 

plan, and their participants and beneficiaries, under 

applicable provisions of title XXVII of the PHS Act, 

available at https://www.cms.gov/files/document/ 

Temporary-Relaxed-Enforcement-Of-Group-MarketTimeframes.pdf. 

15See e.g., Extension of Certain Timeframes for 

Employee Benefit Plans, Participants, and 

Beneficiaries Affected by the COVID–19 Outbreak, 

85 FR 26351 (May 4, 2020); FAQs About First 

Coronavirus Response Act and Coronavirus Aid, 

Relief, and Economic Security Act Implementation 

Part 42 (April 11, 2020) available at https://

www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/ 

our-activities/resource-center/faqs/aca-part-42.pdf 

and https://www.cms.gov/files/document/FFCRAPart-42-FAQs.pdf; FAQs About Families First 

Coronavirus Response Act and Coronavirus Aid, 

Relief, and Economic Security Act Implementation 

Part 43 (June 23, 2020), available at https://

www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/ 

our-activities/resource-center/faqs/aca-part-43.pdf 

and https://www.cms.gov/files/document/FFCRAPart-43-FAQs.pdf. 

status, provided these changes are made 

without exceeding the standards 

established by paragraph (g)(1) of the 

grandfather regulations. 

Several commenters urged the 

Departments to not finalize the 2020 

proposed rules due to the ongoing 

coronavirus disease of 2019 (COVID–19) 

pandemic. These commenters 

highlighted that the COVID–19 

pandemic has created high levels of 

economic uncertainty for millions of 

Americans while also posing risks to 

their health and safety. The commenters 

voiced concern that the 2020 proposed 

rules could have a harmful impact on 

access to care and affordability during 

the ongoing COVID–19 pandemic. 

As evidenced by the Administration’s 

efforts to address the COVID–19 

pandemic, the Departments appreciate 

that the COVID–19 pandemic has 

created a greater need for affordable 

healthcare options for consumers and, 

accordingly, have taken a number of 

actions to provide relief and promote 

increased access to benefits during the 

COVID–19 pandemic.14 For example, 

the Departments have published 

regulatory and subregulatory guidance 

to assist individuals during the COVID– 

19 pandemic, including those who have 

lost their health coverage, and have 

extended a number of deadlines so that 

participants and beneficiaries in 

employee benefit plans have additional 

time to make critical health coverage 

decisions affecting their benefits during 

the COVID–19 pandemic.15 The 

Departments highlight that the final 

rules provide flexibility to employers 

that currently offer health coverage and 

have consistently done so since 2010, 

with the aim that their employees will 

have a greater ability to maintain that 

coverage, should they so choose. 

Accordingly, the Departments are of the 

view that the flexibility afforded by the 

final rules is unlikely to exacerbate any 

difficulties employees may experience 

in obtaining access to care during the 

COVID–19 pandemic and will 

potentially enable employers and 

employees to maintain more affordable 

coverage than they may otherwise be 

able to maintain. Notwithstanding these 

considerations, the Departments are 

delaying the applicability of the final 

rules, to be applicable 6 months after 

publication in the Federal Register, as 

discussed later in this preamble. 

One commenter raised concerns that 

the continued availability of 

grandfathered plans might contribute to 

segmentation of the small-group market, 

causing adverse selection and, in turn, 

higher premiums for small businesses 

that offer or want to offer plans subject 

to the PPACA market reforms. This 

commenter noted that, because the nongrandfathered small-group market is 

subject to modified community rating 

and a ‘‘single risk pool,’’ firms with 

younger or healthier-than-average 

employees have incentives to opt out of 

the small group market single risk pool, 

at the expense of other firms that may 

therefore face higher premiums. 

Commenters also claimed that the 

Departments do not have sufficient 

information and data to accurately 

predict the financial effect that the 2020 

proposed rules would have on 

consumers. 

The Departments acknowledge that 

the existence of grandfathered group 

health plans potentially creates market 

segmentation and adverse selection in 

the small group market. However, the 

Departments do not anticipate that the 

additional flexibilities provided in the 

final rules will materially increase 

market segmentation, or adverse 

selection, as the final rules do not 

provide a mechanism for nongrandfathered plans to become 

grandfathered. For this reason, the 

Departments are of the view that the 

changes allowed by the final rules will 

not have a measurable impact on 

premiums for small businesses that offer 

or want to offer non-grandfathered 

group health insurance coverage. 

Moreover, the Departments do not 

expect the number of plans that 

maintain grandfather status because of 

the final rules to be so significant as to 

exacerbate any market segmentation that 

may already exist. 

The Departments also received 

comments stating that consumers risk 

being confused or having difficulty with 

the term ‘‘grandfathered.’’ One 

commenter noted it may be difficult to 

know whether grandfathered plan 

participants and beneficiaries are 

actively choosing to remain in such 

plans, whether they typically have other 

non-grandfathered options that they 

could select, whether they even know a 

plan is grandfathered, or whether they 

understand which PPACA consumer 

protections might be missing when they 

enroll in grandfathered coverage. Other 

commenters suggested the addition of 

greater transparency requirements for 

employers that offer grandfathered plans 

as a means to avoid confusion. 

The Departments note that these 

concerns relate to grandfathered plans 

generally and are not specific to the 

limited changes made in the proposed 

or final rules. Under the 2015 final 

rules, to maintain status as a 

grandfathered plan, a group health plan 

or health insurance coverage must 

include a statement in any summary of 

benefits that the plan or coverage 

believes it is a grandfathered plan. It 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81103 

16ERISA Section 102. 

17 26 CFR 54.9815–2715, 29 CFR 2590.715–2715, 

45 CFR 147.200. 

18 26 CFR 54.9815–2715(b), 29 CFR 2590.715– 

2715(b), 45 CFR 147.200(b). 

19For calendar year 2020, a ‘‘high deductible 

health plan’’ is defined under Code section 

223(c)(2)(A) as a health plan with an annual 

deductible that is not less than $1,400 for self-only 

coverage or $2,800 for family coverage, and the 

annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) 

for which do not exceed $6,900 for self-only 

coverage or $13,800 for family coverage. Rev. Proc. 

2019–25 (2019–22 I.R.B. 1261). For calendar year 

2021, a ‘‘high deductible health plan’’ is defined 

under Code section 223(c)(2)(A) as a health plan 

with an annual deductible that is not less than 

$1,400 for self-only coverage or $2,800 for family 

coverage, and the annual out-of-pocket expenses 

(deductibles, co-payments, and other amounts, but 

not premiums) for which do not exceed $7,000 for 

self-only coverage or $14,000 for family coverage. 

Rev. Proc. 2020–32 (2020–24 I.R.B. 930). 

20Paragraph (g)(3) of the 2015 final rules would 

be renumbered as paragraph (g)(4), and subsequent 

paragraphs would be renumbered accordingly. 

Additionally, the 2020 proposed rules included 

conforming amendments to other paragraphs to 

update all cross-references to those subparagraphs. 

must also provide contact information 

for questions and complaints. The 2015 

final rules provide model language that 

the plan or coverage can use to satisfy 

the disclosure requirement. That 

language specifically highlights that 

grandfathered plans are subject to some, 

but not all, of the PPACA consumer 

protections that apply to nongrandfathered plans, such as not being 

subject to the requirement to provide 

certain preventive health services 

without cost sharing. This required 

disclosure of grandfather status is 

intended to alleviate confusion 

consumers may face regarding the term 

‘‘grandfathered’’ and what benefits and 

protections are offered under such 

coverage. The disclosure language is 

model language, and plans and issuers 

may include additional disclosure 

elements, such as the entire list of 

market reform provisions that do not 

apply to the specific grandfathered 

health plan. 

Moreover, group health plans, 

including grandfathered plans, are 

subject to a number of disclosure 

requirements under which participants 

and beneficiaries are entitled to 

comprehensive information about their 

benefits. For example, group health 

plans that are subject to ERISA are 

required to distribute a summary plan 

description (SPD) to participants and 

beneficiaries that provides a 

comprehensive description of the 

benefits offered by the plan.16 In 

addition, group health plans and issuers 

of group health insurance coverage, 

including grandfathered plans, are 

required to provide a summary of 

benefits and coverage (SBC) that 

provides information about benefits and 

cost sharing in connection with 

enrollment and renewal.17 Furthermore, 

typically, if a plan or issuer makes a 

material modification to any term that 

affects the content of the SBC and that 

is not reflected in the most recently 

provided SBC, and that occurs other 

than in connection with a renewal or 

reissuance of coverage, notice of the 

change must be provided no later than 

60 days prior to the date the 

modification is effective.18

The Departments have concluded that 

existing disclosure requirements are 

sufficient to ensure that participants and 

beneficiaries have access to relevant 

information, including information 

regarding cost sharing, to help them 

understand the implications of 

grandfathered coverage. The 

information included in the model 

grandfather notice—in particular the 

language highlighting that certain 

consumer protections under PPACA do 

not apply to grandfathered coverage, 

alongside the information available to 

individuals in their plan’s SPD and 

SBC—provides ample disclosure to 

participants and beneficiaries regarding 

their benefits to help them decide 

whether to enroll or remain in such a 

plan. Therefore, the Departments are 

declining to include any additional 

disclosure requirements in the final 

rules. 

a. Special Rule for Certain 

Grandfathered HDHPs 

As explained above, paragraph (g)(1) 

of the 2015 final rules identifies certain 

types of changes that will cause a plan 

or coverage to cease to be a 

grandfathered health plan, including 

increases in cost-sharing requirements 

that exceed certain thresholds. 

However, cost-sharing requirements for 

a grandfathered group health plan or 

group health insurance coverage that is 

an HDHP must satisfy the minimum 

annual deductible requirement and 

maximum out-of-pocket expenses 

requirement under section 223(c)(2)(A) 

of the Code in order to remain an HDHP. 

The Internal Revenue Service updates 

these amounts annually to reflect a costof-living adjustment. 

The annual cost-of-living adjustment 

to the required minimum deductible for 

an HDHP has not yet exceeded the 

maximum percentage increase that 

would cause an HDHP to lose 

grandfather status.19 Nevertheless, the 

Departments are of the view that there 

is value in specifying that if a 

grandfathered group health plan or 

group health insurance coverage that is 

an HDHP increases its fixed-amount 

cost-sharing requirements to meet a 

future adjusted minimum annual 

deductible requirement under section 

223(c)(2)(A) of the Code that is greater 

than the increase that would be 

permitted under paragraph (g)(1) of the 

2015 final rules, such an increase would 

not cause the plan or coverage to 

relinquish its grandfather status. 

Otherwise, if such a conflict were to 

occur, the plan sponsor or issuer would 

have to decide whether to preserve the 

plan’s grandfather status or its status as 

an HDHP, potentially causing 

participants and beneficiaries to 

experience either substantial changes to 

their coverage (and likely premium 

increases) or a loss of eligibility to 

contribute to an HSA. 

To address this potential conflict, the 

2020 proposed rules included a new 

paragraph (g)(3), which provided that, 

with respect to a grandfathered group 

health plan or group health insurance 

coverage that is an HDHP, increases to 

fixed-amount cost-sharing requirements 

that otherwise would cause a loss of 

grandfather status would not cause the 

plan or coverage to relinquish its 

grandfather status, but only to the extent 

the increases are necessary to maintain 

its status as an HDHP under section 

223(c)(2)(A) of the Code.20 Thus, 

increases with respect to such a plan or 

coverage that would otherwise cause a 

loss of grandfather status and that 

exceed the amount necessary to satisfy 

the minimum annual deductible 

requirement under section 223(c)(2)(A) 

of the Code would still cause a loss of 

grandfather status. The 2020 proposed 

rules also added a new example 11 

under paragraph (g)(5) to illustrate how 

this special rule would apply. 

Several commenters supported the 

2020 proposed rules to allow a 

grandfathered HDHP to make changes to 

fixed-amount cost-sharing requirements 

without causing a loss of grandfather 

status to the extent the increases are 

necessary to maintain the plan’s status 

as an HDHP. One commenter 

highlighted that without this regulatory 

change, HDHPs could be forced out of 

their grandfather status if the annual 

cost-of-living adjustment to the required 

minimum deductible for an HDHP 

exceeds the maximum percentage 

increase allowed under the 2015 final 

rules. Another commenter articulated 

that without this provision, participants 

and beneficiaries who are covered under 

a grandfathered HDHP and eligible to 

contribute to an HSA may lose their 

eligibility to contribute to an HSA if 

their plan chooses to relinquish its 

HDHP status to maintain its grandfather 

81104 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

21The Departments acknowledge that the 

premium adjustment percentage does not capture 

premium growth from 2010 to 2013, and that it 

reflects increases in premiums not only in the group 

market, but also in the individual market, which 

have increased more rapidly than premiums for 

group health plans and group health insurance. 

However, the Departments have concluded that the 

premium adjustment percentage may be the best 

alternative existing measure to reflect the increase 

in underlying costs for grandfathered group health 

plans and grandfathered group health insurance 

coverage. Additionally, the Departments are of the 

view that using a measure with which plans and 

issuers are already familiar will promote 

administrative simplicity. 

22The amendments included in the 2020 

proposed rules would apply only with respect to 

grandfathered group health plans and grandfathered 

group health insurance coverage. Because HHS 

regulations at 45 CFR 147.140 apply to both 

grandfathered individual and group health 

coverage, the amended definition of the maximum 

percentage increase in the HHS proposed rules 

would also add a separate provision for individual 

health insurance coverage to make clear that the 

definition applicable to individual coverage 

remains unchanged. 

status. The commenter also raised the 

concern of facing substantial premium 

increases as a result of having to choose 

other health coverage in the event of an 

HDHP failing to maintain its HDHP 

status. 

The Departments agree that the 

special rule for grandfathered HDHPs 

could help participants and 

beneficiaries enrolled in these plans. 

The Departments are of the view that 

there is value in specifying that 

grandfathered HDHPs will not be forced 

to choose whether to preserve their 

grandfather status or their status as an 

HDHP and that they can continue to 

provide the coverage with which their 

participants and beneficiaries are 

familiar and comfortable. The 

Departments also agree that this special 

rule will help ensure that plans are able 

to comply with minimum cost-sharing 

requirements for HDHPs so participants 

and beneficiaries covered under HDHPs 

can continue to be eligible to contribute 

to HSAs. In adopting the final rules, the 

Departments specifically intend to 

ensure that participants and 

beneficiaries enrolled in HDHPs with 

grandfather status are able to maintain 

their eligibility to contribute to HSAs. 

Other commenters expressed 

concerns that allowing grandfathered 

HDHPs to preserve both their 

grandfather status and HDHP status by 

implementing fixed dollar cost-sharing 

increases that exceed the standards 

established under the 2015 final rules 

might result in increased costs for 

consumers enrolled in HDHPs. These 

commenters stated that the proposed 

changes would further exacerbate 

existing affordability issues, in 

particular by raising deductibles to 

potentially unaffordable levels and 

subjecting consumers to increased cost 

sharing. Several commenters noted that 

increased cost sharing for HDHPs may 

discourage consumers from seeking 

medical care or cause consumers to 

forego treatment if the necessary 

services became unaffordable. 

Moreover, commenters noted that high 

out-of-pocket costs for medical care 

related to the diagnosis and/or treatment 

of COVID–19 may deter individuals 

from seeking care, potentially 

contributing to increased transmission 

of COVID–19. 

