[Federal Register Volume 85, Number 241 (Tuesday, December 15, 2020)]
[Rules and Regulations]
[Pages 81097-81122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27498]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9928]
RIN 1545-BP67

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB89

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 147

[CMS-9923-F]
RIN 0938-AT49


Grandfathered Group Health Plans and Grandfathered Group Health 
Insurance Coverage

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

ACTION: Final rules.

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SUMMARY: This document includes final rules regarding grandfathered 
group health plans and grandfathered group health insurance coverage 
that amend current rules to provide greater flexibility for certain 
grandfathered health plans to make changes to certain types of fixed- 
amount cost-sharing requirements without causing a loss of grandfather 
status under the Patient Protection and Affordable Care Act.

DATES: 
    Effective Date: These regulations are effective January 14, 2021.
    Applicability Date: These regulations are applicable June 15, 2021.

FOR FURTHER INFORMATION CONTACT: William Fischer, Internal Revenue 
Service, Department of the Treasury, (202) 317-5500.
    Matthew Litton and Chelsea Cerio, Employee Benefits Security 
Administration, Department of Labor, (202) 693-8335.
    Cam Clemmons, Centers for Medicare & Medicaid Services, Department 
of Health and Human Services, (301) 492-4400.
    Customer Service Information:
    Individuals interested in obtaining information from the Department 
of Labor (DOL) concerning employment-based health coverage laws may 
call the Employee Benefits Security Administration (EBSA) Toll-Free 
Hotline at 1-866-444-EBSA (3272) or visit the DOL's website 
(www.dol.gov/ebsa). In addition, information from the Department of 
Health and Human Services (HHS) regarding private health insurance 
coverage and non-federal governmental group health plans can be found 
on the Centers for Medicare & Medicaid Services (CMS) website 
(www.cms.gov/cciio), and information on healthcare reform can be found 
at www.HealthCare.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. Purpose

    On January 20, 2017, the President issued Executive Order 13765, 
``Minimizing the Economic Burden of the Patient Protection and 
Affordable Care Act Pending Repeal'' (82 FR 8351) ``to minimize the 
unwarranted economic and regulatory burdens of the [Patient Protection 
and Affordable Care Act (Pub. L. 111-148) and the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively, 
PPACA), as amended].'' To meet these objectives, the President directed 
that the executive departments and agencies with authorities and 
responsibilities under PPACA, ``to the maximum extent permitted by law 
. . . shall exercise all authority and discretion available to them to 
waive, defer, grant exemptions from, or delay the implementation of any 
provision or requirement of [PPACA] that would impose a fiscal burden 
on any state or a cost, fee, tax, penalty, or regulatory burden on 
individuals, families, healthcare providers, health insurers, patients, 
recipients of healthcare services, purchasers of health insurance, or 
makers of medical devices, products, or medications.''
    HHS, DOL, and the Department of the Treasury (collectively, the 
Departments) share interpretive jurisdiction over section 1251 of 
PPACA, which generally provides that certain group health plans and 
health insurance coverage existing as of March 23, 2010, the date of 
enactment of PPACA (referred to collectively in the statute as 
grandfathered health plans), are subject to only certain provisions of 
PPACA. Consistent with the objectives of Executive Order 13765, on 
February 25, 2019, the Departments issued a request for information 
regarding grandfathered group health plans and grandfathered group 
health insurance coverage (2019 RFI).\1\ The purpose of the 2019 RFI 
was to gather input from the public in order to better understand the 
challenges that group health plans and group health insurance issuers 
face in avoiding a loss of grandfather status, and to determine whether 
there are opportunities for the Departments to assist such plans and 
issuers, consistent with the law, in preserving the grandfather status 
of group health plans and group health insurance coverage in ways that 
would benefit plan participants and beneficiaries, employers, employee 
organizations, and other stakeholders.
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    \1\ 84 FR 5969 (Feb. 25, 2019).
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    Based on feedback received from stakeholders who submitted comments 
in response to the 2019 RFI, the Departments issued a notice of 
proposed rulemaking on July 15, 2020 (referred to as the 2020 proposed 
rules), that would, if finalized, amend current rules to provide 
greater flexibility for certain grandfathered health plans to make 
changes to certain types of cost-sharing requirements without causing a 
loss of grandfather status.\2\ After careful consideration of the 
comments received, the Departments are issuing final rules that adopt 
the proposed amendments without substantive change. In the Departments' 
view, these amendments are appropriate because they will enable these 
plans to continue offering affordable coverage while also enhancing 
their ability to respond to rising healthcare costs. In some cases, the 
amendments would also ensure that the plans are able to comply with 
minimum cost-sharing requirements for high deductible health plans 
(HDHPs) so enrolled individuals are eligible to contribute to health 
savings accounts (HSAs).
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    \2\ 85 FR 42782 (July 15, 2020)
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    The final rules only address the requirements for grandfathered 
group health plans and grandfathered group health insurance coverage 
and do not apply to or otherwise change the current requirements 
applicable to grandfathered individual health insurance coverage. With 
respect to individual health insurance coverage, it is the Departments' 
understanding that the number of individuals with grandfathered 
individual health

[[Page 81098]]

insurance coverage has declined each year since PPACA was enacted. As 
one comment received in response to the 2019 RFI noted, this decline in 
enrollment in grandfathered individual health insurance coverage will 
continue due to natural churn, because most consumers stay in the 
individual market for less than 5 years.\3\ Moreover, compared to the 
number of individuals in grandfathered group health plans and 
grandfathered group health insurance coverage, only a small number of 
individuals are enrolled in grandfathered individual health insurance 
coverage. \4\ The Departments are therefore of the view that any 
amendments to requirements for grandfathered individual health 
insurance coverage would be of limited utility.
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    \3\ The cause of this churn varies. For example, beginning a new 
job that offers group health coverage may result in a transition 
from the individual market to group coverage. Eligibility for 
Medicaid or Medicare can also result in a consumer leaving the 
individual market.
    \4\ HHS estimates that less than seven percent of enrollees in 
grandfathered plans have individual market coverage. This estimate 
is based on analysis of enrollment data issuers submitted in the HHS 
Health Insurance and Oversight System (HIOS) and the CMS External 
Data Gathering Environment (EDGE) for the 2018 plan year, as well as 
Kaiser Family Foundation estimates regarding the percentage of 
enrollees with employer-sponsored coverage that are covered by a 
grandfathered health plan.
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B. Grandfathered Group Health Plans and Grandfathered Group Health 
Insurance Coverage