The Departments acknowledge 

commenters’ concerns related to 

potential increased cost and 

affordability issues, but the Departments 

do not anticipate significant cost 

increases for consumers enrolled in 

grandfathered HDHPs. In addition, this 

special rule is narrowly tailored, as it 

permits flexibility only to the extent 

necessary to maintain a plan’s status as 

an HDHP under section 223(c)(2)(A) of 

the Code. Without this regulatory 

change, grandfathered HDHPs could be 

forced to choose between maintaining 

grandfather status and remaining 

HDHPs. The flexibility offered by the 

special rule for grandfathered HDHPs 

will benefit participants and 

beneficiaries covered under these plans 

as it balances potential affordability 

issues with safeguards. Specifically, the 

final rules allow plan sponsors to 

continue offering grandfathered 

coverage, thereby enabling participants 

and beneficiaries to maintain existing 

coverage, while only permitting plan 

sponsors to make certain cost-sharing 

increases to the extent necessary to 

maintain HDHP status. Moreover, the 

Departments expect that the impact of 

the special rule will be modest: 

Sponsors of grandfathered HDHPs will 

have greater flexibility to continue 

offering their plans as grandfathered, 

protecting those enrolled in these plans 

from the disruption and potentially 

increased out-of-pocket costs associated 

with changing to a different plan or 

coverage that may not be an HDHP or 

grandfathered. This consideration 

carries particular weight because of the 

COVID–19 pandemic, during which 

losing access to a plan or coverage, 

potentially including losing access to a 

specific provider network, could be 

particularly disruptive. 

b. Definition of Maximum Percentage 

Increase 

Under the 2015 final rules, medical 

inflation means the increase since 

March 2010 in the overall medical care 

component of the CPI–U published by 

the DOL using the 1982–1984 base of 

100. The medical care component of the 

CPI–U is a measure of the average 

change over time in the prices paid by 

urban consumers for medical care. 

Although the Departments continue to 

be of the view that this is an appropriate 

measure for medical inflation in this 

context, the Departments recognize that 

the medical care component of CPI–U 

reflects not only changes in price for 

private insurance, but also for self-pay 

patients and Medicare, neither of which 

are reflected in the underlying costs for 

grandfathered group health plans and 

grandfathered group health insurance 

coverage. In contrast, the premium 

adjustment percentage reflects the 

cumulative, historic growth from 2013 

through the preceding calendar year in 

premiums for only private health 

insurance, excluding Medigap and 

property and casualty insurance. 

Therefore, the Departments agreed with 

comments received in response to the 

2019 RFI that the premium adjustment 

percentage may better reflect the 

increase in underlying costs for 

grandfathered group health plans and 

grandfathered group health insurance 

coverage.21

Accordingly, the 2020 proposed rules 

included an amended definition of the 

maximum percentage increase with an 

alternative standard that relies on the 

premium adjustment percentage, rather 

than medical inflation (which continues 

to be defined, for purposes of these 

rules, as the overall medical care 

component of the CPI–U, unadjusted), 

to account for changes in healthcare 

costs over time. Under the 2020 

proposed rules, this alternative standard 

would not supplant the current 

standard; rather, it would be available to 

the extent it yields a higher-dollar value 

than the current standard, and it would 

apply only with respect to increases in 

fixed-amount cost-sharing requirements 

that are made effective on or after the 

applicability date of the final rules. 

With respect to increases for group 

health plans and group health insurance 

coverage made effective on or after 

March 23, 2010, but before the 

applicability date of the final rules, the 

maximum percentage increase would 

still be defined as medical inflation 

expressed as a percentage, plus 15 

percentage points.22

Thus, under the 2020 proposed rules, 

increases to fixed-amount cost-sharing 

requirements for grandfathered group 

health plans and grandfathered group 

health insurance coverage that are made 

applicable on or after the applicability 

date of the final rules would cause the 

plan or coverage to cease to be a 

grandfathered health plan if the total 

percentage increase in the cost-sharing 

requirement measured from March 23, 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81105 

23Stakeholders 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. 

2010 exceeds the greater of (1) medical 

inflation, expressed as a percentage, 

plus 15 percentage points; or (2) the 

portion of the premium adjustment 

percentage, as defined in 45 CFR 

156.130(e), that reflects the relative 

change between 2013 and the calendar 

year prior to the effective date of the 

increase (that is, the premium 

adjustment percentage minus 1), 

expressed as a percentage, plus 15 

percentage points.23 The 2020 proposed 

rules also added a new example 5 under 

paragraph (g)(5) to demonstrate how this 

alternative measure for determining the 

maximum percentage increase might 

apply in practice. Similar to other 

examples in paragraph (g)(5), the 

proposed new example 5 included 

hypothetical numbers with respect to 

both the overall medical care 

component of the CPI–U and the 

premium adjustment percentage that do 

not relate to any specific time period 

and are used for illustrative purposes 

only. The 2020 proposed rules also 

renumbered examples 5 through 9 in 

paragraph (g)(5) to allow the inclusion 

of new example 5 and revised examples 

3 through 6 to clarify that these 

examples involve plan changes that 

became effective before the applicability 

date of these final rules. These proposed 

revisions would ensure that the 

examples accurately reflect the other 

provisions of the 2015 final rules. 

In support of this provision in the 

2020 proposed rules, one commenter 

pointed out that the ability to use a 

premium adjustment percentage for 

permitted changes in fixed cost-sharing 

amounts would be helpful to 

multiemployer plan sponsors wishing to 

maintain grandfather status. Another 

commenter said that the premium 

adjustment percentage is an amount 

very familiar to group health plan 

sponsors, and it is based on factors 

related to group plan premiums, making 

it a natural complement to the 

grandfathered plan cost-sharing 

requirements. 

Some commenters stated that the 

2020 proposed rules should have 

provided even greater flexibility. One 

commenter suggested that instead of 

examining changes to healthcare costs 

over cumulative years since March 23, 

2010, the Departments should consider 

allowing a set percentage of allowable 

increase annually. Another commenter 

urged the Departments to make 

additional changes in the final rules to 

provide more flexibility, allowing plan 

design changes specifically to encourage 

cost-effective quality care, such as 

greater ability to change cost sharing for 

brand drugs and out-of-network 

benefits. 

One commenter stated that the 

Departments’ intent to allow 

grandfathered plans to increase out-ofpocket costs at a rate that is the greater 

of the medical inflation adjustment or 

the premium adjustment percentage 

adjustment (plus 15 percentage points) 

would, by design, result in increased 

out-of-pocket costs for participants and 

beneficiaries. This commenter stated 

that using the premium adjustment 

percentage for this calculation would 

leave patients vulnerable to financial 

hardship. Another commenter asserted 

that the proposed amendment to the 

definition of maximum percentage 

increase would likely result in increased 

cost sharing, and in turn, less favorable 

coverage for individuals enrolled in 

grandfathered coverage, to the detriment 

of many consumers who rely on 

employment-based health coverage and 

who may not have an option to enroll 

in coverage that complies with the 

generally applicable market reforms 

made by PPACA. 

As stated earlier in this preamble, the 

Departments have concluded that the 

proposed and final rules strike the right 

balance between allowing grandfathered 

health plans the flexibility to design 

their health plans to meet their changing 

needs and ensuring that affordable 

healthcare options for participants and 

beneficiaries remain available. The 

Departments are unpersuaded that the 

final rules will result in significant 

financial hardship due to the additional 

permitted increases in out-of-pocket 

costs for participants and beneficiaries. 

As noted earlier in this preamble, 

providing an alternative inflation 

adjustment for fixed-amount costsharing increases will help plans and 

issuers better account for changes in the 

costs of health coverage over time, 

potentially allowing them to maintain 

the grandfathered coverage for those 

participants and beneficiaries. 

Therefore, the Departments are of the 

view that allowing plans and issuers to 

use this measure is appropriate and it 

may capture changes in healthcare costs 

at least as accurately as the medical 

inflation standard. Accordingly, the 

Departments are finalizing this change, 

as proposed. 

III. Effective Date 

In the 2020 proposed rules, the 

Departments proposed an effective date 

of 30 days after publication of the final 

rules. The Departments are finalizing as 

proposed an effective date of 30 days 

after publication of the final rules, 

which would be January 14, 2021. 

However, in response to comments, the 

Departments are including an 

applicability date which will make the 

final rules applicable to grandfathered 

group health plans and grandfathered 

group health insurance coverage 

beginning on June 15, 2021. While the 

Departments did not receive any 

comments specifically requesting that 

the applicability date of the final rules 

be delayed to 6 months after 

publication, the Departments did 

receive a number of comments related to 

the COVID–19 pandemic and the timing 

of the final rules, as discussed earlier in 

this preamble. Commenters expressed 

concern that it is not appropriate to 

potentially place a greater financial 

burden related to healthcare on patients 

while the COVID–19 pandemic is 

ongoing. 

As explained above, in the 

Departments’ view, the final rules will 

allow employers to continue to offer 

affordable coverage to those who are 

eligible for grandfathered employersponsored plans. However, the 

Departments acknowledge commenters’ 

reasonable concerns regarding the 

timing of the final rules and the 

uncertainty created by the COVID–19 

pandemic. The Departments are 

therefore delaying the applicability date 

of the final rules to 6 months after 

publication in the Federal Register. The 

Departments are of the view that this 

delay is appropriate, as the Departments 

do not expect the delay to have a 

significant short-term impact on plans’ 

and issuers’ ability to make use of the 

cost-sharing flexibilities afforded under 

the final rules; instead, a short delay 

will reduce uncertainty by allowing 

plans, issuers, and those covered by 

grandfathered plans more time to 

understand and plan for the increased 

flexibility provided by the final rules. 

IV. Economic Impact Analysis and 

Paperwork Burden 

A. Summary/Statement of Need 

Section 1251 of PPACA generally 

provides that certain group health plans 

and health insurance coverage existing 

on March 23, 2010, are not subject to 

certain provisions of PPACA as long as 

they maintain grandfather status. On 

February 25, 2019, the Departments 

published an RFI to gather information 

on grandfathered group health plans 

and grandfathered group health 

insurance coverage. Comments received 

from stakeholders in response to the 

2019 RFI suggested that issuers and plan 

sponsors, as well as participants and 

81106 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

24 75 FR 34538, 34546 (June 17, 2010). 

beneficiaries, continue to value 

grandfathered group health plan and 

grandfathered group health insurance 

coverage. The Departments issued a 

notice of proposed rulemaking on July 

15, 2020, to amend the 2015 final rules 

to provide greater flexibility for certain 

grandfathered health plans to make 

changes to certain types of cost-sharing 

requirements without causing a loss of 

grandfather status. The Departments are 

of the view that these final rules are 

appropriate to provide certain 

grandfathered health plans greater 

flexibility while appropriately taking 

into account rising healthcare costs. 

Additionally, the final rules will ensure 

that grandfathered plans are able to 

make changes to comply with minimum 

cost-sharing requirements for HDHPs 

without losing grandfather status, so 

enrolled individuals continue to be 

eligible to contribute to HSAs. These 

changes will allow certain 

grandfathered group health plans and 

grandfathered group health insurance 

coverage to continue to be exempt from 

certain provisions of PPACA and allow 

those plans’ participants and 

beneficiaries to maintain their current 

coverage. 

In drafting the final rules, the 

Departments attempted to balance a 

number of competing interests. The 

Departments sought to balance 

providing greater flexibility to 

grandfathered group health plans and 

grandfathered group health insurance 

coverage that will enable these plans 

and coverage to continue offering 

quality, affordable coverage to 

participants and beneficiaries while 

ensuring that the final rules will not 

allow for such significant changes that 

the plan or coverage could not 

reasonably be described as being the 

same plan or coverage that was offered 

on March 23, 2010. Additionally, the 

Departments sought to allow 

grandfathered group health plans and 

grandfathered group health insurance 

coverage to better account for rising 

healthcare costs, including ensuring that 

grandfathered group HDHPs are able to 

maintain their grandfather status, while 

continuing to comply with minimum 

cost-sharing requirements for HDHPs, so 

that the individuals enrolled in the 

HDHPs are eligible to contribute to an 

HSA. In previous rulemaking, the 

Departments recognized that many 

group health plans and issuers make 

changes to the terms of plans or health 

insurance coverage on an annual basis: 

Premiums fluctuate, provider networks 

and drug formularies change, employer 

and employee contributions and costsharing requirements change, and 

covered items and services may vary. 

Without some flexibility to make 

adjustments while retaining grandfather 

status, the ability of many individuals to 

maintain their current coverage would 

be frustrated, because much of the 

grandfathered group health plan 

coverage would quickly cease to be 

regarded as the same health plan or 

health insurance coverage in existence 

on March 23, 2010. At the same time, 

allowing grandfathered health plans and 

grandfathered group health insurance 

coverage to make unfettered changes 

while retaining grandfather status 

would be inconsistent with Congress’s 

intent in enacting PPACA.24

The final rules amend the 2015 final 

rules to provide greater flexibility for 

grandfathered group health plans and 

issuers of grandfathered group health 

insurance coverage in two ways. First, 

the final rules specify that any 

grandfathered group health plan and 

grandfathered group health insurance 

coverage that is an HDHP may make 

changes to fixed-amount cost-sharing 

requirements that would otherwise 

cause a loss of grandfather status 

without causing a loss of grandfather 

status, but only to the extent those 

changes are necessary to comply with 

the requirements for HDHPs under 

section 223(c)(2)(A) of the Code. 

Second, the final rules include a revised 

definition of maximum percentage 

increase, which provides an alternative 

standard that relies on the premium 

adjustment percentage, rather than 

medical inflation, to account for 

changes in healthcare costs over time, 

providing for an alternative inflation 

adjustment for fixed-amount costsharing increases. 

B. Overall Impact 

The Departments have examined the 

impacts of the final rules as required by 

Executive Order 12866 on Regulatory 

Planning and Review (September 30, 

1993), Executive Order 13563 on 

Improving Regulation and Regulatory 

Review (January 18, 2011), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act (SSA), section 202 of the Unfunded 

Mandates Reform Act of 1995 (March 

22, 1995, Pub. L. 104–4), Executive 

Order 13132 on Federalism (August 4, 

1999), the Congressional Review Act (5 

U.S.C. 804(2)), and Executive Order 

13771 on Reducing Regulation and 

Controlling Regulatory Costs (January 

30, 2017). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, 

reducing costs, harmonizing rules, and 

promoting flexibility. A regulatory 

impact analysis (RIA) must be prepared 

for rules with economically significant 

effects ($100 million or more in any 1 

year). 

Section 3(f) of Executive Order 12866 

defines a ‘‘significant regulatory action’’ 

as an action that is likely to result in a 

rule (1) having an annual effect on the 

economy of $100 million or more in any 

1 year, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

state, local or tribal governments or 

communities (also referred to as 

‘‘economically significant’’); (2) creating 

a serious inconsistency or otherwise 

interfering with an action taken or 

planned by another agency; (3) 

materially altering the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or (4) 

raising novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive Order. 

An RIA must be prepared for major 

rules with economically significant 

effects ($100 million or more in any one 

year), and a ‘‘significant’’ regulatory 

action is subject to Office of 

Management and Budget (OMB) review. 

The final rules are not likely to have 

economic impacts of $100 million or 

more in any 1 year, and therefore do not 

meet the definition of ‘‘economically 

significant’’ within the meaning of 

section 3(f)(1) of Executive Order 12866. 

However, OMB has determined that the 

actions are significant within the 

meaning of section 3(f)(4) of the 

Executive Order. Therefore, OMB has 

reviewed the final rules, and the 

Departments have provided the 

following assessment of their impact. 