    Section 1251 of PPACA provides that grandfathered health plans are 
not subject to certain provisions of PPACA for as long as they maintain 
their status as grandfathered health plans.\5\ For example, 
grandfathered health plans are subject neither to the requirement to 
cover certain preventive services without cost sharing under section 
2713 of the Public Health Service Act (PHS Act), enacted by section 
1001 of PPACA, nor to the annual limitation on cost sharing set forth 
under section 1302(c) of PPACA and section 2707(b) of the PHS Act, 
enacted by section 1201 of PPACA. If a plan were to lose its 
grandfather status, it would be required to comply with both 
provisions, in addition to several other requirements.
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    \5\ For a list of the market reform provisions applicable to 
grandfathered health plans under title XXVII of the PHS Act that 
PPACA added or amended and that were incorporated into the Employee 
Retirement Income Security Act of 1974 (ERISA) and the Internal 
Revenue Code of 1986 (the Code), visit https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/grandfathered-health-plans-provisions-summary-chart.pdf.
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    On June 17, 2010, the Departments issued interim final rules with 
request for comments implementing section 1251 of PPACA.\6\ On November 
17, 2010, the Departments issued an amendment to the interim final 
rules with request for comments to permit certain changes in policies, 
certificates, or contracts of insurance without a loss of grandfather 
status.\7\ Also, over the course of 2010 and 2011, the Departments 
released Affordable Care Act Implementation Frequently Asked Questions 
(FAQs) Parts I, II, IV, V, and VI to answer questions related to 
maintaining a plan's status as a grandfathered health plan.\8\ After 
consideration of comments and feedback received from stakeholders, the 
Departments issued regulations on November 18, 2015, which finalized 
the interim final rules without substantial change and incorporated the 
clarifications that the Departments had previously provided in other 
guidance (2015 final rules).\9\
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    \6\ 75 FR 34538 (June 17, 2010).
    \7\ 75 FR 70114 (Nov. 17, 2010).
    \8\ See Affordable Care Act Implementation FAQs Part I, 
available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-i.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs.html; Affordable Care Act Implementation 
FAQs Part II, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-ii.pdf 
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs2.html; Affordable Care Act Implementation 
FAQs Part IV, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-iv.pdf 
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs4.html; Affordable Care Act Implementation 
FAQs Part V, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-v.pdf 
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html; and Affordable Care Act 
Implementation FAQs Part VI, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-vi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs6.html.
    \9\ 80 FR 72192 (Nov. 18, 2015), codified at 26 CFR 54.9815-
1251, 29 CFR 2590.715-1251, and 45 CFR 147.140.
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    In general, under the 2015 final rules, a group health plan or 
group health insurance coverage is considered grandfathered if it was 
in existence, and has continuously provided coverage for someone (not 
necessarily the same person, but at all times at least one person) 
since March 23, 2010, provided the plan (or its sponsor) or issuer has 
not taken certain actions resulting in the plan relinquishing 
grandfather status.
    Under the 2015 final rules, certain changes to a group health plan 
or coverage do not result in a loss of grandfather status. For example, 
new employees and their families may enroll in a group health plan or 
group health insurance coverage without causing a loss of grandfather 
status. Further, the addition of a new contributing employer or a new 
group of employees of an existing contributing employer to a 
grandfathered multiemployer health plan will not affect the plan's 
grandfather status. Also, grandfather status is determined separately 
for each benefit package option available under a group health plan or 
coverage; thus, if any benefit package under the plan or coverage loses 
its grandfather status, it will not affect the grandfather status of 
the other benefit packages, provided that any other changes do not 
exceed the other standards that cause a plan to relinquish grandfather 
status, as explained further in this preamble.
    The 2015 final rules specify the circumstances under which changes 
to the terms of a plan or coverage cause the plan or coverage to cease 
to be a grandfathered health plan. Specifically, the regulations 
outline certain changes to benefits, cost-sharing requirements, and 
contribution rates that will cause a plan or coverage to relinquish its 
grandfather status. There are six types of changes (measured from March 
23, 2010) that will cause a group health plan or health insurance 
coverage to cease to be grandfathered:
    1. The elimination of all or substantially all benefits to diagnose 
or treat a particular condition;
    2. Any increase in a percentage cost-sharing requirement (such as 
coinsurance);
    3. Any increase in a fixed-amount cost-sharing requirement (other 
than a copayment) (such as a deductible or out-of-pocket maximum) that 
exceeds certain thresholds;
    4. Any increase in a fixed-amount copayment that exceeds certain 
thresholds;
    5. A decrease in contribution rate by an employer or employee 
organization toward the cost of coverage of any tier of coverage for 
any class of similarly situated individuals by more than five 
percentage points below the rate for the coverage period that includes 
March 23, 2010; or
    6. The imposition of annual limits on the dollar value of all 
benefits for group health plans and insurance coverage that did not 
impose such a limit prior to March 23, 2010.
    The 2015 final rules provide different thresholds for the increases 
to different types of cost-sharing requirements that will cause a loss 
of grandfather status. The nominal dollar amount of a coinsurance 
obligation automatically rises when the cost of the healthcare benefit 
subject to the coinsurance obligation increases, so changes to the

[[Page 81099]]

level of coinsurance (such as modifying a requirement that the patient 
pay 20 percent to a requirement that the patient pay 30 percent of 
inpatient surgery costs) can significantly alter the balance of 
financial obligations between participants and beneficiaries and a plan 
or health insurance coverage. On the other hand, fixed-amount cost-
sharing requirements (such as copayments and deductibles) do not 
automatically rise when healthcare costs increase. This means that 
changes to fixed-amount cost-sharing requirements (for example, 
modifying a $35 copayment to a $40 copayment for outpatient doctor 
visits) may be reasonable to keep pace with the rising cost of medical 
items and services. Accordingly, under the 2015 final rules, any 
increase in a percentage cost-sharing requirement (such as coinsurance) 
causes a plan or health insurance coverage to cease to be a 
grandfathered health plan. With respect to fixed-amount cost-sharing 
requirements, however, there are two standards for permitted increases, 
one for fixed-amount cost-sharing requirements other than copayments 
(for example, deductibles and out-of-pocket maximums) and another for 
copayments.
    With respect to fixed-amount cost-sharing requirements other than 
copayments, a plan or coverage ceases to be a grandfathered health plan 
if there is an increase, since March 23, 2010, that is greater than the 
maximum percentage increase. The 2015 final rules define the maximum 
percentage increase as medical inflation (from March 23, 2010) plus 15 
percentage points. For this purpose, medical inflation is defined by 
reference to the overall medical care component of the Consumer Price 
Index for All Urban Consumers, unadjusted (CPI-U), published by the DOL 
using the 1982-1984 base of 100.
    For fixed-amount copayments, a plan or coverage ceases to be a 
grandfathered health plan if there is an increase, since March 23, 
2010, in the copayment that exceeds the greater of (1) the maximum 
percentage increase (calculated in the same manner as for fixed amount 
cost-sharing requirements other than copayments) or (2) five dollars 
(as increased by medical inflation).
    For any change that causes a loss of grandfather status under the 
2015 final rules, the plan or coverage will cease to be a grandfathered 
plan when the change becomes effective, regardless of when the change 
is adopted.
    In addition, the 2015 final rules require that a grandfathered plan 
or coverage both include a statement in any summary of benefits 
provided under the plan that it believes the plan or coverage is a 
grandfathered health plan and provide contact information for questions 
and complaints. Failure to provide this disclosure results in a loss of 
grandfather status. The 2015 final rules further provide that, once 
grandfather status is relinquished, there is no opportunity to regain 
it.

C. 2019 Request for Information

    It is the Departments' understanding that the number of 
grandfathered group health plans and grandfathered group health 
insurance policies has declined each year since the enactment of PPACA, 
but many employers continue to maintain grandfathered group health 
plans and coverage. That a significant number of grandfathered group 
health plans and coverage remain indicates that some employers and 
issuers have found value in preserving grandfather status. Accordingly, 
on February 25, 2019, the Departments published the 2019 RFI to gather 
input from the public in order to better understand the challenges that 
group health plans and group health insurance issuers face in avoiding 
the loss of grandfather status and to determine whether there are 
opportunities for the Departments to assist such plans and issuers, 
consistent with the law, in preserving the grandfather status of group 
health plans and group health insurance coverage in ways that would 
benefit plan participants and beneficiaries, employers, employee 
organizations, and other stakeholders.
    Comments submitted in response to the 2019 RFI provided information 
regarding grandfathered health plans that helped inform the 2020 
proposed rules. Commenters shared data regarding the prevalence of 
grandfathered group health plans and grandfathered group health 
insurance coverage, insights regarding the impact that grandfathered 
plans have had in terms of delivering benefits to participants and 
beneficiaries at a lower cost than non-grandfathered plans, and 
suggestions for potential amendments to the Departments' 2015 final 
rules that would provide more flexibility for a plan or coverage to 
retain grandfather status.
    Several commenters directed the Departments' attention to a Kaiser 
Family Foundation survey, which indicates that one out of every five 
firms that offered health benefits in 2018 offered at least one 
grandfathered health plan, and 16 percent of covered workers were 
enrolled in a grandfathered group health plan that year.\10\ One 
commenter indicated the incidence of grandfathered plan status differs 
by various types of plan sponsors. Another commenter cited survey data 
released in 2018 by the International Foundation of Employee Benefit 
Plans, which indicated that 57 percent of multiemployer plans are 
grandfathered, compared to 20 percent of other private-sector plans and 
30 percent of public-sector plans. However, a professional association 
with members who work with employer groups on health plan design and 
administration commented that their members have found far fewer 
grandfathered plans than survey results suggest exist and suggested 
that very large employers with self-funded plans may sponsor a 
disproportionate share of grandfathered plans, as well as that some 
employers that have ``grandmothered'' plans or that previously had 
grandfathered plans may unintentionally be reporting incorrectly in 
surveys that they still sponsor grandfathered plans. \11\
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    \10\ See 2018 Employer Health Benefits Survey, Kaiser Family 
Foundation, available at https://www.kff.org/report-section/2018-employer-healthbenefits-survey-section-13-grandfathered-healthplans. 
On October 8, 2020, the Kaiser Family Foundation issued its 2020 
report. According to survey data, 16 percent of offering firms 
report having at least one grandfathered plan in 2020, and 14 
percent of covered workers were enrolled in a grandfathered health 
plan in 2020. See 2020 Employer Health Benefits Survey, Kaiser 
Family Foundation, available at http://files.kff.org/attachment/Report-Employer-Health-Benefits-2020-Annual-Survey.pdf.
    \11\ ``Grandmothered'' plans, also known as transitional plans, 
are certain non-grandfathered health insurance coverage in the small 
group and individual market that meet certain conditions. On 
November 14, 2013, CMS issued a letter to the State Insurance 
Commissioners outlining a policy under which, if permitted by the 
state, non-grandfathered small group and individual market health 
plans that were in effect on October 1, 2013, could continue and 
would not be treated as being out of compliance with certain 
specified PPACA market reforms under certain conditions. CMS has 
extended this non-enforcement policy each subsequent year, with the 
most recent extension in effect until policy years beginning on or 
before October 1, 2021, provided that all such coverage comes into 
compliance by January 1, 2022. See Insurance Standards Bulletin 
Series--INFORMATION--Extension of Limited Non-Enforcement Policy 
through 2021 (January 31, 2020), available at https://www.cms.gov/files/document/extension-limited-non-enforcement-policy-through-calendar-year-2021.pdf.
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    Some commenters stated that grandfathered health plans are less 
comprehensive and provide fewer consumer protections than non-
grandfathered plans; thus, these commenters opined that the Departments 
should not amend the 2015 final rules to provide greater flexibility 
for a plan or coverage to maintain grandfather status. Other commenters 
noted, however, that grandfathered

[[Page 81100]]

plans often have lower premiums and cost-sharing requirements than non-
grandfathered plans. One commenter gave examples of premium increases 
ranging from 10 percent to 40 percent that grandfathered plan 
participants would experience if they transitioned to non-grandfathered 
group health plans. Several commenters also stated that grandfathered 
health plans do in fact offer comprehensive benefits and in some cases 
are even more generous than certain non-grandfathered plans that are 
subject to all the requirements of PPACA. Some commenters also stated 
that their grandfathered plans offer more robust provider networks than 
other coverage options that are available to them or that access to a 
grandfathered plan ensures that they are able to keep receiving care 
from current in-network providers.
    Commenters who supported allowing greater flexibility for 
grandfathered health plans offered a range of suggestions regarding how 
the Departments should amend the 2015 final rules. For example, several 
commenters requested additional flexibility regarding plan or coverage 
changes that would constitute an elimination of substantially all 
benefits to diagnose or treat a condition, stating that it is often 
difficult to discern what constitutes a benefit reduction given that 
the regulations apply a ``facts and circumstances'' standard. Some 
commenters requested flexibility to make certain changes so long as the 
grandfathered plan or coverage's actuarial value is not affected. Some 
commenters also stated that the 2015 final rules should be amended to 
permit decreases in contribution rates by employers and employee 
organizations by more than five percentage points to account for 
employers experiencing a business change or economic downturn.
    Commenters also suggested amendments relating to the permitted 
changes in cost-sharing requirements for grandfathered plans. These 
commenters generally argued that the 2015 final rules were too 
restrictive. Several commenters stated that relying on the medical care 
component of the CPI-U for purposes of those rules to account for 
inflation adjustments to the maximum percentage increase was misguided, 
and the methodology used to calculate the ``premium adjustment 
percentage'' (as defined in 45 CFR 156.130) would be more appropriate 
because it is tied to the increase in premiums for health insurance 
and, therefore, better reflects the increase in costs for health 
coverage. These commenters also noted that relying on the premium 
adjustment percentage would be consistent with the methodology used to 
adjust the annual limitation on cost sharing under section 1302(c) of 
PPACA and section 2707(b) of the PHS Act that applies to non-
grandfathered plans. Additionally, one commenter articulated a concern 
that the 2015 final rules eventually may preclude some grandfathered 
group health plans or issuers of grandfathered group health insurance 
coverage from being able to make changes to cost-sharing requirements 
that are necessary for a plan to maintain its status as an HDHP within 
the meaning of section 223 of the Code, which would effectively mean 
that individuals covered by those plans would no longer be eligible to 
contribute to an HSA.

D. The Premium Adjustment Percentage

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

    Section 223 of the Code permits eligible individuals to establish 
and contribute to HSAs. HSAs are tax-favored accounts established for 
the purpose of accumulating funds to pay for qualified medical expenses 
on behalf of the account beneficiary, his or her spouse, and any 
claimed dependents. In order for an individual to qualify as an 
eligible individual under section 223(c)(1) of the Code (and thus to be 
eligible to make tax-favored contributions to an HSA) the individual 
must be covered under an HDHP. An HDHP is a health plan that satisfies 
certain requirements with respect to minimum deductibles and maximum 
out-of-pocket expenses, which increase annually with cost-of-living 
adjustments. Generally, except for preventive care, an HDHP may not 
provide benefits for any year until the deductible for that year is 
met. Pursuant to section 223(g) of the Code, the minimum deductible for 
an HDHP is adjusted annually for cost of living based on changes in the 
Chained Consumer Price Index for All Urban Consumers (C-CPI-U).\13\
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    \13\ The Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 
2054 (Dec. 22, 2017), amended section 1(f)(3) of the Code to use the 
C-CPI-U rather than CPI-U for certain inflation adjustments for tax 
years beginning after December 31, 2017.
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F. 2020 Proposed Rules

    On July 15, 2020, the Departments issued the 2020 proposed rules 
that would, if finalized, amend the 2015 final rules to provide greater 
flexibility for grandfathered group health plans and issuers of 
grandfathered group health insurance coverage to make certain changes 
without causing a loss of grandfather status. However, there is no 
authority for non-grandfathered plans to become grandfathered. 
Therefore, the 2020 proposed rules did not provide any opportunity for 
a plan or coverage that has lost its grandfather status under the 2015 
final rules to regain that status.

[[Page 81101]]

    In issuing the 2020 proposed rules, the Departments considered 
comments submitted in response to the 2019 RFI regarding ways that the 
2015 final rules could be amended. The Departments did not include in 
the 2020 proposed rules many suggestions outlined in those comments 
because, in the Departments' view, those suggestions would have allowed 
for such significant changes that the modified plan or coverage could 
not reasonably be described as being the same plan or coverage that 
existed on March 23, 2010, for purposes of grandfather status. The 
Departments were persuaded, however, by commenters' statements that 
there are better means of accounting for inflation in the standard for 
the maximum percentage increase that should be permitted to fixed-
amount cost-sharing requirements. The Departments also agreed that, as 
one commenter on the 2019 RFI highlighted, there is an opportunity to 
specify that changes to fixed-amount cost-sharing requirements that are 
necessary for a plan to maintain its status as an HDHP should not cause 
a loss of grandfather status. Given that the 2015 final rules permit 
increases that are meant to account for inflation in healthcare costs 
over time, the Departments were of the view that those suggestions were 
reasonably narrow and consistent with the intent of the 2015 final 
rules to permit adjustments in response to inflation without causing a 
loss of grandfather status.
    Accordingly, the Departments proposed to amend the 2015 final rules 
in two ways. First, the 2020 proposed rules included a new paragraph 
(g)(3), which specified that grandfathered group health plans and 
grandfathered group health insurance coverage that are HDHPs may make 
changes to fixed-amount cost-sharing requirements that would otherwise 
cause a loss of grandfather status without causing a loss of 
grandfather status, but only to the extent those changes are necessary 
to comply with the requirements for HDHPs under section 223(c)(2)(A) of 
the Code. Second, the 2020 proposed rules included a revised definition 
of ``maximum percentage increase'' at redesignated paragraph (g)(4), 
which provided an alternative method of determining that amount based 
on the premium adjustment percentage. Under the 2020 proposed rules, 
this alternative method would be available only for grandfathered group 
health plans and grandfathered group health insurance coverage with 
changes that are effective on or after the applicability date of a 
final rule.
    The Departments requested comments on all aspects of the 2020 
proposed rules, as well as on specific issues related to the 2020 
proposed rules where stakeholder feedback would be particularly useful 
in evaluating whether to issue final rules, and what the content of any 
final rules should be.
    The comment period for the 2020 proposed rules closed on August 14, 
2020. The Departments received 13 comments. After careful consideration 
of these comments, for the reasons explained further in the preamble, 
the Departments are issuing the final rules, which finalize the 2020 
proposed rules without substantive change.