Some commenters stated that the 

rules should not be finalized because 

the Departments had insufficient 

information and data to estimate the 

effects of the 2020 proposed rules on 

grandfathered group health plans and 

coverage as well as those enrolled in 

such coverage. The Departments 

acknowledge that, given the lack of 

information and data, the Departments 

are not able to precisely estimate the 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81107 

overall impact of the final rules. As 

discussed later in the impact analysis, 

the Departments note the inability to 

predict what changes each 

grandfathered group health plan will 

make in response to the final rules. The 

Departments recognize that some 

grandfathered group health plans may 

take advantage of flexibilities provided 

by the final rules to change certain types 

of cost-sharing requirements in amounts 

greater than the current rules allow, 

potentially increasing out-of-pocket 

costs at a higher rate for some 

participants and beneficiaries, while 

potentially reducing premiums for 

others. However, other grandfathered 

group health plans may make relatively 

minor, or no, changes. As discussed 

previously in this preamble, the 

Departments note that the fact that a 

significant number of grandfathered 

group health plans and coverage remain 

indicates that some employers and 

issuers have found value in preserving 

grandfather status. The Departments are 

of the view that preserving grandfather 

status will enable participants to retain 

their current coverage, including their 

provider network(s), maintain access to 

affordable coverage options, and ensure 

that employers and other grandfathered 

group health plan sponsors can more 

appropriately account for the rising 

costs of healthcare due to inflation. The 

Departments have also concluded that 

the final rules appropriately support the 

goal of promoting greater choices in 

coverage, especially in light of rising 

healthcare costs. 

C. Impact Estimates of Grandfathered 

Group Health Plans and Grandfathered 

Group Health Insurance Coverage 

Provisions and Accounting Table 

The final rules amend the 2015 final 

rules to provide greater flexibility for 

grandfathered group health plan 

sponsors and issuers of grandfathered 

group health insurance coverage to 

make certain changes to cost-sharing 

requirements without causing a loss of 

grandfather status. The final rules 

specify that issuers or sponsors of any 

grandfathered group health plan and 

grandfathered group health insurance 

coverage that is an HDHP may make 

changes to fixed-amount cost-sharing 

requirements that would otherwise 

cause a loss of grandfather status 

without causing a loss of grandfather 

status, but only to the extent those 

changes are necessary to comply with 

the requirements for HDHPs under 

section 223(c)(2)(A) of the Code. The 

final rules also revise the definition of 

maximum percentage increase to 

provide an alternative standard that 

relies on the premium adjustment 

percentage, rather than medical 

inflation, to account for changes in 

healthcare costs over time. In 

accordance with OMB Circular A–4, 

Table 1 depicts an accounting statement 

summarizing the Departments’ 

assessment of the benefits, costs, and 

transfers associated with this regulatory 

action. 

The Departments are unable to 

quantify all benefits, costs, and transfers 

of the final rules. The effects in Table 1 

reflect non-quantified impacts and 

estimated direct monetary costs and 

transfers resulting from the provisions 

of the final rules for grandfathered 

group health plans, issuers of 

grandfathered group health coverage, 

participants, and beneficiaries. 

TABLE 1—ACCOUNTING TABLE

Benefits 

Non-Quantified: 

• Increases flexibility for plan sponsors and issuers of grandfathered group health plans and grandfathered group health insurance coverage to make changes to certain fixed-amount cost-sharing requirements without losing grandfather status. 

• If there is uptake of this flexibility: 

Æ 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). 

Æ Ensures plan sponsors are able to comply with minimum cost-sharing requirements for HDHPs and allows participants and beneficiaries to maintain their coverage and eligibility to contribute to an HSA. 

• Decreases the likelihood that plan sponsors would cease offering health benefits due to a lack of flexibility to make changes to certain 

fixed cost-sharing amounts without losing grandfather status. 

• Potential reduction in adverse health outcomes if there is a decrease in the uninsured rate if participants and beneficiaries choose to obtain coverage due to potential premium reductions for grandfathered group health plans and grandfathered group health insurance coverage and seek needed healthcare. 

Costs: Primary estimate 

(million) Year dollar Discount rate (percent) Period covered 

Annualized Monetized ($/year) ................................................ $6.09 2020 7 2021–2025 

$5.67 2020 3 2021–2025 

Quantitative: 

• Regulatory review costs of $26.73 million, incurred in 2021, by grandfathered group health plan coverage sponsors and issuers. 

Non-Quantified: 

• Potential increase in adverse health outcomes if a participant or beneficiary foregoes treatment because the necessary services became 

unaffordable due to an increase in cost-sharing. 

• Potential increase in adverse health outcomes if there is an increase in the uninsured rate if participants and beneficiaries choose to cancel their coverage or decline to enroll because of the increases in cost-sharing requirements associated with grandfathered group health 

plans and grandfathered group health insurance coverage. 

• If an employer would have otherwise switched to a non-grandfathered plan, potential increase in adverse health outcomes if a participant 

or beneficiary foregoes treatment for medical conditions that are not covered by their grandfathered group health plan and grandfathered 

group health insurance coverage, but that would have been covered by non-grandfathered health plan coverage subject to all PPACA 

market reforms. 

Transfers 

Non-Quantified: 

81108 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

25U.S. Department of Labor, EBSA calculations 

using the 2019 Medical Expenditure Panel Survey, 

Insurance Component (MEPS–IC), the Form 5500 

and 2017 Census County Business Patterns; Health 

Insurance Coverage Bulletin: Abstract of Auxiliary 

Data for the March 2019 Annual Social and 

Economic Supplement to the Current Population 

Survey, Table 3C (forthcoming). 

26 2017 Census of Governments, Government 

Organization Report, available at https://

www.census.gov/data/tables/2017/econ/gus/2017- 

governments.html; 2017 MEPS–IC State and Local 

Government data, available for query at https://

meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC/ 

startup.; Health Insurance Coverage Bulletin: 

Abstract of Auxiliary Data for the March 2019 

Annual Social and Economic Supplement to the 

Current Population Survey, Table 3C, 

(forthcoming). 

27The Departments note that comments received 

in response to the 2019 RFI and summarized earlier 

in this preamble described data obtained from 

Kaiser Family Foundation 2018 Employer Health 

Benefits Survey. See supra note 9. For the purposes 

of this RIA, the Departments used more recent data 

from the same survey. See Kaiser Family 

Foundation, ‘‘2020 Employer Health Benefits 

Survey,’’ available at https://www.kff.org/healthcosts/report/2020-employer-health-benefits-survey/. 

28 Kaiser Family Foundation, ‘‘2010 Employer 

Health Benefits Survey,’’ (Sept. 2010), available at: 

https://www.kff.org/wp-content/uploads/2013/04/ 

8085.pdf. 

29To the extent that utilization and health 

expenditures are relatively stable, the Departments 

• For grandfathered group health plans and grandfathered group health insurance coverage that utilize the expanded flexibilities to increase fixed-amount cost-sharing requirements, potential transfers occur from participants and beneficiaries with resulting higher out-ofpocket costs to participants and beneficiaries with no or low out-of-pocket costs and nonparticipants through potentially lower premiums 

and correspondingly smaller wage adjustments to pay for the premiums. 

• If an employer would have otherwise switched to a non-grandfathered plan with expanded benefits, potential transfers occur from participants and beneficiaries who would have benefited from these expanded benefits to others in the plan who would not have benefited from 

these expanded benefits through lower premiums and correspondingly smaller wage adjustments. 

Table 1 provides the anticipated 

benefits, costs, and transfers 

(quantitative and non-quantified) to 

sponsors and issuers of grandfathered 

health plan coverage, participants and 

beneficiaries enrolled in grandfathered 

plans, as well as nonparticipants. The 

following section describes the benefits, 

costs, and transfers to grandfathered 

group health plan sponsors, issuers of 

grandfathered group health insurance 

coverage, and those individuals enrolled 

in such plans. 

Economic Impacts of Retaining or 

Relinquishing Grandfather Status and 

Affected Entities and Individuals 

The Departments estimate that there 

are 2.5 million ERISA-covered plans 

offered by private employers that cover 

an estimated 136.2 million participants 

and beneficiaries in those private 

employer-sponsored plans.25 Similarly, 

the Departments estimate that there are 

84,087 state and local governments that 

offer health coverage to their employees, 

with an estimated 32.8 million 

participants and beneficiaries in those 

employer-sponsored plans.26

The Kaiser Family Foundation 2020 

Employer Health Benefits Survey 

reports that 16 percent of firms offering 

health benefits have at least one health 

plan or benefit package option that is a 

grandfathered plan, and 14 percent of 

covered workers are enrolled in 

grandfathered plans.27 Using this 

information, the Departments estimate 

that, of those firms offering health 

benefits, 400,000 sponsor ERISAcovered plans (2.5 million * 0.16) that 

are grandfathered (or include a 

grandfathered benefit package option) 

and cover 19.1 million participants and 

beneficiaries (136.2 million * 0.14). The 

Departments further estimate there are 

13,454 state and local governments 

(84,087 * 0.16) offering at least one 

grandfathered health plan and 4.6 

million participants and beneficiaries 

(32.8 million * 0.14) covered by a 

grandfathered state or local government 

plan. 

Although the Kaiser Family 

Foundation 2020 Employer Health 

Benefits Survey reports that 20 percent 

of firms offering health benefits offered 

an HDHP and 24 percent of covered 

workers were enrolled in HDHPs, the 

Departments are of the view that the 

2010 Employer Health Benefits Survey 

provides a better estimate of the 

prevalence of HDHPs in the 

grandfathered group market as it 

provides an estimate for the number of 

potential HDHPs that would have been 

able to obtain and maintain grandfather 

status. The 2010 Employer Health 

Benefits Survey reported that 12 percent 

of firms offering health benefits offered 

an HDHP, and 6 percent of covered 

workers were enrolled in HDHPs.28

Benefits 

The Departments are of the view that 

the economic effects of the final rules 

will ultimately depend on decisions 

made by grandfathered plan sponsors 

(including sponsors of grandfathered 

HDHPs) and the preferences of plan 

participants and beneficiaries. To 

determine the value of retaining a health 

plan’s grandfather status, each group 

plan sponsor must determine whether 

the plan, under the rules applicable to 

grandfathered health plan coverage, will 

continue to be more or less favorable 

than the plan as it would exist under the 

rules applicable to non-grandfathered 

group health plans. This determination 

will depend on such factors as the 

respective prices of grandfathered group 

health plan and non-grandfathered 

group health plans, the willingness of 

grandfathered group health plans’ 

covered populations to pay for benefits 

and protections available under nongrandfathered group health plans, and 

the participants’ and beneficiaries’ 

willingness to accept any increases in 

out-of-pocket costs due to changes to 

certain types of cost-sharing 

requirements. The Departments have 

concluded that providing flexibilities to 

make changes to certain types of costsharing requirements in grandfathered 

group health plans and grandfathered 

group health insurance coverage 

without causing a loss of grandfather 

status will enable plan sponsors and 

issuers to continue to offer quality, 

affordable coverage to their participants 

and beneficiaries while taking into 

account rising healthcare costs. 

The Departments anticipate that the 

premium adjustment percentage index 

will continue to experience faster 

growth than medical CPI–U, and 

therefore are of the view that providing 

the alternative method of determining 

the maximum percentage increase will, 

over time, give grandfathered group 

health plans and grandfathered group 

health insurance coverage the flexibility 

to make changes to the plans’ fixedamount cost-sharing requirements (such 

as copayments, deductibles, and out-ofpocket limits) that would have 

previously resulted in the loss of 

grandfather status. Thus, the 

Departments are of the view that the 

final rules will allow sponsors of those 

grandfathered group health plans and 

coverage to continue to provide the 

coverage with which their participants 

and beneficiaries are familiar and 

comfortable, without the unnecessary 

burden of finding other coverage. 

Additionally, if the flexibilities 

provided for in the final rules result in 

a reduction in grandfathered group 

health plan and grandfathered group 

health insurance coverage premiums, 

there could potentially be a reduction in 

adverse health outcomes if participants 

and beneficiaries chose to obtain 

coverage they may have previously 

foregone and seek needed healthcare.29

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81109 

expect that higher cost sharing may lead to lower 

premiums, both because higher cost sharing will 

reduce issuers’ share of the costs of care and 

because of medical loss ratio (MLR) requirements, 

which encourage issuers to pass these savings to 

consumers in the form of lower premiums. 

30As noted earlier in this preamble, the Tax Cuts 

and Jobs Act amended section 1(f)(3) of the Code, 

cross-referenced in section 223(g) of the Code, to 

refer to C–CPI–U, instead of CPI–U, for tax years 

beginning after December 31, 2017. 

31See Kaiser Family Foundation, ‘‘2016 Employer 

Health Benefits Survey,’’ available at https://

www.kff.org/health-costs/report/2016-employerhealth-benefits-survey/; Kaiser Family Foundation, 

‘‘2017 Employer Health Benefits Survey,’’ available 

at https://www.kff.org/health-costs/report/2017- 

employer-health-benefits-survey/; Kaiser Family 

Foundation, ‘‘2018 Employer Health Benefits 

Survey,’’ available at https://www.kff.org/healthcosts/report/2018-employer-health-benefits-survey/; 

and Kaiser Family Foundation, ‘‘2019 Employer 

Health Benefits Survey,’’ available at https://

www.kff.org/health-costs/report/2019-employerhealth-benefits-survey/. Despite the relative stability 

between 2016 and 2019, the 2020 Employer Health 

Benefits Survey reported that the number of firms 

offering health coverage that offered at least one 

grandfathered plan in 2020 decreased to 16 percent. 

The Departments are of the view that this change 

may largely be attributable to issues with employer 

survey reporting during the COVID–19 pandemic, 

rather than to the 2015 final rules. The Kaiser 

Family Foundation reported a diminished response 

to the 2020 survey compared to previous years and 

attributed that lower response rate to a combination 

of factors including changing data collection firms, 

disruptions from the COVID–19 pandemic, and 

starting the fielding period later. Kaiser Family 

Foundation, ‘‘2020 Employer Health Benefits 

Survey,’’ available at https://www.kff.org/healthcosts/report/2020-employer-health-benefits-survey/. 

As noted previously in this preamble, 

in response to the 2019 RFI, some 

commenters suggested that their 

grandfathered plans offer more robust 

provider networks than other coverage 

options available to them or that they 

want to ensure that participants and 

beneficiaries are able to keep receiving 

care from current in-network providers. 

The Departments are of the view that 

providing the flexibilities in the final 

rules will help participants and 

beneficiaries maintain their current 

provider and service networks. If 

providers continue participating in the 

grandfathered plans’ networks, this 

continuity offers participants and 

beneficiaries the ability to continue 

current and future care through those 

providers with whom they have built 

relationships. 

As discussed previously in this 

preamble, one commenter on the 2019 

RFI articulated a concern that the 2015 

final rules may eventually preclude 

some sponsors and issuers of 

grandfathered group health plans and 

grandfathered group health insurance 

coverage from being able to make 

changes to fixed-amount cost-sharing 

requirements necessary to maintain a 

plan’s HDHP status. For participants 

and beneficiaries, this would mean they 

could experience either substantial 

changes to their coverage (and likely 

premium increases) or a loss of 

eligibility to contribute to an HSA. The 

Departments expect that, under the 2015 

final rules, there may be limited 

circumstances in which a grandfathered 

group health plan or grandfathered 

group health insurance coverage that is 

an HDHP (grandfathered HDHP) is 

unable to simultaneously maintain its 

grandfather status and satisfy the 

requirements for HDHPs under section 

223(c)(2)(A) of the Code. Nonetheless, to 

avoid this scenario and provide 

assurance to grandfathered group health 

plan sponsors and issuers of 

grandfathered HDHPs, the final rules 

allow a grandfathered HDHP to make 

changes to fixed-amount cost-sharing 

requirements that otherwise could cause 

a loss of grandfather status without 

causing a loss of grandfather status, but 

only to the extent the increases are 

necessary to comply with the 

requirements for HDHPs under section 

223(c)(2)(A) of the Code. 

The Departments have concluded that 

providing this flexibility to 

grandfathered HDHPs will allow them 

to preserve their grandfather status even 

if they increase their cost-sharing 

requirements to meet a future adjusted 

minimum annual deductible 

requirement under section 223(c)(2)(A) 

of the Code beyond the increase that 

would be permitted under paragraph 

(g)(1) of the 2015 final rules. Under 

section 223(g) of the Code, the required 

minimum deductible for an HDHP is 

adjusted for cost-of-living based on 

changes in the overall economy. 

Historically, the allowed increases 

under the 2015 final rules, which are 

based on changes in medical care costs 

(medical CPI–U), have exceeded 

increases based on changes in the 

overall economy (CPI–U or, for tax years 

beginning after December 31, 2017, C– 

CPI–U). Using 10 years of projections 

from the President’s FY 2021 Budget, 

medical-CPI–U is expected to grow 

faster than CPI–U. Further, because the 

allowed increases under the 2015 final 

rules are based on the cumulative effect 

over a period of years, it is unlikely that 

using medical-CPI–U to index 

deductibles would result in lower 

deductibles than using C–CPI–U as 

required under section 223(g) of the 

Code.30 Therefore, the Departments note 

that, to the extent these trends continue, 

it is unlikely that an increase required 

under section 223 of the Code for a plan 

to remain an HDHP would exceed the 

allowed increases under the 2015 final 

rules. Furthermore, to the extent that the 

revised definition of maximum 

percentage increase in the final rules 

will allow the deductible to grow as fast, 

or faster, than under the 2015 final 

rules, grandfathered HDHPs may not 

need to avail themselves of the 

additional flexibility provided in the 

final rules. Nevertheless, the 

Departments are of the view that 

affording this flexibility will make the 

rules more transparent to sponsors of 

grandfathered HDHPs. Thus, the final 

regulations will allow participants and 

beneficiaries enrolled in those plans to 

maintain their current coverage, 

continue contributing to any existing 

HSA, and potentially realize any 

reduction in premiums that may result 

from changes in cost-sharing 

requirements. 

Costs and Transfers 

The Departments recognize there are 

costs associated with the final rules that 

are difficult to quantify given the lack of 

information and data. For example, the 

Departments do not have data related to 

the current annual out-of-pocket costs 

for participants and beneficiaries in 

grandfathered group HDHPs or other 

grandfathered group health plans and 

grandfathered group health insurance 

coverage. The Departments recognize 

that as medical care costs increase, some 

participants and beneficiaries in 

grandfathered health plans could face 

higher out-of-pocket costs for services 

that may be excluded by such plans, but 

that would be required to be covered by 

non-grandfathered group health plans 

and group health insurance coverage 

subject to PPACA market reforms. As 

noted earlier in this analysis, it is 

possible that lower premiums, 

compared to the likely premiums if 

these rules are not finalized, could 

partially offset these increased costs. 

Further, participants and beneficiaries 

who would otherwise be covered by a 

non-grandfathered plan could 

potentially face increases in adverse 

health outcomes if they forego treatment 

because certain services are not covered 

by their grandfathered plan or coverage. 

The Departments cannot precisely 

predict the number of group health 

plans and group health insurance 

coverage that will retain their 

grandfather status as a result of the final 

rules. According to the annual Kaiser 

Family Foundation Employer Health 

Benefits Survey, the percentage of 

employers offering health coverage that 

offered at least one grandfathered plan 

between 2016 and 2019 has been 

relatively stable (23 percent in 2016 to 

22 percent in 2019).31 The Departments 

are of the view that a large change over 

that time period would have indicated 

that the 2015 final rules were too 

81110 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

restrictive and that a relaxation of those 

rules would have a large effect. The 

actual small change suggests the 

opposite. Therefore, the Departments do 

not expect a significant impact on the 

number of grandfathered group health 

plans or grandfathered group health 

insurance coverage as a result of the 

final rules. 

For those plans and coverages that 

continue to maintain their grandfather 

status as a result of the flexibilities in 

the final rules, the participants and 

beneficiaries will continue to have 

coverage and may experience lower 

premiums when compared to nongrandfathered group health plans. 

Although some participants and 

beneficiaries will pay higher costsharing amounts, these increased costs 

may be partially offset by reduced 

employee premiums, and indirectly 

through potential wage adjustments that 

reflect reduced employer contributions 

due to any resulting lower premiums. In 

contrast, individuals who have low or 

no medical expenses, along with 

nonparticipants, will be unlikely to 

experience increased cost-sharing 

amounts and may benefit from lower 

employee premiums, and indirectly 

through potential wage adjustments. 

The Departments recognize there will 

be transfers associated with the final 

rules that are difficult to quantify given 

the lack of information and data. The 

Departments realize that if plan 

sponsors avail themselves of the 

flexibilities in the final rules, some 

participants and beneficiaries of 

grandfathered group health plans and 

grandfathered group health insurance 

coverage will potentially see increases 

in out-of-pocket costs depending on the 

changes made to their plans. 

Additionally, participants and 

beneficiaries in a grandfathered HDHP 

could face increases in the plan’s 

deductible if plans increase their fixedamount cost-sharing requirements to 

meet a future adjusted minimum annual 

deductible requirement beyond the 

increase that is permitted under the 

2015 final rules. Changes in costs 

associated with increased deductibles or 

other cost sharing will be a transfer from 

participants and beneficiaries with 

higher out-of-pocket costs to 

participants and beneficiaries with 

lower or no out-of-pocket costs and to 

nonparticipants, as the related premium 

reductions could affect wages. 

Due to the overall lack of information 

and data related to what grandfathered 

group plan sponsors will choose to do, 

the Departments are unable to precisely 

estimate the overall economic impact, 

but the Departments anticipate that the 

overall impact will be minimal. 

However, there is a large degree of 

uncertainty regarding the effect of the 

final rules on any potential changes to 

cost sharing at the plan level so actual 

experience could differ. 

Commenters suggested that the 

provisions of the 2020 proposed rules 

would disadvantage consumers with 

pre-existing conditions. Specifically, 

commenters suggested that those 

individuals most likely to shoulder the 

burden of increased out-of-pocket costs 

are those who already have higher 

medical expenses and out-of-pocket 

costs (for example, those with blood 

cancer). Another commenter noted that 

the 2020 proposed rules suggested that 

the resulting increases in out-of-pocket 

expenditures for participants and 

beneficiaries of grandfathered plans 

could be offset by decreases in 

premiums or wage adjustments; 

however, according to this commenter, 

those potential benefits are minimal and 

uncertain, while participants and 

beneficiaries will likely be paying more 

for substandard health coverage. 

Another commenter suggested that the 

Departments should fully evaluate and 

publicly report on whether increased 

cost sharing will lead to decreased 

utilization of necessary medical care. 

The Departments appreciate these 

concerns. Nevertheless, the Departments 

are of the view that finalizing the 2020 

proposed rules is important to help 

grandfathered group health plans and 

grandfathered group health insurance 

coverage maintain grandfather status 

and supports the goal of promoting 

greater choice in coverage, especially in 

light of rising healthcare costs. The 

Departments recognize that should a 

grandfathered group health plan or 

grandfathered group health insurance 

coverage avail itself of the flexibilities in 

the final rules, some participants and 

beneficiaries could incur higher out-ofpocket costs for ongoing or future 

healthcare needs. However, as discussed 

previously in this preamble, 

participants and beneficiaries would 

continue to benefit from many PPACA 

consumer protections that are 

applicable to all group health plans and 

group health insurance coverage, 

regardless of grandfather status, 

including the prohibition on preexisting 

condition exclusions, the prohibition on 

waiting periods that exceed 90 days, 

and the prohibition on lifetime or 

annual dollar limits. Additionally, 

grandfathered group health plans and 

issuers of grandfathered group health 

insurance coverage are not prohibited 

from providing coverage consistent with 

any of PPACA market provisions that 

apply to non-grandfathered group health 

plans and may add coverage consistent 

with such market provisions without 

relinquishing grandfather status. 

As discussed later in the impact 

analysis, some participants and 

beneficiaries could experience savings 

in reduced premiums, wage 

adjustments, and continued access to 

tax-advantaged HSAs due to changes 

made as a result of the final rules. The 

Departments recognize that any 

increases in cost sharing, changes in 

premiums, or wage adjustments are at 

the discretion of the issuer or 

grandfathered group plan sponsor. The 

Departments are of the view that 

providing the flexibilities in the final 

rules could allow participants to retain 

their current coverage instead of finding 

alternate coverage, which may result in 

greater increases in cost-sharing or 

reduced benefits for those individuals. 

As noted later in the impact analysis, 

the Departments are of the view that 

because individuals with significant 

healthcare needs generally exceed the 

out-of-pocket limit for the plan year, 

they are only modestly affected by 

increases in cost-sharing requirements, 

while individuals with fewer healthcare 

needs are more likely to be affected by 

an increase in fixed-amount costsharing, but that they incur a small 

portion of the overall costs. 

The Departments have concluded that 

the final rules strike a proper balance 

between preserving the ability to 

maintain existing coverage with the 

goals of expanding access to and 

improving the quality of health 

coverage. 

Revenue Impact of Final Rules 

This section of the preamble discusses 

the revenue impact of the final rules, 

considers a variety of approaches that 

employers offering grandfathered health 

plan coverage might have taken if the 

2015 final rules were not amended, and 

compares the revenue impact of each 

approach under the 2015 final rules 

with the revenue impact under the final 

rules. 

a. Employees Who Would Have 

Remained in Grandfathered Plans and 

Coverage Without the Final Rules 

If the 2015 final rules were not 

amended, some employers might have 

chosen to continue to maintain their 

grandfathered health plan coverage. 

This subsection discusses the revenue 

impact that the final rules may have on 

this group of employers and employees. 

Under the final rules, grandfathered 

group health plans and grandfathered 

group health insurance coverage will be 

allowed to increase fixed-amount costsharing requirements (such as 

copayments, deductibles, and out-ofVerDate Sep<11>2014 16:21 Dec 14, 2020 Jkt 253001 PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 E:\FR\FM\15DER1.SGM 15DER1
Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81111 

pocket limits) at a somewhat higher rate 

than under the 2015 final rules without 

losing grandfather status, which may 

result in a premium reduction (or 

similar cost reduction for a self-insured 

plan). Specifically, for increases in 

fixed-amount cost-sharing on or after 

the applicability date of the final rules, 

grandfathered group health plans and 

grandfathered group health insurance 

coverage may use an alternative 

standard for determining the maximum 

percentage increase that relies on the 

premium adjustment percentage, rather 

than medical inflation, to the extent that 

it yields a greater result than the 

standard under the 2015 final rules. 

The premium adjustment percentage 

is estimated to be about three percentage 

points higher than medical inflation in 

2026, using FY2021 President’s Budget 

projections of medical CPI and National 

Health Expenditures premium 

projections. Therefore, as of that year, 

fixed-amount copayments, deductibles, 

and out-of-pocket limits could be three 

percentage points higher under the final 

rules than under the 2015 final rules. 

However, a grandfathered group plan 

that increases fixed-amount cost-sharing 

to the maximum amount allowed under 

the final rules is likely to realize only a 

small reduction in premiums. This is 

because plans incur most of their costs 

for a relatively small fraction of 

participants—that is, from high-cost 

individuals. Because high-cost 

individuals generally exceed the out-ofpocket limit for the year, they are only 

modestly affected by higher out-ofpocket limits. Low-cost individuals are 

more likely to be affected by an increase 

in fixed-amount cost-sharing, but they 

incur a small portion of the overall 

costs. Therefore, the impact of the final 

rules for a particular grandfathered 

group health plan will depend on the 

parameters of covered benefits under 

the plan, as well as the distribution of 

expenditures for the plan participants. 

In addition, increased cost sharing 

could result in participants and 

beneficiaries making fewer visits to 

providers (that is, lower utilization), 

which could result in lower medical 

costs for some individuals, but higher 

costs for others who delay needed 

medical care. If individuals generally 

forgo unnecessary care, but continue to 

go to providers when necessary, 

premiums could decline even more, but 

this outcome is uncertain. 

Because of the Federal tax exclusion 

for employer-sponsored coverage, a 

premium reduction would increase tax 

revenues due to reduced employer 

contributions and employee pre-tax 

contributions made through a cafeteria 

plan. However, some employees might 

partially offset their increases in out-ofpocket payments through increased pretax contributions to health flexible 

spending arrangements (FSAs) or HSAs. 

Those potential increases in pre-tax 

contributions to health FSAs and HSAs 

would reduce tax revenues. 

Nonetheless, to the extent that 

employers would have continued to 

offer a grandfathered group health plan 

without changes to the 2015 final rules, 

under these final rules, the Departments 

expect tax revenues may increase 

slightly on net as a result of potential 

premium reductions. Further, there 

would be additional revenue gains to 

the extent that higher out-of-pocket 

payments discourage employees from 

continuing participation in the 

employer’s group health plan. This 

increase may be offset by a reduction in 

revenue, however, if a reduction in 

premiums encourages non-participant 

employees to obtain coverage. 

b. Employees Who Would No Longer 

Have Been Covered by Grandfathered 

Group Health Plans or Coverage 

Without the Final Rules 

If the 2015 final rules were not 

amended, some employers might have 

chosen to change their insured 

grandfathered group health plans to selfinsured, non-grandfathered group health 

plans, rather than continue to comply 

with the 2015 final rules, which would 

result in little, if any, revenue change. 

Thus, with respect to these employers, 

the adoption of the final rules will have 

little, if any, revenue effect. 

Alternatively, assuming the 2015 final 

rules were not amended, an employer 

might switch to a fully insured nongrandfathered non-HDHP group health 

plan. With respect to small employers, 

employees who would transfer to the 

non-grandfathered group health plan 

could improve the small group market 

risk pool or make it worse. An employer 

with a healthy population might be 

more likely to self-insure, whereas a 

small employer with a less healthy 

population might be more likely to join 

an insurance pool. 

One commenter stated that because 

the non-grandfathered small group 

market is subject to modified 

community rating and single risk pool 

requirements, making it easier for smallgroup health plans to preserve their 

grandfather status would encourage 

firms with younger or healthier 

employees to find ways to opt out of the 

non-grandfathered small group market, 

at the expense of other firms that then 

would face higher premiums. The 

commenter noted that because 

premiums and medical claims costs in 

the small group market are higher for 

plans that are subject to all PPACA 

market reforms than for plans that are 

not, and because PPACA’s changes to 

plan standards in the small group 

market were more significant than in the 

large group market, employees at small 

businesses have more to lose when 

employers avoid most PPACA market 

reforms. The commenter suggested that 

further extending grandfather status 

would only contribute to market 

segmentation that harms the nongrandfathered small-group market, 

rather than channeling younger and 

healthier groups into the insurance 

markets that generally are subject to 

PPACA market reforms, which would 

serve to bolster stability in those 

markets. 

The Departments acknowledge that 

the existence of grandfathered group 

health plans potentially creates market 

segmentation in the small group market. 

However, to the extent such market 

segmentation exists, the Departments do 

not anticipate that the additional 

flexibilities provided in the final rules 

will increase segmentation since the 

final rules do not provide any 

mechanism for non-grandfathered plans 

to become grandfathered. Moreover, the 

Departments do not expect the number 

of plans that maintain grandfather status 

because of the final rules to be so 

significant as to exacerbate any market 

segmentation that may already exist. 

Although the type of benefits covered 

in new, non-grandfathered plans 

(whether self-insured or fully insured) 

would likely be broader in some ways, 

such as for preventive care, the share of 

costs covered by the plan would likely 

decrease due to higher cost-sharing. 

Presumably, if the 2015 final rules were 

not amended, most employers would 

not make the switch from a 

grandfathered group health plan to a 

non-grandfathered group health plan 

unless the overall cost of providing 

benefits would decrease, which would 

cause some revenue gain. (Again, 

though, the revenue gain could be 

partially offset by increases in the 

employees’ pre-tax contributions to 

health FSAs or HSAs.) On the other 

hand, if the final rules enable an 

employer that otherwise might switch to 

a non-grandfathered group health plan 

to retain its grandfather plan, this 

revenue gain would not occur, resulting 

in a revenue loss compared to the status 

quo under the 2015 final rules. 