II. Overview of the Final Rules

A. General Response to Public Comments on the 2020 Proposed Rules

    Some commenters expressed support for the 2020 proposed rules 
because the 2020 proposed rules would allow grandfathered group health 
plans and issuers offering grandfathered group health insurance 
coverage to make certain key changes without causing a loss of 
grandfather status. One commenter noted that providing more flexibility 
to maintain grandfather status should help both plan sponsors and 
participants. This commenter highlighted that plan sponsors could 
continue to avoid the costs and burdens associated with compliance with 
the additional requirements applicable to non-grandfathered plans while 
plan participants and beneficiaries could retain their current coverage 
instead of finding alternate coverage and potentially experiencing 
greater increases in cost sharing or reductions in benefits.
    The final rules will allow grandfathered group health plan sponsors 
and issuers of grandfathered group health insurance coverage more 
flexibility to make changes to certain types of cost-sharing 
requirements without causing a loss of grandfather status. The 
Departments view this flexibility as a way to enable plan sponsors and 
issuers to continue to offer quality, affordable coverage to their 
participants and beneficiaries while appropriately taking into account 
rising healthcare costs. The Departments also are of the view that 
providing this flexibility will help participants and beneficiaries in 
grandfathered group health plans maintain their current coverage, 
including their provider and service network(s). Further, the final 
rules will provide participants and beneficiaries with the ability to 
maintain access to affordable coverage options offered by their 
employers or unions by ensuring that employers and other plan sponsors 
have the ability to more appropriately account for the rising costs of 
healthcare due to inflation.
    Several commenters did not support the 2020 proposed rules and 
urged the Departments not to finalize them. These commenters generally 
stated that finalizing the 2020 proposed rules would allow employers to 
continue to offer plans that do not provide comprehensive benefits 
while placing an increased financial burden on participants and 
beneficiaries. The commenters also noted that grandfathered group 
health plans lack certain essential patient protections, and that the 
consequences of not having complete information about grandfathered 
coverage will be especially detrimental for patients with complex 
medical conditions. These commenters further asserted that ensuring 
access to robust coverage and benefits such as preventive services and 
maternity care is especially important and that, in light of the 
ongoing COVID-19 pandemic, now is not an appropriate time to allow 
changes that could shift more costs to consumers.
    While the Departments appreciate these concerns, the Departments 
are of the view that finalizing the 2020 proposed rules strikes a 
proper balance between preserving plans', issuers', participants', and 
beneficiaries' ability to maintain existing coverage with the goals of 
expanding access to and improving the quality of health coverage. The 
Departments are also of the view that the final rules appropriately 
support the goal of promoting greater choice in coverage, especially in 
light of rising healthcare costs. While grandfathered health plans are 
not required to comply with all PPACA market reform provisions, there 
are many PPACA consumer protections that are applicable to all group 
health plans and issuers offering group health insurance coverage, 
regardless of grandfather status, including the prohibition on 
preexisting condition exclusions, the prohibition on waiting periods 
that exceed 90 days, the prohibition on lifetime or annual dollar 
limits, the prohibition on rescissions, and the requirement for plans 
and issuers that offer dependent coverage of children to do so up to 
age 26. Further, grandfathered group health plans and issuers of 
grandfathered group health insurance coverage are not prohibited from 
providing coverage consistent with any of the PPACA market provisions 
that apply to non-grandfathered group health plans and may add that 
coverage without relinquishing grandfather

[[Page 81102]]

status, provided these changes are made without exceeding the standards 
established by paragraph (g)(1) of the grandfather regulations.
    Several commenters urged the Departments to not finalize the 2020 
proposed rules due to the ongoing coronavirus disease of 2019 (COVID-
19) pandemic. These commenters highlighted that the COVID-19 pandemic 
has created high levels of economic uncertainty for millions of 
Americans while also posing risks to their health and safety. The 
commenters voiced concern that the 2020 proposed rules could have a 
harmful impact on access to care and affordability during the ongoing 
COVID-19 pandemic.
    As evidenced by the Administration's efforts to address the COVID-
19 pandemic, the Departments appreciate that the COVID-19 pandemic has 
created a greater need for affordable healthcare options for consumers 
and, accordingly, have taken a number of actions to provide relief and 
promote increased access to benefits during the COVID-19 pandemic.\14\ 
For example, the Departments have published regulatory and 
subregulatory guidance to assist individuals during the COVID-19 
pandemic, including those who have lost their health coverage, and have 
extended a number of deadlines so that participants and beneficiaries 
in employee benefit plans have additional time to make critical health 
coverage decisions affecting their benefits during the COVID-19 
pandemic.\15\ The Departments highlight that the final rules provide 
flexibility to employers that currently offer health coverage and have 
consistently done so since 2010, with the aim that their employees will 
have a greater ability to maintain that coverage, should they so 
choose. Accordingly, the Departments are of the view that the 
flexibility afforded by the final rules is unlikely to exacerbate any 
difficulties employees may experience in obtaining access to care 
during the COVID-19 pandemic and will potentially enable employers and 
employees to maintain more affordable coverage than they may otherwise 
be able to maintain. Notwithstanding these considerations, the 
Departments are delaying the applicability of the final rules, to be 
applicable 6 months after publication in the Federal Register, as 
discussed later in this preamble.
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    \14\ The Departments continue to work with employers and 
individuals to help them understand the new laws and regulatory 
relief and to benefit from them, as intended. On April 11, 2020, the 
Departments issued FAQs Part 42 regarding implementation of the 
Families First Coronavirus Response Act (FFCRA), and the Coronavirus 
Aid, Relief, and Economic Security (CARES) Act, and other health 
coverage issues related to COVID-19 available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf. In this guidance, the 
Departments strongly encourage all group health plans and health 
insurance issuers to promote the use of telehealth and other remote 
care services. The Departments' guidance also provides enforcement 
relief that allows plans and issuer to make changes to increase 
telehealth benefits more quickly than is possible under current law. 
Specifically, the Departments will not enforce regulations that 
generally require plans and issuers to provide 60 days' advance 
notice of certain changes to plan terms and prohibit issuers from 
making mid-year modifications to health insurance products, with 
respect to any change that adds benefits or reduces or eliminates 
cost-sharing requirements for telehealth services and other remote 
care services. On June 23, 2020, the Departments issued a second 
round of FAQs, Part 43, providing further guidance regarding 
requirements of the FFCRA and the CARES Act and related issues 
available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-43.pdf. In light 
of the critical need to minimize the risk of exposure to and 
community spread of COVID-19, the FAQs provide a statement of 
temporary enforcement relief regarding certain requirements that 
would otherwise apply in order to allow large employers to offer 
stand-alone telehealth benefits to employees who are not eligible 
for the employer's primary group health plan. Furthermore, the 
Departments of Labor and the Treasury published a Joint Notice--
Extension of Certain Timeframes for Employee Benefit Plans, 
Participants, and Beneficiaries (85 FR 26351) on May 4, 2020, 
https://www.govinfo.gov/content/pkg/FR-2020-05-04/pdf/2020-09399.pdf. The Joint Notice extends timeframes for requesting 
special enrollment in a group health plan, the COBRA election 
period, and COBRA premium due dates, and certain timeframes relating 
to benefit claims appeals. On May 14, 2020, HHS published guidance 
that announced that HHS concurred with the relief specified in the 
Joint Notice and would adopt a temporary policy of relaxed 
enforcement to extend similar timeframes otherwise applicable to 
non-Federal governmental group health plans and health insurance 
issuers offering coverage in connection with a group health plan, 
and their participants and beneficiaries, under applicable 
provisions of title XXVII of the PHS Act, available at https://www.cms.gov/files/document/Temporary-Relaxed-Enforcement-Of-Group-Market-Timeframes.pdf.
    \15\ See e.g., Extension of Certain Timeframes for Employee 
Benefit Plans, Participants, and Beneficiaries Affected by the 
COVID-19 Outbreak, 85 FR 26351 (May 4, 2020); FAQs About First 
Coronavirus Response Act and Coronavirus Aid, Relief, and Economic 
Security Act Implementation Part 42 (April 11, 2020) available at 
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf and https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf; FAQs About 
Families First Coronavirus Response Act and Coronavirus Aid, Relief, 
and Economic Security Act Implementation Part 43 (June 23, 2020), 
available at https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-43.pdf and https://www.cms.gov/files/document/FFCRA-Part-43-FAQs.pdf.
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    One commenter raised concerns that the continued availability of 
grandfathered plans might contribute to segmentation of the small-group 
market, causing adverse selection and, in turn, higher premiums for 
small businesses that offer or want to offer plans subject to the PPACA 
market reforms. This commenter noted that, because the non-
grandfathered small-group market is subject to modified community 
rating and a ``single risk pool,'' firms with younger or healthier-
than-average employees have incentives to opt out of the small group 
market single risk pool, at the expense of other firms that may 
therefore face higher premiums. Commenters also claimed that the 
Departments do not have sufficient information and data to accurately 
predict the financial effect that the 2020 proposed rules would have on 
consumers.
    The Departments acknowledge that the existence of grandfathered 
group health plans potentially creates market segmentation and adverse 
selection in the small group market. However, the Departments do not 
anticipate that the additional flexibilities provided in the final 
rules will materially increase market segmentation, or adverse 
selection, as the final rules do not provide a mechanism for non-
grandfathered plans to become grandfathered. For this reason, the 
Departments are of the view that the changes allowed by the final rules 
will not have a measurable impact on premiums for small businesses that 
offer or want to offer non-grandfathered group health insurance 
coverage. Moreover, the Departments do not expect the number of plans 
that maintain grandfather status because of the final rules to be so 
significant as to exacerbate any market segmentation that may already 
exist.
    The Departments also received comments stating that consumers risk 
being confused or having difficulty with the term ``grandfathered.'' 
One commenter noted it may be difficult to know whether grandfathered 
plan participants and beneficiaries are actively choosing to remain in 
such plans, whether they typically have other non-grandfathered options 
that they could select, whether they even know a plan is grandfathered, 
or whether they understand which PPACA consumer protections might be 
missing when they enroll in grandfathered coverage. Other commenters 
suggested the addition of greater transparency requirements for 
employers that offer grandfathered plans as a means to avoid confusion.
    The Departments note that these concerns relate to grandfathered 
plans generally and are not specific to the limited changes made in the 
proposed or final rules. Under the 2015 final rules, to maintain status 
as a grandfathered plan, a group health plan or health insurance 
coverage must include a statement in any summary of benefits that the 
plan or coverage believes it is a grandfathered plan. It