Without the change to the 2015 final 

rules, some employers might replace 

their grandfathered group health plan 

with an individual coverage health 

reimbursement arrangement (individual 

coverage HRA). If the employer 

contributes a similar dollar amount to 

81112 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

32Wage information is available at https://

www.bls.gov/oes/current/oes_nat.htm. Hourly wage 

rate is determining by multiplying the mean hourly 

wage by 100 percent to account for overhead and 

fringe benefits. The mean hourly wage for a 

Compensation and Benefit Manager (Code 11–3111) 

is $64.52, when multiplied by 100 percent results 

in a total adjusted hourly wage of $129.04. 33The total number of grandfathered plan 

sponsors and issuers of grandfathered group health 

insurance coverage, discussed earlier in the 

preamble, was derived from the total number of 

ERISA covered plan sponsors multiplied by the 

percentage of entities offering grandfathered health 

plans (2.5 million * 0.16 = 400,000), the number of 

state and local governments multiplied by the 

percentage of entities offering grandfathered health 

plans (84,087 * 0.16 = 13,454), and the 834 issuers 

offering at least one grandfathered health plan 

(400,000 + 13,454 + 843 = 414,288). 

the individual coverage HRA as it 

currently does to the grandfathered 

group health plan, the employees’ tax 

exclusion would be at least roughly the 

same as for the grandfathered group 

health plan. Moreover, the employees 

offered the individual coverage HRA 

would be as likely to be ‘‘firewalled’’ 

from obtaining a premium tax credit as 

if they had continued to participate in 

the grandfathered group health plan. 

Thus, under this scenario, there would 

be very little revenue effect from the 

final rules. 

c. Termination of Employer-Sponsored 

Coverage 

If the 2015 final rules were not 

amended, some employers might drop 

grandfathered group health coverage 

altogether and opt instead to make an 

employer shared responsibility 

payment, if required under section 

4980H of the Code, which may result in 

an increase in federal revenue. In this 

case, all affected employees would 

qualify for a special enrollment period 

to enroll in other group coverage, if 

available, or individual health insurance 

coverage on or off the Exchange. Many 

of those employees with household 

incomes between 100–400 percent of 

the federal poverty level might qualify 

for financial assistance to help pay for 

their Exchange coverage and related 

healthcare expenses, which would 

increase federal outlays, as discussed 

further later in this section. Others 

might have household incomes too high 

to be eligible for a premium tax credit 

or might receive a smaller tax subsidy 

through the income-related premium tax 

credit than through an employersponsored health insurance tax 

exclusion. Accordingly, if these 

employers continue their grandfathered 

group health plan under the final rules, 

there may be an associated revenue loss. 

Other employees could purchase 

individual health insurance coverage 

but receive a premium tax credit that is 

greater than the value of the tax 

exclusion for their current employer 

plans. For this population, the final 

rules may result in a revenue gain. 

However, the employees for which there 

would be a revenue gain are likely a 

small population for an employer that is 

currently offering a grandfathered group 

health plan. 

Despite the availability of a special 

enrollment period, some affected 

employees might forgo enrolling in 

alternative health coverage and become 

uninsured or might opt instead to 

purchase short-term, limited-duration 

insurance. In this case, these employees 

would no longer receive a tax exclusion 

for the grandfathered group health plan, 

which, along with an employer shared 

responsibility payment, if any, may 

result in an increase in federal tax 

revenue. However, if these employees 

were to remain covered under a 

grandfathered group health plan as a 

result of the final rule, there may be a 

loss in federal revenue for this group. 

Overall, there are a number of 

potential revenue effects of the final 

rules, some of which could offset each 

other. Additionally, there is a large 

degree of uncertainty, including 

uncertainty regarding how many group 

health plans would have continued as 

grandfathered plans absent the final 

rules and what alternatives would have 

been chosen by employers who would 

not have kept grandfathered group 

health plans absent the final rules, as 

well as how many grandfathered group 

health plans will make plan design 

changes as a result of the final rules. As 

a result, it is unclear whether these 

effects in the aggregate would result in 

a revenue gain or revenue loss. Because 

the employer market is so large, even a 

small percentage change to aggregate 

premiums can result in large revenue 

changes. Nevertheless, the Departments 

are of the view that overall net effects 

are likely to be relatively small. 

Regulatory Review Costs 

Affected entities will need to 

understand the requirements of the final 

rules before they can avail themselves of 

any of the flexibilities in the final rules. 

Sponsors and issuers of grandfathered 

group health plan coverage will be 

responsible for ensuring compliance 

with the final rules should they seek to 

make changes to their grandfathered 

group health plans’ cost-sharing 

requirements. 

If regulations impose administrative 

costs on private entities, such as the 

time needed to read and interpret the 

final rules, the Departments seek to 

estimate the cost associated with 

regulatory review. Due to the 

uncertainty involved with accurately 

quantifying the number of entities that 

will review and interpret the final rules, 

the Departments assume that the total 

number of grandfathered group health 

plan coverage sponsors and issuers that 

will be able to avail themselves of the 

flexibilities provided by the final rules 

is a fair estimate of the number of 

entities affected. The Departments 

estimate 414,288 grandfathered plan 

sponsors and issuers of grandfathered 

group health insurance coverage will 

incur burdens related to reviewing the 

final rules. 

The Departments acknowledge that 

this assumption may understate or 

overstate the costs of reviewing the final 

rules. It is possible that not all affected 

entities will review the final rules in 

detail and that others may seek the 

assistance of outside counsel to read 

and interpret the final rules. For 

example, firms providing or sponsoring 

a grandfathered group health plan may 

not read the final rules and might rely 

upon an issuer or a third-party 

administrator, if self-funded, to read and 

interpret the final rules. For these 

reasons, the Departments are of the view 

that the number of grandfathered group 

health plan coverage sponsors and 

issuers is a fair estimate of the number 

of reviewers of the final rules. The 

Departments sought, but did not receive, 

comments on the approach to estimating 

the number of affected entities that will 

review and interpret the final rules. 

Using the wage information from the 

Bureau of Labor and Statistics (BLS) for 

a Compensation and Benefits Manager 

(Code 11–3111), the Departments 

estimate that the cost of reviewing the 

final rules is $129.04 per hour, 

including overhead and fringe 

benefits.32 Assuming an average reading 

speed, the Departments estimate that it 

would take approximately 0.5 hour for 

the staff to review and interpret the final 

rules; therefore, the Departments 

estimate that the cost of reviewing and 

interpreting the final rules for each 

grandfathered group health plan 

coverage sponsor and issuer is 

approximately $64.52. Thus, the 

Departments estimate that the overall 

cost for the estimated 414,288 

grandfathered group health plan 

coverage sponsors and issuers will be 

$26,729,861.76 ($64.52 * 414,288 total 

number of estimated grandfathered plan 

sponsors and issuers).33

D. Regulatory Alternatives Considered 

In developing the policies contained 

in the final rules, the Departments 

considered alternatives to the final 

rules. In the following paragraphs, the 

Departments discuss the key regulatory 

alternatives considered. 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81113 

34 75 FR 34538, 34547 (June 17, 2010). 

The Departments considered whether 

to modify each of the six types of 

changes, measured from March 23, 

2010, that cause a group health plan or 

group health insurance coverage to 

cease to be grandfathered. To provide 

more flexibility regarding changes to 

fixed cost-sharing requirements, the 

Departments considered revising the 

definition of maximum percentage 

increase to increase the allowed 

percentage points that are added to 

medical inflation. However, the 

Departments are of the view that the 

final rules allow for the desired 

flexibility, while better reflecting 

underlying costs for grandfathered 

group health plans and grandfathered 

group health insurance coverage. The 

Departments acknowledge that the 

premium adjustment percentage, which 

the Departments incorporate into the 

definition of maximum percentage 

increase, reflects the changes in 

premiums in both the individual and 

group market, and that individual 

market premiums have increased faster 

than premiums in the group market. 

Due to the comparative sizes of the 

individual and group markets, however, 

the historically faster growth in the 

individual market has had a minimal 

impact on the premium adjustment 

percentage index. Therefore, the 

Departments are of the view that the 

premium adjustment percentage is an 

appropriate measure to incorporate into 

the definition of maximum percentage 

increase. 

Another option the Departments 

considered was allowing a decrease in 

contribution rates by an employer or 

employee organization without 

triggering a loss of grandfather status. 

Under the 2015 final rules, an employer 

or employee organization cannot 

decrease contribution rates based on 

cost of coverage toward the cost of any 

tier of coverage for any class of similarly 

situated individuals by more than five 

percentage points below the 

contribution rate for the coverage period 

that included March 23, 2010 without 

losing grandfather status. The 

Departments considered permitting 

group health plans and group health 

insurance coverage with grandfather 

status to decrease the contribution rates 

by more than five percentage points. 

This change would increase employer 

flexibility, but the Departments were 

concerned that a decrease in the 

contribution rate could change the plan 

or coverage to such an extent that the 

plan or coverage could not reasonably 

be described as being the same plan or 

coverage that was offered on March 23, 

2010. As a result, this option was not 

included in the final rules. 

Another option the Departments 

considered was allowing a change to 

annual dollar limits for a group health 

plan or health insurance coverage 

without triggering a loss of grandfather 

status. Under the 2015 final rules, a 

group health plan or group health 

insurance coverage that did not have an 

annual dollar limit on March 23, 2010, 

may not establish an annual dollar limit 

for any individual, whether provided innetwork or out-of-network, without 

relinquishing grandfather status. If the 

plan or coverage had an annual dollar 

limit on March 23, 2010, it may not 

decrease the limit. Although for plan 

years beginning on or after January 1, 

2014, group health plans and health 

insurance issuers generally may no 

longer impose annual or lifetime dollar 

limits on essential health benefits, 

permitting changes to annual dollar 

limits on benefits that are not essential 

health benefits may still represent a 

significant change to participants and 

beneficiaries who rely upon the benefits 

to which a limit is applied. Therefore, 

this option was not included in the final 

rules. 

The Departments considered options 

to offset cost-sharing requirement 

changes by allowing sponsors of 

grandfathered group health plans and 

issuers of grandfathered group health 

insurance coverage to increase different 

types of cost-sharing requirements as 

long as any increase is offset by 

lowering another cost-sharing 

requirement to preserve the plan’s or 

coverage’s actuarial value. As discussed 

in previous rulemaking, however, an 

actuarial equivalency standard would 

allow a plan or coverage to make 

fundamental changes to the benefit 

design and still retain grandfather 

status, potentially conflicting with the 

goal of allowing participants and 

beneficiaries to retain health plans they 

like.34 There would also be significant 

complexity involved in defining and 

determining actuarial value for these 

purposes, as well as significant burdens 

associated with administering and 

ensuring compliance with such rules. 

Therefore, the Departments did not 

include this option in the final rules. 

The Departments considered changing 

the date of measurement for calculating 

whether changes to group health plans 

or health insurance coverage will cause 

a loss of grandfather status. For 

example, instead of looking at the 

cumulative change from March 23, 

2010, the rules could measure the 

annual increases, starting from the 

applicability date of the final rules. 

However, the Departments concluded 

that this option could limit flexibility 

for some employers. For example, some 

employers might want to keep the terms 

of the grandfathered group health plan 

the same for a few years and then make 

a more significant change later. 

The Departments also considered 

making changes to the 2015 final rules 

to encourage more cost-effective care. 

One option the Departments considered 

was allowing unlimited changes to costsharing for out-of-network benefits. 

However, the Departments are 

concerned that unlimited discretion to 

change cost-sharing requirements for 

out-of-network benefits could result in 

changes to grandfathered group health 

plans or coverages so extensive that 

these plans or coverages could not 

reasonably be described as being the 

same plans or coverages that were 

offered on March 23, 2010. 

Additionally, the Departments decided 

that the change in the applicable index 

for medical inflation provides sufficient 

flexibility for fixed cost-sharing 

requirements. This option will give 

flexibility to grandfathered group health 

plans and grandfathered group health 

insurance coverage with respect to all 

fixed-amount cost-sharing requirements, 

including for out-of-network benefits. 

E. Collection of Information 

Requirements 

The final rules do not impose new 

information collection requirements; 

that is, reporting, recordkeeping, or 

third-party disclosure requirements. 

Consequently, there is no need for OMB 

review under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501, et seq.). Though the final 

rules do not contain any new 

information collection requirements, the 

Departments are maintaining the current 

requirements that grandfathered plans 

maintain records documenting the terms 

of the plan in effect on March 23, 2010, 

include a statement in any summary of 

benefits that the plan or coverage 

believes it is grandfathered health plan 

coverage and that plans and coverages 

must provide contact information for 

participants to direct questions and 

complaints. Additionally, the 

Departments are maintaining the 

requirement that a grandfathered group 

health plan that is changing health 

insurance issuers must provide the 

succeeding health insurance issuer 

documentation of plan terms under the 

prior health insurance coverage 

sufficient to determine whether the 

standards of paragraph 26 CFR 54.9815– 

1251(g)(1), 29 CFR 2590.715–1251(g)(1) 

and 45 CFR 147.140(g)(1) are met, and 

81114 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

35 ‘‘Table of Small Business Size Standards 

Matched to North American Industry Classification 

System Codes.’’ U.S. Small Business 

Administration, available at https:/www.sba.gov/ 

sites/default/files/2019-08/SBA%20Table%20of

%20Size%20Standards_

Effective%20Aug%2019%2C%202019_Rev.pdf. 36 ‘‘Medical Loss Ratio Data and System 

Resources.’’ CCIIO, available at https://

www.cms.gov/CCIIO/Resources/Data-Resources/ 

mlr.html. 

37The DOL consulted with the SBA in making 

this determination as required by 5 U.S.C. 603(c) 

and 13 CFR 121.903(c). 

that insured group health plans (or 

multiemployer plans) that are 

grandfathered plans are required to 

notify the issuer (or multiemployer 

plan) if the contribution rate changes at 

any point during the plan year. The 

Departments do not anticipate that the 

final rules will make a substantive or 

material modification to the collections 

currently approved under the collection 

of information OMB control number 

0938–1093 (CMS–10325), OMB control 

number 1210–0140 (DOL), and OMB 

control number 1545–2178 (Department 

of the Treasury). 

F. Regulatory Flexibility Act

The Regulatory Flexibility Act, (5

U.S.C. 601, et seq.), requires agencies to 

prepare an initial regulatory flexibility 

analysis to describe the impact of final 

rules on small entities, unless the head 

of the agency can certify that the rules 

would not have a significant economic 

impact on a substantial number of small 

entities. The RFA generally defines a 

‘‘small entity’’ as (1) a proprietary firm 

meeting the size standards of the Small 

Business Administration (SBA), (2) a 

not-for-profit organization that is not 

dominant in its field, or (3) a small 

government jurisdiction with a 

population of less than 50,000. States 

and individuals are not included in the 

definition of ‘‘small entity.’’ HHS uses a 

change in revenues of more than three 

to five percent as its measure of 

significant economic impact on a 

substantial number of small entities. 

The final rules amend the 2015 final 

rules to allow greater flexibility for 

grandfathered group health plans and 

issuers of grandfathered group health 

insurance coverage. Specifically, the 

final rules specify that grandfathered 

group health plans that are HDHPs may 

make changes to fixed-amount costsharing requirements that would 

otherwise cause a loss of grandfather 

status without causing a loss of 

grandfather status, but only to the extent 

those changes are necessary to comply 

with the requirements for being HDHPs 

under section 223(c)(2)(A) of the Code. 

The final rules also include a revised 

definition of maximum percentage 

increase that will provide an alternative 

method of determining the maximum 

percentage increase that is based on the 

premium adjustment percentage. 