[[Page 81103]]

must also provide contact information for questions and complaints. The 
2015 final rules provide model language that the plan or coverage can 
use to satisfy the disclosure requirement. That language specifically 
highlights that grandfathered plans are subject to some, but not all, 
of the PPACA consumer protections that apply to non-grandfathered 
plans, such as not being subject to the requirement to provide certain 
preventive health services without cost sharing. This required 
disclosure of grandfather status is intended to alleviate confusion 
consumers may face regarding the term ``grandfathered'' and what 
benefits and protections are offered under such coverage. The 
disclosure language is model language, and plans and issuers may 
include additional disclosure elements, such as the entire list of 
market reform provisions that do not apply to the specific 
grandfathered health plan.
    Moreover, group health plans, including grandfathered plans, are 
subject to a number of disclosure requirements under which participants 
and beneficiaries are entitled to comprehensive information about their 
benefits. For example, group health plans that are subject to ERISA are 
required to distribute a summary plan description (SPD) to participants 
and beneficiaries that provides a comprehensive description of the 
benefits offered by the plan.\16\ In addition, group health plans and 
issuers of group health insurance coverage, including grandfathered 
plans, are required to provide a summary of benefits and coverage (SBC) 
that provides information about benefits and cost sharing in connection 
with enrollment and renewal.\17\ Furthermore, typically, if a plan or 
issuer makes a material modification to any term that affects the 
content of the SBC and that is not reflected in the most recently 
provided SBC, and that occurs other than in connection with a renewal 
or reissuance of coverage, notice of the change must be provided no 
later than 60 days prior to the date the modification is effective.\18\
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    \16\ ERISA Section 102.
    \17\ 26 CFR 54.9815-2715, 29 CFR 2590.715-2715, 45 CFR 147.200.
    \18\ 26 CFR 54.9815-2715(b), 29 CFR 2590.715-2715(b), 45 CFR 
147.200(b).
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    The Departments have concluded that existing disclosure 
requirements are sufficient to ensure that participants and 
beneficiaries have access to relevant information, including 
information regarding cost sharing, to help them understand the 
implications of grandfathered coverage. The information included in the 
model grandfather notice--in particular the language highlighting that 
certain consumer protections under PPACA do not apply to grandfathered 
coverage, alongside the information available to individuals in their 
plan's SPD and SBC--provides ample disclosure to participants and 
beneficiaries regarding their benefits to help them decide whether to 
enroll or remain in such a plan. Therefore, the Departments are 
declining to include any additional disclosure requirements in the 
final rules.
a. Special Rule for Certain Grandfathered HDHPs
    As explained above, paragraph (g)(1) of the 2015 final rules 
identifies certain types of changes that will cause a plan or coverage 
to cease to be a grandfathered health plan, including increases in 
cost-sharing requirements that exceed certain thresholds. However, 
cost-sharing requirements for a grandfathered group health plan or 
group health insurance coverage that is an HDHP must satisfy the 
minimum annual deductible requirement and maximum out-of-pocket 
expenses requirement under section 223(c)(2)(A) of the Code in order to 
remain an HDHP. The Internal Revenue Service updates these amounts 
annually to reflect a cost-of-living adjustment.
    The annual cost-of-living adjustment to the required minimum 
deductible for an HDHP has not yet exceeded the maximum percentage 
increase that would cause an HDHP to lose grandfather status.\19\ 
Nevertheless, the Departments are of the view that there is value in 
specifying that if a grandfathered group health plan or group health 
insurance coverage that is an HDHP increases its fixed-amount cost-
sharing requirements to meet a future adjusted minimum annual 
deductible requirement under section 223(c)(2)(A) of the Code that is 
greater than the increase that would be permitted under paragraph 
(g)(1) of the 2015 final rules, such an increase would not cause the 
plan or coverage to relinquish its grandfather status. Otherwise, if 
such a conflict were to occur, the plan sponsor or issuer would have to 
decide whether to preserve the plan's grandfather status or its status 
as an HDHP, potentially causing participants and beneficiaries to 
experience either substantial changes to their coverage (and likely 
premium increases) or a loss of eligibility to contribute to an HSA.
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    \19\ For calendar year 2020, a ``high deductible health plan'' 
is defined under Code section 223(c)(2)(A) as a health plan with an 
annual deductible that is not less than $1,400 for self-only 
coverage or $2,800 for family coverage, and the annual out-of-pocket 
expenses (deductibles, co-payments, and other amounts, but not 
premiums) for which do not exceed $6,900 for self-only coverage or 
$13,800 for family coverage. Rev. Proc. 2019-25 (2019-22 I.R.B. 
1261). For calendar year 2021, a ``high deductible health plan'' is 
defined under Code section 223(c)(2)(A) as a health plan with an 
annual deductible that is not less than $1,400 for self-only 
coverage or $2,800 for family coverage, and the annual out-of-pocket 
expenses (deductibles, co-payments, and other amounts, but not 
premiums) for which do not exceed $7,000 for self-only coverage or 
$14,000 for family coverage. Rev. Proc. 2020-32 (2020-24 I.R.B. 
930).
---------------------------------------------------------------------------

    To address this potential conflict, the 2020 proposed rules 
included a new paragraph (g)(3), which provided that, with respect to a 
grandfathered group health plan or group health insurance coverage that 
is an HDHP, increases to fixed-amount cost-sharing requirements that 
otherwise would cause a loss of grandfather status would not cause the 
plan or coverage to relinquish its grandfather status, but only to the 
extent the increases are necessary to maintain its status as an HDHP 
under section 223(c)(2)(A) of the Code.\20\ Thus, increases with 
respect to such a plan or coverage that would otherwise cause a loss of 
grandfather status and that exceed the amount necessary to satisfy the 
minimum annual deductible requirement under section 223(c)(2)(A) of the 
Code would still cause a loss of grandfather status. The 2020 proposed 
rules also added a new example 11 under paragraph (g)(5) to illustrate 
how this special rule would apply.
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    \20\ Paragraph (g)(3) of the 2015 final rules would be 
renumbered as paragraph (g)(4), and subsequent paragraphs would be 
renumbered accordingly. Additionally, the 2020 proposed rules 
included conforming amendments to other paragraphs to update all 
cross-references to those subparagraphs.
---------------------------------------------------------------------------

    Several commenters supported the 2020 proposed rules to allow a 
grandfathered HDHP to make changes to fixed-amount cost-sharing 
requirements without causing a loss of grandfather status to the extent 
the increases are necessary to maintain the plan's status as an HDHP. 
One commenter highlighted that without this regulatory change, HDHPs 
could be forced out of their grandfather status if the annual cost-of-
living adjustment to the required minimum deductible for an HDHP 
exceeds the maximum percentage increase allowed under the 2015 final 
rules. Another commenter articulated that without this provision, 
participants and beneficiaries who are covered under a grandfathered 
HDHP and eligible to contribute to an HSA may lose their eligibility to 
contribute to an HSA if their plan chooses to relinquish its HDHP 
status to maintain its grandfather

[[Page 81104]]

status. The commenter also raised the concern of facing substantial 
premium increases as a result of having to choose other health coverage 
in the event of an HDHP failing to maintain its HDHP status.
    The Departments agree that the special rule for grandfathered HDHPs 
could help participants and beneficiaries enrolled in these plans. The 
Departments are of the view that there is value in specifying that 
grandfathered HDHPs will not be forced to choose whether to preserve 
their grandfather status or their status as an HDHP and that they can 
continue to provide the coverage with which their participants and 
beneficiaries are familiar and comfortable. The Departments also agree 
that this special rule will help ensure that plans are able to comply 
with minimum cost-sharing requirements for HDHPs so participants and 
beneficiaries covered under HDHPs can continue to be eligible to 
contribute to HSAs. In adopting the final rules, the Departments 
specifically intend to ensure that participants and beneficiaries 
enrolled in HDHPs with grandfather status are able to maintain their 
eligibility to contribute to HSAs.
    Other commenters expressed concerns that allowing grandfathered 
HDHPs to preserve both their grandfather status and HDHP status by 
implementing fixed dollar cost-sharing increases that exceed the 
standards established under the 2015 final rules might result in 
increased costs for consumers enrolled in HDHPs. These commenters 
stated that the proposed changes would further exacerbate existing 
affordability issues, in particular by raising deductibles to 
potentially unaffordable levels and subjecting consumers to increased 
cost sharing. Several commenters noted that increased cost sharing for 
HDHPs may discourage consumers from seeking medical care or cause 
consumers to forego treatment if the necessary services became 
unaffordable. Moreover, commenters noted that high out-of-pocket costs 
for medical care related to the diagnosis and/or treatment of COVID-19 
may deter individuals from seeking care, potentially contributing to 
increased transmission of COVID-19.
    The Departments acknowledge commenters' concerns related to 
potential increased cost and affordability issues, but the Departments 
do not anticipate significant cost increases for consumers enrolled in 
grandfathered HDHPs. In addition, this special rule is narrowly 
tailored, as it permits flexibility only to the extent necessary to 
maintain a plan's status as an HDHP under section 223(c)(2)(A) of the 
Code. Without this regulatory change, grandfathered HDHPs could be 
forced to choose between maintaining grandfather status and remaining 
HDHPs. The flexibility offered by the special rule for grandfathered 
HDHPs will benefit participants and beneficiaries covered under these 
plans as it balances potential affordability issues with safeguards. 
Specifically, the final rules allow plan sponsors to continue offering 
grandfathered coverage, thereby enabling participants and beneficiaries 
to maintain existing coverage, while only permitting plan sponsors to 
make certain cost-sharing increases to the extent necessary to maintain 
HDHP status. Moreover, the Departments expect that the impact of the 
special rule will be modest: Sponsors of grandfathered HDHPs will have 
greater flexibility to continue offering their plans as grandfathered, 
protecting those enrolled in these plans from the disruption and 
potentially increased out-of-pocket costs associated with changing to a 
different plan or coverage that may not be an HDHP or grandfathered. 
This consideration carries particular weight because of the COVID-19 
pandemic, during which losing access to a plan or coverage, potentially 
including losing access to a specific provider network, could be 
particularly disruptive.
b. Definition of Maximum Percentage Increase
    Under the 2015 final rules, medical inflation means the increase 
since March 2010 in the overall medical care component of the CPI-U 
published by the DOL using the 1982-1984 base of 100. The medical care 
component of the CPI-U is a measure of the average change over time in 
the prices paid by urban consumers for medical care. Although the 
Departments continue to be of the view that this is an appropriate 
measure for medical inflation in this context, the Departments 
recognize that the medical care component of CPI-U reflects not only 
changes in price for private insurance, but also for self-pay patients 
and Medicare, neither of which are reflected in the underlying costs 
for grandfathered group health plans and grandfathered group health 
insurance coverage. In contrast, the premium adjustment percentage 
reflects the cumulative, historic growth from 2013 through the 
preceding calendar year in premiums for only private health insurance, 
excluding Medigap and property and casualty insurance. Therefore, the 
Departments agreed with comments received in response to the 2019 RFI 
that the premium adjustment percentage may better reflect the increase 
in underlying costs for grandfathered group health plans and 
grandfathered group health insurance coverage.\21\
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    \21\ The Departments acknowledge that the premium adjustment 
percentage does not capture premium growth from 2010 to 2013, and 
that it reflects increases in premiums not only in the group market, 
but also in the individual market, which have increased more rapidly 
than premiums for group health plans and group health insurance. 
However, the Departments have concluded that the premium adjustment 
percentage may be the best alternative existing measure to reflect 
the increase in underlying costs for grandfathered group health 
plans and grandfathered group health insurance coverage. 
Additionally, the Departments are of the view that using a measure 
with which plans and issuers are already familiar will promote 
administrative simplicity.
---------------------------------------------------------------------------

    Accordingly, the 2020 proposed rules included an amended definition 
of the maximum percentage increase with an alternative standard that 
relies on the premium adjustment percentage, rather than medical 
inflation (which continues to be defined, for purposes of these rules, 
as the overall medical care component of the CPI-U, unadjusted), to 
account for changes in healthcare costs over time. Under the 2020 
proposed rules, this alternative standard would not supplant the 
current standard; rather, it would be available to the extent it yields 
a higher-dollar value than the current standard, and it would apply 
only with respect to increases in fixed-amount cost-sharing 
requirements that are made effective on or after the applicability date 
of the final rules. With respect to increases for group health plans 
and group health insurance coverage made effective on or after March 
23, 2010, but before the applicability date of the final rules, the 
maximum percentage increase would still be defined as medical inflation 
expressed as a percentage, plus 15 percentage points.\22\
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    \22\ The amendments included in the 2020 proposed rules would 
apply only with respect to grandfathered group health plans and 
grandfathered group health insurance coverage. Because HHS 
regulations at 45 CFR 147.140 apply to both grandfathered individual 
and group health coverage, the amended definition of the maximum 
percentage increase in the HHS proposed rules would also add a 
separate provision for individual health insurance coverage to make 
clear that the definition applicable to individual coverage remains 
unchanged.
---------------------------------------------------------------------------

    Thus, under the 2020 proposed rules, increases to fixed-amount 
cost-sharing requirements for grandfathered group health plans and 
grandfathered group health insurance coverage that are made applicable 
on or after the applicability date of the final rules would cause the 
plan or coverage to cease to be a grandfathered health plan if the 
total percentage increase in the cost-sharing requirement measured from 
March 23,

[[Page 81105]]

2010 exceeds the greater of (1) medical inflation, expressed as a 
percentage, plus 15 percentage points; or (2) the portion of the 
premium adjustment percentage, as defined in 45 CFR 156.130(e), that 
reflects the relative change between 2013 and the calendar year prior 
to the effective date of the increase (that is, the premium adjustment 
percentage minus 1), expressed as a percentage, plus 15 percentage 
points.\23\ The 2020 proposed rules also added a new example 5 under 
paragraph (g)(5) to demonstrate how this alternative measure for 
determining the maximum percentage increase might apply in practice. 
Similar to other examples in paragraph (g)(5), the proposed new example 
5 included hypothetical numbers with respect to both the overall 
medical care component of the CPI-U and the premium adjustment 
percentage that do not relate to any specific time period and are used 
for illustrative purposes only. The 2020 proposed rules also renumbered 
examples 5 through 9 in paragraph (g)(5) to allow the inclusion of new 
example 5 and revised examples 3 through 6 to clarify that these 
examples involve plan changes that became effective before the 
applicability date of these final rules. These proposed revisions would 
ensure that the examples accurately reflect the other provisions of the 
2015 final rules.
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    \23\ Stakeholders should look to official publications from the 
Bureau of Labor Statistics and HHS to identify the relevant overall 
medical care component of the CPI-U amount or premium adjustment 
percentage with respect to a change being considered by a 
grandfathered health plan.
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    In support of this provision in the 2020 proposed rules, one 
commenter pointed out that the ability to use a premium adjustment 
percentage for permitted changes in fixed cost-sharing amounts would be 
helpful to multiemployer plan sponsors wishing to maintain grandfather 
status. Another commenter said that the premium adjustment percentage 
is an amount very familiar to group health plan sponsors, and it is 
based on factors related to group plan premiums, making it a natural 
complement to the grandfathered plan cost-sharing requirements.
    Some commenters stated that the 2020 proposed rules should have 
provided even greater flexibility. One commenter suggested that instead 
of examining changes to healthcare costs over cumulative years since 
March 23, 2010, the Departments should consider allowing a set 
percentage of allowable increase annually. Another commenter urged the 
Departments to make additional changes in the final rules to provide 
more flexibility, allowing plan design changes specifically to 
encourage cost-effective quality care, such as greater ability to 
change cost sharing for brand drugs and out-of-network benefits.
    One commenter stated that the Departments' intent to allow 
grandfathered plans to increase out-of-pocket costs at a rate that is 
the greater of the medical inflation adjustment or the premium 
adjustment percentage adjustment (plus 15 percentage points) would, by 
design, result in increased out-of-pocket costs for participants and 
beneficiaries. This commenter stated that using the premium adjustment 
percentage for this calculation would leave patients vulnerable to 
financial hardship. Another commenter asserted that the proposed 
amendment to the definition of maximum percentage increase would likely 
result in increased cost sharing, and in turn, less favorable coverage 
for individuals enrolled in grandfathered coverage, to the detriment of 
many consumers who rely on employment-based health coverage and who may 
not have an option to enroll in coverage that complies with the 
generally applicable market reforms made by PPACA.
    As stated earlier in this preamble, the Departments have concluded 
that the proposed and final rules strike the right balance between 
allowing grandfathered health plans the flexibility to design their 
health plans to meet their changing needs and ensuring that affordable 
healthcare options for participants and beneficiaries remain available. 
The Departments are unpersuaded that the final rules will result in 
significant financial hardship due to the additional permitted 
increases in out-of-pocket costs for participants and beneficiaries. As 
noted earlier in this preamble, providing an alternative inflation 
adjustment for fixed-amount cost-sharing increases will help plans and 
issuers better account for changes in the costs of health coverage over 
time, potentially allowing them to maintain the grandfathered coverage 
for those participants and beneficiaries. Therefore, the Departments 
are of the view that allowing plans and issuers to use this measure is 
appropriate and it may capture changes in healthcare costs at least as 
accurately as the medical inflation standard. Accordingly, the 
Departments are finalizing this change, as proposed.