G. Impact of Regulations on Small

Business—Department of Health and

Human Services and the Department of

Labor

The Departments are of the view that 

health insurance issuers would be 

classified under the North American 

Industry Classification System code 

524114 (Direct Health and Medical 

Insurance Carriers). According to SBA 

size standards, entities with average 

annual receipts of $41.5 million or less 

would be considered small entities for 

these North American Industry 

Classification System codes. Issuers 

could possibly be classified in 621491 

(Health Maintenance Organization 

(HMO) Medical Centers) and, if this is 

the case, the SBA size standard would 

be $35 million or less.35 Few, if any, 

insurance companies underwriting 

comprehensive health insurance 

policies (in contrast, for example, to 

travel insurance policies or dental 

discount policies) fall below these size 

thresholds. Based on data from MLR 

annual report submissions for the 2019 

MLR reporting year, approximately 74 

out of 483 issuers of health insurance 

coverage nationwide had total premium 

revenue of $41.5 million or less.36 This 

estimate may overstate the actual 

number of small health insurance 

companies that may be affected, since 

over 68 percent of these small 

companies belong to larger holding 

groups. Most, if not all, of these small 

companies are likely to have non-health 

lines of business that will result in their 

revenues exceeding $41.5 million, and it 

is likely not all of these companies offer 

grandfathered group health plans or 

grandfathered group health coverage. 

The Departments do not expect any of 

these 74 potentially small entities to 

experience a change in revenues of more 

than three to five percent as a result of 

the final rules. Therefore, the 

Departments do not expect the 

provisions of the final rules to affect a 

substantial number of small entities. 

Due to the lack of knowledge regarding 

what small entities may decide to do 

with regard to the provisions in the final 

rules, the Departments are not able to 

precisely ascertain the economic effects 

on small entities. However, the 

Departments are of the view that the 

flexibilities provided for in the final 

rules will result in overall benefits for 

small entities by allowing them to make 

changes to certain cost-sharing 

requirements within limits and 

maintain their current grandfathered 

group health plans. The Departments 

sought, but did not receive, comments 

on ways that the 2020 proposed rules 

may impose additional costs and 

burdens on small entities. 

For purposes of analysis under the 

RFA, the Employee Benefits Security 

Administration (EBSA) continues to 

consider a small entity to be an 

employee benefit plan with fewer than 

100 participants.37 The basis of this 

definition is found in section 104(a)(2) 

of ERISA, which permits the Secretary 

of Labor to prescribe simplified annual 

reports for pension plans that cover 

fewer than 100 participants. Under 

section 104(a)(3), the Secretary of Labor 

may also provide for exemptions or 

simplified annual reporting and 

disclosure for welfare benefit plans. 

Pursuant to the authority of section 

104(a)(3), the DOL has previously issued 

at 29 CFR 2520.104–20, 2520.104–21, 

2520.104–41, 2520.104–46 and 

2520.104b–10 certain simplified 

reporting provisions and limited 

exemptions from reporting and 

disclosure requirements for small plans, 

including unfunded or insured welfare 

plans covering fewer than 100 

participants and satisfying certain other 

requirements. Further, while some large 

employers may have small plans, in 

general small employers maintain most 

small plans. Thus, EBSA believes that 

assessing the impact of the final rules on 

small plans is an appropriate substitute 

for evaluating the effect on small 

entities. The definition of small entity 

considered appropriate for this purpose 

differs, however, from a definition of 

small business that is based on size 

standards promulgated by the SBA (13 

CFR 121.201) pursuant to the Small 

Business Act (15 U.S.C. 631 et seq.). 

Therefore, EBSA requested, but did not 

receive, comments on the 

appropriateness of the size standard 

used in evaluating the impact of the 

final rules on small entities. 

H. Impact of Regulations on Small

Business—Department of the Treasury

Pursuant to section 7805(f) of the 

Code, the proposed rules that preceded 

these final rules were submitted to the 

Chief Counsel for Advocacy of the SBA 

for comment on their impact on small 

business, and no comments were 

received. 

I. Effects on Small Rural Hospitals

Section 1102(b) of the SSA (42 U.S.C.

1302) requires agencies to prepare an 

RIA if a rule may have a significant 

impact on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the provisions 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81115 

of section 604 of the RFA. For purposes 

of section 1102(b) of the SSA, HHS 

defines a small rural hospital as a 

hospital that is located outside of a 

metropolitan statistical area and has 

fewer than 100 beds. The final rules 

would not materially affect small rural 

hospitals. Therefore, while the final 

rules are not subject to section 1102(b) 

of the SSA, the Departments have 

determined that the final rules will not 

have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

J. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain 

actions before issuing a final rule that 

includes any federal mandate that may 

result in expenditures in any one year 

by state, local, or tribal governments, in 

the aggregate, or by the private sector, of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2020, that 

threshold is approximately $156 

million. 

While the Departments recognize that 

some state, local, and tribal 

governments may sponsor grandfathered 

health plan coverage, the Departments 

do not expect any state, local, or tribal 

government to incur any additional 

costs associated with the final rules. The 

Departments estimate that any costs 

associated with the final rules will not 

exceed the $156 million threshold. 

Thus, the Departments conclude that 

the final rules will not impose an 

unfunded mandate on state, local, or 

tribal governments or the private sector. 

K. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it issues a proposed 

rule that imposes substantial direct 

costs on state and local governments, 

preempts state law, or otherwise has 

federalism implications. Federal 

agencies promulgating regulations that 

have federalism implications must 

consult with state and local officials and 

describe the extent of their consultation 

and the nature of the concerns of state 

and local officials in the preamble to the 

regulation. 

In the Departments’ view, the final 

rules do not have any federalism 

implications. They simply provide 

grandfathered group health plan 

sponsors and issuers more flexibility to 

increase fixed-amount cost-sharing 

requirements and to make changes to 

fixed-amount cost-sharing requirements 

in grandfathered group health plans and 

grandfathered group health insurance 

coverage that are HDHPs to the extent 

those changes are necessary to comply 

with the requirements for HDHPs under 

section 223(c)(2)(A) of the Code, 

without causing the plan or coverage to 

relinquish its grandfather status. The 

Departments recognize that some state, 

local, and tribal governments may 

sponsor grandfathered health plan 

coverage. The final rules will provide 

these entities with additional flexibility. 

In general, through section 514, 

ERISA supersedes state laws to the 

extent that they relate to any covered 

employee benefit plan, and preserves 

state laws that regulate insurance, 

banking, or securities. While ERISA 

prohibits states from regulating a plan as 

an insurance or investment company or 

bank, the preemption provisions of 

section 731 of ERISA and section 2724 

of the PHS Act (implemented in 29 CFR 

2590.731(a) and 45 CFR 146.143(a)) 

apply so that the requirements in title 

XXVII of the PHS Act (including those 

enacted by PPACA) are not to be 

‘‘construed to supersede any provision 

of state law which establishes, 

implements, or continues in effect any 

standard or requirement solely relating 

to health insurance issuers in 

connection with group health insurance 

coverage except to the extent that such 

standard or requirement prevents the 

application of a ‘requirement of a 

federal standard.’ ’’ The conference 

report accompanying HIPAA indicates 

that this is intended to be the 

‘‘narrowest’’ preemption of states’ laws 

(see House Conf. Rep. No. 104–736, at 

205, reprinted in 1996 U.S. Code Cong. 

& Admin. News 2018). States may 

continue to apply state law 

requirements to health insurance issuers 

except to the extent that such 

requirements prevent the application of 

PHS Act requirements that are the 

subject of this rulemaking. Accordingly, 

states have significant latitude to 

impose requirements on health 

insurance issuers that are more 

restrictive than the federal law. 

In compliance with the requirement 

of Executive Order 13132 that agencies 

examine closely any policies that may 

have federalism implications or limit 

the policy making discretion of the 

states, the Departments have engaged in 

efforts to consult with and work 

cooperatively with affected states, 

including participating in conference 

calls with and attending conferences of 

the National Association of Insurance 

Commissioners, and consulting with 

state insurance officials on an 

individual basis. While developing the 

final rules, the Departments attempted 

to balance the states’ interests in 

regulating health insurance issuers with 

Congress’ intent to provide uniform 

minimum protections to consumers in 

every state. By doing so, it is the 

Departments’ view that they have 

complied with the requirements of 

Executive Order 13132. 

Pursuant to the requirements set forth 

in section 8(a) of Executive Order 

13132, and by the signatures affixed to 

the final rules, the Departments certify 

that the Department of the Treasury, 

EBSA, and CMS have complied with the 

requirements of Executive Order 13132 

for the attached final rules in a 

meaningful and timely manner. 

L. Reducing Regulation and Controlling 

Regulatory Costs 

Executive Order 13771, entitled 

‘‘Reducing Regulation and Controlling 

Regulatory Costs,’’ was issued on 

January 30, 2017, and requires that the 

costs associated with significant new 

regulations ‘‘shall, to the extent 

permitted by law, be offset by the 

elimination of existing costs associated 

with at least two prior regulations.’’ It 

has been determined that the final rules 

are an action that primarily results in 

transfers and does not impose more than 

de minimis costs as described above and 

thus is not a regulatory or deregulatory 

action for the purposes of Executive 

Order 13771. 

V. Statutory Authority 

The Department of the Treasury 

regulations are adopted pursuant to the 

authority contained in sections 7805 

and 9833 of the Code. 

The Department of Labor regulations 

are adopted pursuant to the authority 

contained in 29 U.S.C. 1027, 1059, 1135, 

1161–1168, 1169, 1181–1183, 1181 note, 

1185, 1185a, 1185b, 1191, 1191a, 1191b, 

and 1191c; section 101(g), Public Law 

104–191, 110 Stat. 1936; section 401(b), 

Public Law 105–200, 112 Stat. 645 (42 

U.S.C. 651 note); section 512(d), Public 

Law 110–343, 122 Stat. 3881; section 

1001, 1201, and 1562(e), Public Law 

111–148, 124 Stat. 119, as amended by 

Public Law 111–152, 124 Stat. 1029; 

Secretary of Labor’s Order 6–2009, 74 

FR 21524 (May 7, 2009). 

The Department of Health and Human 

Services regulations are adopted 

pursuant to the authority contained in 

sections 2701 through 2763, 2791, and 

2792 of the PHS Act (42 U.S.C. 300gg 

through 300gg–63, 300gg–91, and 

300gg–92), as amended. 

List of Subjects 

26 CFR Part 54 

Excise taxes, Health care, Health 

insurance, Pensions, Reporting and 

recordkeeping requirements. 

81116 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

29 CFR Part 2590 

Employee benefit plans, Health care, 

Health insurance, Penalties, Pensions, 

Privacy, Reporting and recordkeeping 

requirements. 

45 CFR Part 147 

Age discrimination, Citizenship and 

naturalization, Civil rights, Health care, 

Health insurance, Individuals with 

disabilities, Intergovernmental relations, 

Reporting and recordkeeping 

requirements, Sex discrimination. 

Sunita Lough, 

Deputy Commissioner for Services and 

Enforcement, Internal Revenue Service. 

Approved: December 7, 2020. 

David J. Kautter, 

Assistant Secretary of the Treasury (Tax 

Policy). 

Dated: December 9, 2020. 

Jeanne Klinefelter Wilson, 

Acting Assistant Secretary, Employee Benefits 

Security Administration, U.S. Department of 

Labor. 

Dated: November 30, 2020. 

Seema Verma, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: December 2, 2020. 

Alex M. Azar II, 

Secretary, Department of Health and Human 

Services. 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

Amendments to the Regulations 

Accordingly, the Internal Revenue 

Service, Department of the Treasury, 

amends 26 CFR part 54 as follows: 

PART 54—PENSION EXCISE TAXES 

■ Paragraph 1. The authority citation 

for part 54 continues to read, in part, as 

follows: 

Authority: 26 U.S.C. 7805, unless 

otherwise noted. 

* * * * * 

■ Par. 2. Section 54.9815–1251 is as 

amended: 

■ a. By revising the first sentence of 

paragraph (g)(1) introductory text; 

■ b. By revising paragraphs (g)(1)(iii), 

(g)(1)(iv)(A) and (B), and (g)(1)(v); 

■ c. By redesignating paragraphs (g)(3) 

and (4) as paragraphs (g)(4) and (5); 

■ d. By adding a new paragraph (g)(3); 

■ e. By revising newly redesignated 

paragraphs (g)(4)(i) and (ii); and 

■ f. In newly redesignated paragraph 

(g)(5): 

■ i. By revising Examples 3 and 4; 

■ ii. By redesignating Examples 5 

through 9 as Examples 6 through 10; 

■ iii. By adding a new Example 5; 

■ iv. By revising newly redesignated 

Examples 6 through 10; and 

■ v. By adding Example 11. 

The revisions and additions read as 

follows: 

§ 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 costsharing requirement other than a 

copayment. Any increase in a fixedamount 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 

§ 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 § 54.9802(d)) by more than 

5 percent below the contribution rate for 

the coverage period that includes March 

23, 2010. 

* * * * * 

(3) Special rule for certain 

grandfathered high deductible health 

plans. With respect to a grandfathered 

group health plan or group health 

insurance coverage that is a high 

deductible health plan within the 

meaning of section 223(c)(2), increases 

to fixed-amount cost-sharing 

requirements made effective on or after 

June 15, 2021 that otherwise would 

cause a loss of grandfather status will 

not cause the plan or coverage to 

relinquish its grandfather status, but 

only to the extent such increases are 

necessary to maintain its status as a high 

deductible health plan under section 

223(c)(2)(A). 

(4) * * * 

(i) Medical inflation defined. For 

purposes of this paragraph (g), the term 

medical inflation means the increase 

since March 2010 in the overall medical 

care component of the Consumer Price 

Index for All Urban Consumers (CPI–U) 

(unadjusted) published by the 

Department of Labor using the 1982– 

1984 base of 100. For purposes of this 

paragraph (g)(4)(i), the increase in the 

overall medical care component is 

computed by subtracting 387.142 (the 

overall medical care component of the 

CPI–U (unadjusted) published by the 

Department of Labor for March 2010, 

using the 1982–1984 base of 100) from 

the index amount for any month in the 

12 months before the new change is to 

take effect and then dividing that 

amount by 387.142. 

(ii) Maximum percentage increase 

defined. For purposes of this paragraph 

(g), the term maximum percentage 

increase means: 

(A) With respect to increases for a 

group health plan and group health 

insurance coverage made effective on or 

after March 23, 2010, and before June 

15, 2021, medical inflation (as defined 

in paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points; and 

(B) With respect to increases for a 

group health plan and group health 

insurance coverage made effective on or 

after June 15, 2021, the greater of: 

(1) Medical inflation (as defined in 

paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points; or 

(2) The portion of the premium 

adjustment percentage, as defined in 45 

CFR 156.130(e), that reflects the relative 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81117 

change between 2013 and the calendar 

year prior to the effective date of the 

increase (that is, the premium 

adjustment percentage minus 1), 

expressed as a percentage, plus 15 

percentage points. 

* * * * * 

(5) * * * 

Example 3. (i) Facts. On March 23, 

2010, a grandfathered group health plan 

has a copayment requirement of $30 per 

office visit for specialists. The plan is 

subsequently amended to increase the 

copayment requirement to $40, effective 

before June 15, 2021. Within the 12- 

month period before the $40 copayment 

takes effect, the greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) is 475. 

(ii) Conclusion. In this Example 3, the 

increase in the copayment from $30 to 

$40, expressed as a percentage, is 

33.33% (40¥30 = 10; 10 ÷ 30 = 0.3333; 

0.3333 = 33.33%). Medical inflation (as 

defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.2269 

(475¥387.142 = 87.858; 87.858 ÷ 

387.142 = 0.2269). The maximum 

percentage increase permitted is 37.69% 

(0.2269 = 22.69%; 22.69% + 15% = 

37.69%). Because 33.33% does not 

exceed 37.69%, the change in the 

copayment requirement at that time 

does not cause the plan to cease to be 

a grandfathered health plan. 