III. Effective Date

    In the 2020 proposed rules, the Departments proposed an effective 
date of 30 days after publication of the final rules. The Departments 
are finalizing as proposed an effective date of 30 days after 
publication of the final rules, which would be January 14, 2021. 
However, in response to comments, the Departments are including an 
applicability date which will make the final rules applicable to 
grandfathered group health plans and grandfathered group health 
insurance coverage beginning on June 15, 2021. While the Departments 
did not receive any comments specifically requesting that the 
applicability date of the final rules be delayed to 6 months after 
publication, the Departments did receive a number of comments related 
to the COVID-19 pandemic and the timing of the final rules, as 
discussed earlier in this preamble. Commenters expressed concern that 
it is not appropriate to potentially place a greater financial burden 
related to healthcare on patients while the COVID-19 pandemic is 
ongoing.
    As explained above, in the Departments' view, the final rules will 
allow employers to continue to offer affordable coverage to those who 
are eligible for grandfathered employer-sponsored plans. However, the 
Departments acknowledge commenters' reasonable concerns regarding the 
timing of the final rules and the uncertainty created by the COVID-19 
pandemic. The Departments are therefore delaying the applicability date 
of the final rules to 6 months after publication in the Federal 
Register. The Departments are of the view that this delay is 
appropriate, as the Departments do not expect the delay to have a 
significant short-term impact on plans' and issuers' ability to make 
use of the cost-sharing flexibilities afforded under the final rules; 
instead, a short delay will reduce uncertainty by allowing plans, 
issuers, and those covered by grandfathered plans more time to 
understand and plan for the increased flexibility provided by the final 
rules.

IV. Economic Impact Analysis and Paperwork Burden

A. Summary/Statement of Need

    Section 1251 of PPACA generally provides that certain group health 
plans and health insurance coverage existing on March 23, 2010, are not 
subject to certain provisions of PPACA as long as they maintain 
grandfather status. On February 25, 2019, the Departments published an 
RFI to gather information on grandfathered group health plans and 
grandfathered group health insurance coverage. Comments received from 
stakeholders in response to the 2019 RFI suggested that issuers and 
plan sponsors, as well as participants and

[[Page 81106]]

beneficiaries, continue to value grandfathered group health plan and 
grandfathered group health insurance coverage. The Departments issued a 
notice of proposed rulemaking on July 15, 2020, to amend the 2015 final 
rules to provide greater flexibility for certain grandfathered health 
plans to make changes to certain types of cost-sharing requirements 
without causing a loss of grandfather status. The Departments are of 
the view that these final rules are appropriate to provide certain 
grandfathered health plans greater flexibility while appropriately 
taking into account rising healthcare costs. Additionally, the final 
rules will ensure that grandfathered plans are able to make changes to 
comply with minimum cost-sharing requirements for HDHPs without losing 
grandfather status, so enrolled individuals continue to be eligible to 
contribute to HSAs. These changes will allow certain grandfathered 
group health plans and grandfathered group health insurance coverage to 
continue to be exempt from certain provisions of PPACA and allow those 
plans' participants and beneficiaries to maintain their current 
coverage.
    In drafting the final rules, the Departments attempted to balance a 
number of competing interests. The Departments sought to balance 
providing greater flexibility to grandfathered group health plans and 
grandfathered group health insurance coverage that will enable these 
plans and coverage to continue offering quality, affordable coverage to 
participants and beneficiaries while ensuring that the final rules will 
not allow for such significant changes that the plan or coverage could 
not reasonably be described as being the same plan or coverage that was 
offered on March 23, 2010. Additionally, the Departments sought to 
allow grandfathered group health plans and grandfathered group health 
insurance coverage to better account for rising healthcare costs, 
including ensuring that grandfathered group HDHPs are able to maintain 
their grandfather status, while continuing to comply with minimum cost-
sharing requirements for HDHPs, so that the individuals enrolled in the 
HDHPs are eligible to contribute to an HSA. In previous rulemaking, the 
Departments recognized that many group health plans and issuers make 
changes to the terms of plans or health insurance coverage on an annual 
basis: Premiums fluctuate, provider networks and drug formularies 
change, employer and employee contributions and cost-sharing 
requirements change, and covered items and services may vary. Without 
some flexibility to make adjustments while retaining grandfather 
status, the ability of many individuals to maintain their current 
coverage would be frustrated, because much of the grandfathered group 
health plan coverage would quickly cease to be regarded as the same 
health plan or health insurance coverage in existence on March 23, 
2010. At the same time, allowing grandfathered health plans and 
grandfathered group health insurance coverage to make unfettered 
changes while retaining grandfather status would be inconsistent with 
Congress's intent in enacting PPACA.\24\
---------------------------------------------------------------------------

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

    The final rules amend the 2015 final rules to provide greater 
flexibility for grandfathered group health plans and issuers of 
grandfathered group health insurance coverage in two ways. First, the 
final rules specify that any grandfathered group health plan and 
grandfathered group health insurance coverage that is an HDHP may make 
changes to fixed-amount cost-sharing requirements that would otherwise 
cause a loss of grandfather status without causing a loss of 
grandfather status, but only to the extent those changes are necessary 
to comply with the requirements for HDHPs under section 223(c)(2)(A) of 
the Code. Second, the final rules include a revised definition of 
maximum percentage increase, which provides an alternative standard 
that relies on the premium adjustment percentage, rather than medical 
inflation, to account for changes in healthcare costs over time, 
providing for an alternative inflation adjustment for fixed-amount 
cost-sharing increases.

B. Overall Impact

    The Departments have examined the impacts of the final rules as 
required by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993), Executive Order 13563 on Improving Regulation and 
Regulatory Review (January 18, 2011), the Regulatory Flexibility Act 
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the 
Social Security Act (SSA), section 202 of the Unfunded Mandates Reform 
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 
804(2)), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
A regulatory impact analysis (RIA) must be prepared for rules with 
economically significant effects ($100 million or more in any 1 year).
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule (1) 
having an annual effect on the economy of $100 million or more in any 1 
year, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    An RIA must be prepared for major rules with economically 
significant effects ($100 million or more in any one year), and a 
``significant'' regulatory action is subject to Office of Management 
and Budget (OMB) review. The final rules are not likely to have 
economic impacts of $100 million or more in any 1 year, and therefore 
do not meet the definition of ``economically significant'' within the 
meaning of section 3(f)(1) of Executive Order 12866. However, OMB has 
determined that the actions are significant within the meaning of 
section 3(f)(4) of the Executive Order. Therefore, OMB has reviewed the 
final rules, and the Departments have provided the following assessment 
of their impact.
    Some commenters stated that the rules should not be finalized 
because the Departments had insufficient information and data to 
estimate the effects of the 2020 proposed rules on grandfathered group 
health plans and coverage as well as those enrolled in such coverage. 
The Departments acknowledge that, given the lack of information and 
data, the Departments are not able to precisely estimate the

[[Page 81107]]

overall impact of the final rules. As discussed later in the impact 
analysis, the Departments note the inability to predict what changes 
each grandfathered group health plan will make in response to the final 
rules. The Departments recognize that some grandfathered group health 
plans may take advantage of flexibilities provided by the final rules 
to change certain types of cost-sharing requirements in amounts greater 
than the current rules allow, potentially increasing out-of-pocket 
costs at a higher rate for some participants and beneficiaries, while 
potentially reducing premiums for others. However, other grandfathered 
group health plans may make relatively minor, or no, changes. As 
discussed previously in this preamble, the Departments note that the 
fact that a significant number of grandfathered group health plans and 
coverage remain indicates that some employers and issuers have found 
value in preserving grandfather status. The Departments are of the view 
that preserving grandfather status will enable participants to retain 
their current coverage, including their provider network(s), maintain 
access to affordable coverage options, and ensure that employers and 
other grandfathered group health plan sponsors can more appropriately 
account for the rising costs of healthcare due to inflation. The 
Departments have also concluded that the final rules appropriately 
support the goal of promoting greater choices in coverage, especially 
in light of rising healthcare costs.