Example 4. (i) Facts. Same facts as 

Example 3 of this paragraph (g)(5), 

except the grandfathered group health 

plan subsequently increases the $40 

copayment requirement to $45 for a 

later plan year, effective before June 15, 

2021. Within the 12-month period 

before the $45 copayment takes effect, 

the greatest value of the overall medical 

care component of the CPI–U 

(unadjusted) is 485. 

(ii) Conclusion. In this Example 4, the 

increase in the copayment from $30 (the 

copayment that was in effect on March 

23, 2010) to $45, expressed as a 

percentage, is 50% (45¥30 = 15; 15 ÷ 

30 = 0.5; 0.5 = 50%). Medical inflation 

(as defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.2527 

(485¥387.142 = 97.858; 97.858 ÷ 

387.142 = 0.2527). The increase that 

would cause a plan to cease to be a 

grandfathered health plan under 

paragraph (g)(1)(iv) of this section is the 

greater of the maximum percentage 

increase of 40.27% (0.2527 = 25.27%; 

25.27% + 15% = 40.27%), or $6.26 (5 

× 0.2527 = $1.26; $1.26 + $5 = $6.26). 

Because 50% exceeds 40.27% and $15 

exceeds $6.26, the change in the 

copayment requirement at that time 

causes the plan to cease to be a 

grandfathered health plan. 

Example 5. (i) Facts. Same facts as 

Example 4 of this paragraph (g)(5), 

except the grandfathered group health 

plan increases the copayment 

requirement to $45, effective after June 

15, 2021. The greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) in the preceding 12- 

month period is still 485. In the 

calendar year that includes the effective 

date of the increase, the applicable 

portion of the premium adjustment 

percentage is 36%. 

(ii) Conclusion. In this Example 5, the 

grandfathered health plan may increase 

the copayment by the greater of: 

Medical inflation, expressed as a 

percentage, plus 15 percentage points; 

or the applicable portion of the 

premium adjustment percentage for the 

calendar year that includes the effective 

date of the increase, plus 15 percentage 

points. The latter amount is greater 

because it results in a 51% maximum 

percentage increase (36% + 15% = 51%) 

and, as demonstrated in Example 4 of 

this paragraph (g)(5), determining the 

maximum percentage increase using 

medical inflation yields a result of 

40.27%. The increase in the copayment, 

expressed as a percentage, is 50% 

(45¥30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%). 

Because the 50% increase in the 

copayment is less than the 51% 

maximum percentage increase, the 

change in the copayment requirement at 

that time does not cause the plan to 

cease to be a grandfathered health plan. 

Example 6. (i) Facts. On March 23, 

2010, a grandfathered group health plan 

has a copayment of $10 per office visit 

for primary care providers. The plan is 

subsequently amended to increase the 

copayment requirement to $15, effective 

before June 15, 2021. Within the 12- 

month period before the $15 copayment 

takes effect, the greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) is 415. 

(ii) Conclusion. In this Example 6, the 

increase in the copayment, expressed as 

a percentage, is 50% (15¥10 = 5; 5 ÷ 10 

= 0.5; 0.5 = 50%). Medical inflation (as 

defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.0720 

(415.0¥387.142 = 27.858; 27.858 ÷ 

387.142 = 0.0720). The increase that 

would cause a group plan to cease to be 

a grandfathered health plan under 

paragraph (g)(1)(iv) of this section is the 

greater of the maximum percentage 

increase of 22.20% (0.0720 = 7.20%; 

7.20% + 15% = 22.20%), or $5.36 ($5 

× 0.0720 = $0.36; $0.36 + $5 = $5.36). 

The $5 increase in copayment in this 

Example 6 would not cause the plan to 

cease to be a grandfathered health plan 

pursuant to paragraph (g)(1)(iv) of this 

section, which would permit an 

increase in the copayment of up to 

$5.36. 

Example 7. (i) Facts. Same facts as 

Example 6 of this paragraph (g)(5), 

except on March 23, 2010, the 

grandfathered health plan has no 

copayment ($0) for office visits for 

primary care providers. The plan is 

subsequently, amended to increase the 

copayment requirement to $5, effective 

before June 15, 2021. 

(ii) Conclusion. In this Example 7, 

medical inflation (as defined in 

paragraph (g)(4)(i) of this section) from 

March 2010 is 0.0720 (415.0¥387.142 = 

27.858; 27.858 ÷ 387.142 = 0.0720). The 

increase that would cause a plan to 

cease to be a grandfathered health plan 

under paragraph (g)(1)(iv)(A) of this 

section is $5.36 ($5 × 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—selfonly 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 selfonly 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 selfonly coverage and 67% 

((12,000¥4,000)/12,000) for family 

coverage. For a subsequent plan year, 

the COBRA premium is $6,000 for selfonly coverage and $15,000 for family 

coverage. The employee contributions 

for that plan year are $1,200 for selfonly 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 

81118 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

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 pretax through a cafeteria plan under 

section 125. 

Example 10. (i) Facts. A group health 

plan not maintained pursuant to a 

collective bargaining agreement offers 

three benefit packages on March 23, 

2010. Option F is a self-insured option. 

Options G and H are insured options. 

Beginning July 1, 2013, the plan 

increases coinsurance under Option H 

from 10% to 15%. 

(ii) Conclusion. In this Example 10, 

the coverage under Option H is not 

grandfathered health plan coverage as of 

July 1, 2013, consistent with the rule in 

paragraph (g)(1)(ii) of this section. 

Whether the coverage under Options F 

and G is grandfathered health plan 

coverage is determined separately under 

the rules of this paragraph (g). 

Example 11. (i) Facts. A group health 

plan that is a grandfathered health plan 

and also a high deductible health plan 

within the meaning of section 223(c)(2) 

had a $2,400 deductible for family 

coverage on March 23, 2010. The plan 

is subsequently amended after June 15, 

2021 to increase the deductible limit by 

the amount that is necessary to comply 

with the requirements for a plan to 

qualify as a high deductible health plan 

under section 223(c)(2)(A), but that 

exceeds the maximum percentage 

increase. 

(ii) Conclusion. In this Example 11, 

the increase in the deductible at that 

time does not cause the plan to cease to 

be a grandfathered health plan because 

the increase was necessary for the plan 

to continue to satisfy the definition of a 

high deductible health plan under 

section 223(c)(2)(A). 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

Accordingly, the Department of Labor 

amends 29 CFR part 2590 as follows: 

PART 2590—RULES AND 

REGULATIONS FOR GROUP HEALTH 

PLANS 

■ 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). 

■ 4. Amend § 2590.715–1251: 

■ a. By revising the first sentence of 

paragraph (g)(1) introductory text; 

■ b. By revising paragraphs (g)(1)(iii), 

(g)(1)(iv)(A) and (B), and (g)(1)(v); 

■ c. By redesignating paragraphs (g)(3) 

and (4) as paragraphs (g)(4) and (5); 

■ d. By adding a new paragraph (g)(3); 

■ e. By revising newly redesignated 

paragraphs (g)(4)(i) and (ii); and 

■ f. In newly redesignated paragraph 

(g)(5): 

■ i. By revising Examples 3 and 4; 

■ ii. By redesignating Examples 5 

through 9 as Examples 6 through 10; 

■ iii. By adding a new Example 5; 

■ iv. By revising newly redesignated 

Examples 6 through 10; and 

■ v. By adding Example 11. 

The revisions and additions read as 

follows: 

§ 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 costsharing requirement other than a 

copayment. Any increase in a fixedamount 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 

§ 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 § 2590.702(d)) by more 

than 5 percent below the contribution 

rate for the coverage period that 

includes March 23, 2010. 

* * * * * 

(3) Special rule for certain 

grandfathered high deductible health 

plans. With respect to a grandfathered 

group health plan or group health 

insurance coverage that is a high 

deductible health plan within the 

meaning of section 223(c)(2) of the 

Internal Revenue Code, increases to 

fixed-amount cost-sharing requirements 

made effective on or after June 15, 2021 

that otherwise would cause a loss of 

grandfather status will not cause the 

plan or coverage to relinquish its 

grandfather status, but only to the extent 

such increases are necessary to maintain 

its status as a high deductible health 

plan under section 223(c)(2)(A) of the 

Internal Revenue Code. 

(4) * * * 

(i) Medical inflation defined. For 

purposes of this paragraph (g), the term 

medical inflation means the increase 

since March 2010 in the overall medical 

care component of the Consumer Price 

Index for All Urban Consumers (CPI–U) 

(unadjusted) published by the 

Department of Labor using the 1982– 

1984 base of 100. For purposes of this 

paragraph (g)(4)(i), the increase in the 

overall medical care component is 

computed by subtracting 387.142 (the 

overall medical care component of the 

CPI–U (unadjusted) published by the 

Department of Labor for March 2010, 

using the 1982–1984 base of 100) from 

the index amount for any month in the 

12 months before the new change is to 

take effect and then dividing that 

amount by 387.142. 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81119 

(ii) Maximum percentage increase 

defined. For purposes of this paragraph 

(g), the term maximum percentage 

increase means: 

(A) With respect to increases for a 

group health plan and group health 

insurance coverage made effective on or 

after March 23, 2010, and before June 

15, 2021, medical inflation (as defined 

in paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points; and 

(B) With respect to increases for a 

group health plan and group health 

insurance coverage made effective on or 

after June 15, 2021, the greater of: 

(1) Medical inflation (as defined in 

paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points; or 

(2) The portion of the premium 

adjustment percentage, as defined in 45 

CFR 156.130(e), that reflects the relative 

change between 2013 and the calendar 

year prior to the effective date of the 

increase (that is, the premium 

adjustment percentage minus 1), 

expressed as a percentage, plus 15 

percentage points. 

* * * * * 

(5) * * * 

Example 3. (i) Facts. On March 23, 

2010, a grandfathered group health plan 

has a copayment requirement of $30 per 

office visit for specialists. The plan is 

subsequently amended to increase the 

copayment requirement to $40, effective 

before June 15, 2021. Within the 12- 

month period before the $40 copayment 

takes effect, the greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) is 475. 

(ii) Conclusion. In this Example 3, the 

increase in the copayment from $30 to 

$40, expressed as a percentage, is 

33.33% (40¥30 = 10; 10 ÷ 30 = 0.3333; 

0.3333 = 33.33%). Medical inflation (as 

defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.2269 

(475¥387.142 = 87.858; 87.858 ÷ 

387.142 = 0.2269). The maximum 

percentage increase permitted is 37.69% 

(0.2269 = 22.69%; 22.69% + 15% = 

37.69%). Because 33.33% does not 

exceed 37.69%, the change in the 

copayment requirement at that time 

does not cause the plan to cease to be 

a grandfathered health plan. 

Example 4. (i) Facts. Same facts as 

Example 3 of this paragraph (g)(5), 

except the grandfathered group health 

plan subsequently increases the $40 

copayment requirement to $45 for a 

later plan year, effective before June 15, 

2021. Within the 12-month period 

before the $45 copayment takes effect, 

the greatest value of the overall medical 

care component of the CPI–U 

(unadjusted) is 485. 

(ii) Conclusion. In this Example 4, the 

increase in the copayment from $30 (the 

copayment that was in effect on March 

23, 2010) to $45, expressed as a 

percentage, is 50% (45¥30 = 15; 15 ÷ 

30 = 0.5; 0.5 = 50%). Medical inflation 

(as defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.2527 

(485¥387.142 = 97.858; 97.858 ÷ 

387.142 = 0.2527). The increase that 

would cause a plan to cease to be a 

grandfathered health plan under 

paragraph (g)(1)(iv) of this section is the 

greater of the maximum percentage 

increase of 40.27% (0.2527 = 25.27%; 

25.27% + 15% = 40.27%), or $6.26 (5 

× 0.2527 = $1.26; $1.26 + $5 = $6.26). 

Because 50% exceeds 40.27% and $15 

exceeds $6.26, the change in the 

copayment requirement at that time 

causes the plan to cease to be a 

grandfathered health plan. 

Example 5. (i) Facts. Same facts as 

Example 4 of this paragraph (g)(5), 

except the grandfathered group health 

plan increases the copayment 

requirement to $45, effective after June 

15, 2021. The greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) in the preceding 12- 

month period is still 485. In the 

calendar year that includes the effective 

date of the increase, the applicable 

portion of the premium adjustment 

percentage is 36%. 

(ii) Conclusion. In this Example 5, the 

grandfathered health plan may increase 

the copayment by the greater of: 

Medical inflation, expressed as a 

percentage, plus 15 percentage points; 

or the applicable portion of the 

premium adjustment percentage for the 

calendar year that includes the effective 

date of the increase, plus 15 percentage 

points. The latter amount is greater 

because it results in a 51% maximum 

percentage increase (36% + 15% = 51%) 

and, as demonstrated in Example 4 of 

this paragraph (g)(5), determining the 

maximum percentage increase using 

medical inflation yields a result of 

40.27%. The increase in the copayment, 

expressed as a percentage, is 50% 

(45¥30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%). 

Because the 50% increase in the 

copayment is less than the 51% 

maximum percentage increase, the 

change in the copayment requirement at 

that time does not cause the plan to 

cease to be a grandfathered health plan. 

Example 6. (i) Facts. On March 23, 

2010, a grandfathered group health plan 

has a copayment of $10 per office visit 

for primary care providers. The plan is 

subsequently amended to increase the 

copayment requirement to $15, effective 

before June 15, 2021. Within the 12- 

month period before the $15 copayment 

takes effect, the greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) is 415. 

(ii) Conclusion. In this Example 6, the 

increase in the copayment, expressed as 

a percentage, is 50% (15¥10 = 5; 5 ÷ 10 

= 0.5; 0.5 = 50%). Medical inflation (as 

defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.0720 

(415.0¥387.142 = 27.858; 27.858 ÷ 

387.142 = 0.0720). The increase that 

would cause a group plan to cease to be 

a grandfathered health plan under 

paragraph (g)(1)(iv) of this section is the 

greater of the maximum percentage 

increase of 22.20% (0.0720 = 7.20%; 

7.20% + 15% = 22.20%), or $5.36 ($5 

× 0.0720 = $0.36; $0.36 + $5 = $5.36). 

The $5 increase in copayment in this 

Example 6 would not cause the plan to 

cease to be a grandfathered health plan 

pursuant to paragraph (g)(1)(iv) of this 

section, which would permit an 

increase in the copayment of up to 

$5.36. 

Example 7. (i) Facts. Same facts as 

Example 6 of this paragraph (g)(5), 

except on March 23, 2010, the 

grandfathered health plan has no 

copayment ($0) for office visits for 

primary care providers. The plan is 

subsequently, amended to increase the 

copayment requirement to $5, effective 

before June 15, 2021. 

(ii) Conclusion. In this Example 7, 

medical inflation (as defined in 

paragraph (g)(4)(i) of this section) from 

March 2010 is 0.0720 (415.0¥387.142 = 

27.858; 27.858 ÷ 387.142 = 0.0720). The 

increase that would cause a plan to 

cease to be a grandfathered health plan 

under paragraph (g)(1)(iv)(A) of this 

section is $5.36 ($5 × 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—selfonly 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. 

81120 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

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 selfonly 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 selfonly coverage and 67% 

((12,000¥4,000)/12,000) for family 

coverage. For a subsequent plan year, 

the COBRA premium is $6,000 for selfonly coverage and $15,000 for family 

coverage. The employee contributions 

for that plan year are $1,200 for selfonly 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 pretax through a cafeteria plan under 

section 125 of the Internal Revenue 

Code. 

Example 10. (i) Facts. A group health 

plan not maintained pursuant to a 

collective bargaining agreement offers 

three benefit packages on March 23, 

2010. Option F is a self-insured option. 

Options G and H are insured options. 

Beginning July 1, 2013, the plan 

increases coinsurance under Option H 

from 10% to 15%. 

(ii) Conclusion. In this Example 10, 

the coverage under Option H is not 

grandfathered health plan coverage as of 

July 1, 2013, consistent with the rule in 

paragraph (g)(1)(ii) of this section. 

Whether the coverage under Options F 

and G is grandfathered health plan 

coverage is determined separately under 

the rules of this paragraph (g). 

Example 11. (i) Facts. A group health 

plan that is a grandfathered health plan 

and also a high deductible health plan 

within the meaning of section 223(c)(2) 

of the Internal Revenue Code had a 

$2,400 deductible for family coverage 

on March 23, 2010. The plan is 

subsequently amended after June 15, 

2021 to increase the deductible limit by 

the amount that is necessary to comply 

with the requirements for a plan to 

qualify as a high deductible health plan 

under section 223(c)(2)(A) of the 

Internal Revenue Code, but that exceeds 

the maximum percentage increase. 

(ii) Conclusion. In this Example 11, 

the increase in the deductible at that 

time does not cause the plan to cease to 

be a grandfathered health plan because 

the increase was necessary for the plan 

to continue to satisfy the definition of a 

high deductible health plan under 

section 223(c)(2)(A) of the Internal 

Revenue Code. 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

For the reasons stated in the 

preamble, the Department of Health and 

Human Services amends 45 CFR part 

147 as set forth below: 

PART 147—HEALTH INSURANCE 

REFORM REQUIREMENTS FOR THE 

GROUP AND INDIVIDUAL HEALTH 

INSURANCE MARKETS 

■ 5. The authority citation for part 147 

continues to read as follows: 

Authority: 42 U.S.C. 300gg through 300gg– 

63, 300gg–91, and 300gg–92, as amended, 

and section 3203, Pub. L. 116–136, 134 Stat. 

281. 

■ 6. Section 147.140 is amended: 

■ a. By revising the first sentence of 

paragraph (g)(1) introductory text; 

■ b. By revising paragraphs (g)(1)(iii), 

(g)(1)(iv)(A) and (B), and (g)(1)(v); 

■ c. By redesignating paragraphs (g)(3) 

and (4) as paragraphs (g)(4) and (5); 

■ d. By adding a new paragraph (g)(3); 

■ e. By revising newly redesignated 

paragraphs (g)(4)(i) and (ii); and 

■ f. In newly redesignated paragraph 

(g)(5): 

■ i. By revising Examples 3 and 4; 

■ ii. By redesignating Examples 5 

through 9 as Examples 6 through 10; 

■ iii. By adding a new Example 5; 

■ iv. By revising newly redesignated 

Examples 6 through 10; 

■ v. By adding Example 11. 

The revisions and additions read as 

follows: 

§ 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 costsharing requirement other than a 

copayment. Any increase in a fixedamount 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 

§ 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 § 146.121(d) of this 

subchapter) by more than 5 percent 

below the contribution rate for the 

coverage period that includes March 23, 

2010. 

* * * * * 

(3) Special rule for certain 

grandfathered high deductible health 

plans. With respect to a grandfathered 

group health plan or group health 

insurance coverage that is a high 

deductible health plan within the 

meaning of section 223(c)(2) of the 

Internal Revenue Code, increases to 

fixed-amount cost-sharing requirements 

made effective on or after June 15, 2021 

that otherwise would cause a loss of 

grandfather status will not cause the 

plan or coverage to relinquish its 

grandfather status, but only to the extent 

such increases are necessary to maintain 

its status as a high deductible health 

plan under section 223(c)(2)(A) of the 

Internal Revenue Code. 

(4) * * * 

Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 81121 

(i) Medical inflation defined. For 

purposes of this paragraph (g), the term 

medical inflation means the increase 

since March 2010 in the overall medical 

care component of the Consumer Price 

Index for All Urban Consumers (CPI–U) 

(unadjusted) published by the 

Department of Labor using the 1982– 

1984 base of 100. For purposes of this 

paragraph (g)(4)(i), the increase in the 

overall medical care component is 

computed by subtracting 387.142 (the 

overall medical care component of the 

CPI–U (unadjusted) published by the 

Department of Labor for March 2010, 

using the 1982–1984 base of 100) from 

the index amount for any month in the 

12 months before the new change is to 

take effect and then dividing that 

amount by 387.142. 

(ii) Maximum percentage increase 

defined. For purposes of this paragraph 

(g), the term maximum percentage 

increase means: 

(A) With respect to increases for a 

group health plan and group health 

insurance coverage made effective on or 

after March 23, 2010, and before June 

15, 2021, medical inflation (as defined 

in paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points; 

(B) With respect to increases for a 

group health plan and group health 

insurance coverage made effective on or 

after June 15, 2021, the greater of: 

(1) Medical inflation (as defined in 

paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points; or 

(2) The portion of the premium 

adjustment percentage, as defined in 

§ 156.130(e) of this subchapter, that 

reflects the relative change between 

2013 and the calendar year prior to the 

effective date of the increase (that is, the 

premium adjustment percentage minus 

1), expressed as a percentage, plus 15 

percentage points; and 

(C) With respect to increases for 

individual health insurance coverage, 

medical inflation (as defined in 

paragraph (g)(4)(i) of this section), 

expressed as a percentage, plus 15 

percentage points. 

* * * * * 

(5) * * * 

Example 3. (i) Facts. On March 23, 

2010, a grandfathered group health plan 

has a copayment requirement of $30 per 

office visit for specialists. The plan is 

subsequently amended to increase the 

copayment requirement to $40, effective 

before June 15, 2021. Within the 12- 

month period before the $40 copayment 

takes effect, the greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) is 475. 

(ii) Conclusion. In this Example 3, the 

increase in the copayment from $30 to 

$40, expressed as a percentage, is 

33.33% (40¥30 = 10; 10 ÷ 30 = 0.3333; 

0.3333 = 33.33%). Medical inflation (as 

defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.2269 

(475¥387.142 = 87.858; 87.858 ÷ 

387.142 = 0.2269). The maximum 

percentage increase permitted is 37.69% 

(0.2269 = 22.69%; 22.69% + 15% = 

37.69%). Because 33.33% does not 

exceed 37.69%, the change in the 

copayment requirement at that time 

does not cause the plan to cease to be 

a grandfathered health plan. 

Example 4. (i) Facts. Same facts as 

Example 3 of this paragraph (g)(5), 

except the grandfathered group health 

plan subsequently increases the $40 

copayment requirement to $45 for a 

later plan year, effective before June 15, 

2021. Within the 12-month period 

before the $45 copayment takes effect, 

the greatest value of the overall medical 

care component of the CPI–U 

(unadjusted) is 485. 

(ii) Conclusion. In this Example 4, the 

increase in the copayment from $30 (the 

copayment that was in effect on March 

23, 2010) to $45, expressed as a 

percentage, is 50% (45¥30 = 15; 15 ÷ 

30 = 0.5; 0.5 = 50%). Medical inflation 

(as defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.2527 

(485¥387.142 = 97.858; 97.858 ÷ 

387.142 = 0.2527). The increase that 

would cause a plan to cease to be a 

grandfathered health plan under 

paragraph (g)(1)(iv) of this section is the 

greater of the maximum percentage 

increase of 40.27% (0.2527 = 25.27%; 

25.27% + 15% = 40.27%), or $6.26 (5 

× 0.2527 = $1.26; $1.26 + $5 = $6.26). 

Because 50% exceeds 40.27% and $15 

exceeds $6.26, the change in the 

copayment requirement at that time 

causes the plan to cease to be a 

grandfathered health plan. 

Example 5. (i) Facts. Same facts as 

Example 4 of this paragraph (g)(5), 

except the grandfathered group health 

plan increases the copayment 

requirement to $45, effective after June 

15, 2021. The greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) in the preceding 12- 

month period is still 485. In the 

calendar year that includes the effective 

date of the increase, the applicable 

portion of the premium adjustment 

percentage is 36%. 

(ii) Conclusion. In this Example 5, the 

grandfathered health plan may increase 

the copayment by the greater of: 

Medical inflation, expressed as a 

percentage, plus 15 percentage points; 

or the applicable portion of the 

premium adjustment percentage for the 

calendar year that includes the effective 

date of the increase, plus 15 percentage 

points. The latter amount is greater 

because it results in a 51% maximum 

percentage increase (36% + 15% = 51%) 

and, as demonstrated in Example 4 of 

this paragraph (g)(5), determining the 

maximum percentage increase using 

medical inflation yields a result of 

40.27%. The increase in the copayment, 

expressed as a percentage, is 50% 

(45¥30 = 15; 15 ÷ 30 = 0.5; 0.5 = 50%). 

Because the 50% increase in the 

copayment is less than the 51% 

maximum percentage increase, the 

change in the copayment requirement at 

that time does not cause the plan to 

cease to be a grandfathered health plan. 

Example 6. (i) Facts. On March 23, 

2010, a grandfathered group health plan 

has a copayment of $10 per office visit 

for primary care providers. The plan is 

subsequently amended to increase the 

copayment requirement to $15, effective 

before June 15, 2021. Within the 12- 

month period before the $15 copayment 

takes effect, the greatest value of the 

overall medical care component of the 

CPI–U (unadjusted) is 415. 

(ii) Conclusion. In this Example 6, the 

increase in the copayment, expressed as 

a percentage, is 50% (15¥10 = 5; 5 ÷ 10 

= 0.5; 0.5 = 50%). Medical inflation (as 

defined in paragraph (g)(4)(i) of this 

section) from March 2010 is 0.0720 

(415.0¥387.142 = 27.858; 27.858 ÷ 

387.142 = 0.0720). The increase that 

would cause a group plan to cease to be 

a grandfathered health plan under 

paragraph (g)(1)(iv) of this section is the 

greater of the maximum percentage 

increase of 22.20% (0.0720 = 7.20%; 

7.20% + 15% = 22.20%), or $5.36 ($5 

× 0.0720 = $0.36; $0.36 + $5 = $5.36). 

The $5 increase in copayment in this 

Example 6 would not cause the plan to 

cease to be a grandfathered health plan 

pursuant to paragraph (g)(1)(iv) of this 

section, which would permit an 

increase in the copayment of up to 

$5.36. 

Example 7. (i) Facts. Same facts as 

Example 6 of this paragraph (g)(5), 

except on March 23, 2010, the 

grandfathered health plan has no 

copayment ($0) for office visits for 

primary care providers. The plan is 

subsequently, amended to increase the 

copayment requirement to $5, effective 

before June 15, 2021. 

(ii) Conclusion. In this Example 7, 

medical inflation (as defined in 

paragraph (g)(4)(i) of this section) from 

March 2010 is 0.0720 (415.0¥387.142 = 

27.858; 27.858 ÷ 387.142 = 0.0720). The 

increase that would cause a plan to 

cease to be a grandfathered health plan 

under paragraph (g)(1)(iv)(A) of this 

section is $5.36 ($5 × 0.0720 = $0.36; 

81122 Federal Register / Vol. 85, No. 241 / Tuesday, December 15, 2020 / Rules and Regulations 

$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—selfonly 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 selfonly 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 selfonly coverage and 67% 

((12,000¥4,000)/12,000) for family 

coverage. For a subsequent plan year, 

the COBRA premium is $6,000 for selfonly coverage and $15,000 for family 

coverage. The employee contributions 

for that plan year are $1,200 for selfonly 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 pretax through a cafeteria plan under 

section 125 of the Internal Revenue 

Code. 

Example 10. (i) Facts. A group health 

plan not maintained pursuant to a 

collective bargaining agreement offers 

three benefit packages on March 23, 

2010. Option F is a self-insured option. 

Options G and H are insured options. 

Beginning July 1, 2013, the plan 

increases coinsurance under Option H 

from 10% to 15%. 

(ii) Conclusion. In this Example 10, 

the coverage under Option H is not 

grandfathered health plan coverage as of 

July 1, 2013, consistent with the rule in 

paragraph (g)(1)(ii) of this section. 

Whether the coverage under Options F 

and G is grandfathered health plan 

coverage is determined separately under 

the rules of this paragraph (g). 

Example 11. (i) Facts. A group health 

plan that is a grandfathered health plan 

and also a high deductible health plan 

within the meaning of section 223(c)(2) 

of the Internal Revenue Code had a 

$2,400 deductible for family coverage 

on March 23, 2010. The plan is 

subsequently amended after June 15, 

2021 to increase the deductible limit by 

the amount that is necessary to comply 

with the requirements for a plan to 

qualify as a high deductible health plan 

under section 223(c)(2)(A) of the 

Internal Revenue Code, but that exceeds 

the maximum percentage increase. 

(ii) Conclusion. In this Example 11, 

the increase in the deductible at that 

time does not cause the plan to cease to 

be a grandfathered health plan because 

the increase was necessary for the plan 

to continue to satisfy the definition of a 

high deductible health plan under 

section 223(c)(2)(A) of the Internal 

Revenue Code. 

[FR Doc. 2020–27498 Filed 12–11–20; 8:45 am] 

BILLING CODE P 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Part 4044 

Allocation of Assets in SingleEmployer Plans; Interest Assumptions 

for Valuing Benefits 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Final rule. 

SUMMARY: This final rule amends the 

Pension Benefit Guaranty Corporation’s 

regulation on Allocation of Assets in 

Single-Employer Plans to prescribe 

interest assumptions under the asset 

allocation regulation for plans with 

valuation dates in the first quarter of 

2021. These interest assumptions are 

used for valuing benefits under 

terminating single-employer plans and 

for other purposes. 

DATES: Effective January 1, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Gregory Katz (katz.gregory@pbgc.gov), 

Attorney, Regulatory Affairs Division, 

Pension Benefit Guaranty Corporation, 

1200 K Street NW, Washington, DC 

20005, 202–229–3829. (TTY users may 

call the Federal relay service toll free at 

1–800–877–8339 and ask to be 

connected to 202–229–3829.) 

SUPPLEMENTARY INFORMATION: PBGC’s 

regulation on Allocation of Assets in 

Single-Employer Plans (29 CFR part 

4044) prescribes actuarial 

assumptions—including interest 

assumptions—for valuing benefits under 

terminating single-employer plans 

covered by title IV of the Employee 

Retirement Income Security Act of 1974 

(ERISA). The interest assumptions in 

the regulation are also published on 

PBGC’s website (https://www.pbgc.gov). 

PBGC uses the interest assumptions in 

appendix B to part 4044 (‘‘Interest Rates 

Used to Value Benefits’’) to determine 

the present value of annuities in an 

involuntary or distress termination of a 

single-employer plan under the asset 

allocation regulation. The assumptions 

are also used to determine the value of 

multiemployer plan benefits and certain 

assets when a plan terminates by mass 

withdrawal in accordance with PBGC’s 

regulation on Duties of Plan Sponsor 

Following Mass Withdrawal (29 CFR 

part 4281). 

The first quarter 2021 interest 

assumptions will be 1.69 percent for the 

first 20 years following the valuation 

date and 1.66 percent thereafter. In 

comparison with the interest 

assumptions in effect for the fourth 

quarter of 2020, these interest 

assumptions represent no change in the 

select period (the period during which 

the select rate (the initial rate) applies), 

an increase of 0.07 percent in the select 

rate, and an increase of 0.26 percent in 

the ultimate rate (the final rate). 

Need for Immediate Guidance 

PBGC has determined that notice of, 

and public comment on, this rule are 

impracticable, unnecessary, and 

contrary to the public interest. PBGC 

routinely updates the interest 

assumptions in appendix B of the asset 

allocation regulation each quarter so 

that they are available to value benefits. 

Accordingly, PBGC finds that the public 

interest is best served by issuing this 

rule expeditiously, without an 

opportunity for notice and comment, 

and that good cause exists for making 

the assumptions set forth in this 

amendment effective less than 30 days 

after publication to allow the use of the 

proper assumptions to estimate the 

value of plan benefits for plans with 

valuation dates early in the first quarter 

of 2021. 

PBGC has determined that this action 

is not a ‘‘significant regulatory action’’ 

under the criteria set forth in Executive 

Order 12866.