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

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

                        Table 1--Accounting Table
------------------------------------------------------------------------
                                Benefits
-------------------------------------------------------------------------
Non-Quantified:
    <bullet> 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.
    <bullet> If there is uptake of this flexibility:
        [cir] Allows participants and beneficiaries in grandfathered
         group health plans and grandfathered group health insurance
         coverage to maintain coverage they are familiar with and
         potentially provides continuity of care by not requiring them
         to change their health plan to one that may not include their
         current provider(s).
        [cir] Ensures plan sponsors are able to comply with minimum cost-
         sharing requirements for HDHPs and allows participants and
         beneficiaries to maintain their coverage and eligibility to
         contribute to an HSA.
    <bullet> 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.
    <bullet> Potential reduction in adverse health outcomes if there is
     a decrease in the uninsured rate if participants and beneficiaries
     choose to obtain coverage due to potential premium reductions for
     grandfathered group health plans and grandfathered group health
     insurance coverage and seek needed healthcare.
------------------------------------------------------------------------


 
                                       Primary estimate                       Discount rate
               Costs:                     (million)         Year dollar         (percent)        Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year).......              $6.09               2020                  7          2021-2025
                                                  $5.67               2020                  3          2021-2025
----------------------------------------------------------------------------------------------------------------


Quantitative:
    <bullet> Regulatory review costs of $26.73 million, incurred in
     2021, by grandfathered group health plan coverage sponsors and
     issuers.
Non-Quantified:
    <bullet> 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.
    <bullet> 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.
    <bullet> If an employer would have otherwise switched to a non-
     grandfathered plan, potential increase in adverse health outcomes
     if a participant or beneficiary foregoes treatment for medical
     conditions that are not covered by their grandfathered group health
     plan and grandfathered group health insurance coverage, but that
     would have been covered by non-grandfathered health plan coverage
     subject to all PPACA market reforms.
------------------------------------------------------------------------
                                Transfers
------------------------------------------------------------------------
Non-Quantified:

[[Page 81108]]

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

    Table 1 provides the anticipated benefits, costs, and transfers 
(quantitative and non-quantified) to sponsors and issuers of 
grandfathered health plan coverage, participants and beneficiaries 
enrolled in grandfathered plans, as well as nonparticipants. The 
following section describes the benefits, costs, and transfers to 
grandfathered group health plan sponsors, issuers of grandfathered 
group health insurance coverage, and those individuals enrolled in such 
plans.
Economic Impacts of Retaining or Relinquishing Grandfather Status and 
Affected Entities and Individuals
    The Departments estimate that there are 2.5 million ERISA-covered 
plans offered by private employers that cover an estimated 136.2 
million participants and beneficiaries in those private employer-
sponsored plans.\25\ Similarly, the Departments estimate that there are 
84,087 state and local governments that offer health coverage to their 
employees, with an estimated 32.8 million participants and 
beneficiaries in those employer-sponsored plans.\26\
---------------------------------------------------------------------------

    \25\ U.S. Department of Labor, EBSA calculations using the 2019 
Medical Expenditure Panel Survey, Insurance Component (MEPS-IC), the 
Form 5500 and 2017 Census County Business Patterns; Health Insurance 
Coverage Bulletin: Abstract of Auxiliary Data for the March 2019 
Annual Social and Economic Supplement to the Current Population 
Survey, Table 3C (forthcoming).
    \26\ 2017 Census of Governments, Government Organization Report, 
available at https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html; 2017 MEPS-IC State and Local Government data, 
available for query at https://meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC/startup.; Health Insurance Coverage Bulletin: Abstract of 
Auxiliary Data for the March 2019 Annual Social and Economic 
Supplement to the Current Population Survey, Table 3C, 
(forthcoming).
---------------------------------------------------------------------------

    The Kaiser Family Foundation 2020 Employer Health Benefits Survey 
reports that 16 percent of firms offering health benefits have at least 
one health plan or benefit package option that is a grandfathered plan, 
and 14 percent of covered workers are enrolled in grandfathered 
plans.\27\ Using this information, the Departments estimate that, of 
those firms offering health benefits, 400,000 sponsor ERISA-covered 
plans (2.5 million * 0.16) that are grandfathered (or include a 
grandfathered benefit package option) and cover 19.1 million 
participants and beneficiaries (136.2 million * 0.14). The Departments 
further estimate there are 13,454 state and local governments (84,087 * 
0.16) offering at least one grandfathered health plan and 4.6 million 
participants and beneficiaries (32.8 million * 0.14) covered by a 
grandfathered state or local government plan.
---------------------------------------------------------------------------

    \27\ The Departments note that comments received in response to 
the 2019 RFI and summarized earlier in this preamble described data 
obtained from Kaiser Family Foundation 2018 Employer Health Benefits 
Survey. See supra note 9. For the purposes of this RIA, the 
Departments used more recent data from the same survey. See Kaiser 
Family Foundation, ``2020 Employer Health Benefits Survey,'' 
available at https://www.kff.org/health-costs/report/2020-employer-health-benefits-survey/.
---------------------------------------------------------------------------

    Although the Kaiser Family Foundation 2020 Employer Health Benefits 
Survey reports that 20 percent of firms offering health benefits 
offered an HDHP and 24 percent of covered workers were enrolled in 
HDHPs, the Departments are of the view that the 2010 Employer Health 
Benefits Survey provides a better estimate of the prevalence of HDHPs 
in the grandfathered group market as it provides an estimate for the 
number of potential HDHPs that would have been able to obtain and 
maintain grandfather status. The 2010 Employer Health Benefits Survey 
reported that 12 percent of firms offering health benefits offered an 
HDHP, and 6 percent of covered workers were enrolled in HDHPs.\28\
---------------------------------------------------------------------------

    \28\ Kaiser Family Foundation, ``2010 Employer Health Benefits 
Survey,'' (Sept. 2010), available at: https://www.kff.org/wp-content/uploads/2013/04/8085.pdf.
---------------------------------------------------------------------------

Benefits
    The Departments are of the view that the economic effects of the 
final rules will ultimately depend on decisions made by grandfathered 
plan sponsors (including sponsors of grandfathered HDHPs) and the 
preferences of plan participants and beneficiaries. To determine the 
value of retaining a health plan's grandfather status, each group plan 
sponsor must determine whether the plan, under the rules applicable to 
grandfathered health plan coverage, will continue to be more or less 
favorable than the plan as it would exist under the rules applicable to 
non-grandfathered group health plans. This determination will depend on 
such factors as the respective prices of grandfathered group health 
plan and non-grandfathered group health plans, the willingness of 
grandfathered group health plans' covered populations to pay for 
benefits and protections available under non-grandfathered group health 
plans, and the participants' and beneficiaries' willingness to accept 
any increases in out-of-pocket costs due to changes to certain types of 
cost-sharing requirements. The Departments have concluded that 
providing flexibilities to make changes to certain types of cost-
sharing requirements in grandfathered group health plans and 
grandfathered group health insurance coverage without causing a loss of 
grandfather status will enable plan sponsors and issuers to continue to 
offer quality, affordable coverage to their participants and 
beneficiaries while taking into account rising healthcare costs.
    The Departments anticipate that the premium adjustment percentage 
index will continue to experience faster growth than medical CPI-U, and 
therefore are of the view that providing the alternative method of 
determining the maximum percentage increase will, over time, give 
grandfathered group health plans and grandfathered group health 
insurance coverage the flexibility to make changes to the plans' fixed-
amount cost-sharing requirements (such as copayments, deductibles, and 
out-of-pocket limits) that would have previously resulted in the loss 
of grandfather status. Thus, the Departments are of the view that the 
final rules will allow sponsors of those grandfathered group health 
plans and coverage to continue to provide the coverage with which their 
participants and beneficiaries are familiar and comfortable, without 
the unnecessary burden of finding other coverage. Additionally, if the 
flexibilities provided for in the final rules result in a reduction in 
grandfathered group health plan and grandfathered group health 
insurance coverage premiums, there could potentially be a reduction in 
adverse health outcomes if participants and beneficiaries chose to 
obtain coverage they may have previously foregone and seek needed 
healthcare.\29\
---------------------------------------------------------------------------

    \29\ To the extent that utilization and health expenditures are 
relatively stable, the Departments expect that higher cost sharing 
may lead to lower premiums, both because higher cost sharing will 
reduce issuers' share of the costs of care and because of medical 
loss ratio (MLR) requirements, which encourage issuers to pass these 
savings to consumers in the form of lower premiums.

---------------------------------------------------------------------------

[[Page 81109]]

    As noted previously in this preamble, in response to the 2019 RFI, 
some commenters suggested that their grandfathered plans offer more 
robust provider networks than other coverage options available to them 
or that they want to ensure that participants and beneficiaries are 
able to keep receiving care from current in-network providers. The 
Departments are of the view that providing the flexibilities in the 
final rules will help participants and beneficiaries maintain their 
current provider and service networks. If providers continue 
participating in the grandfathered plans' networks, this continuity 
offers participants and beneficiaries the ability to continue current 
and future care through those providers with whom they have built 
relationships.
    As discussed previously in this preamble, one commenter on the 2019 
RFI articulated a concern that the 2015 final rules may eventually 
preclude some sponsors and issuers of grandfathered group health plans 
and grandfathered group health insurance coverage from being able to 
make changes to fixed-amount cost-sharing requirements necessary to 
maintain a plan's HDHP status. For participants and beneficiaries, this 
would mean they could experience either substantial changes to their 
coverage (and likely premium increases) or a loss of eligibility to 
contribute to an HSA. The Departments expect that, under the 2015 final 
rules, there may be limited circumstances in which a grandfathered 
group health plan or grandfathered group health insurance coverage that 
is an HDHP (grandfathered HDHP) is unable to simultaneously maintain 
its grandfather status and satisfy the requirements for HDHPs under 
section 223(c)(2)(A) of the Code. Nonetheless, to avoid this scenario 
and provide assurance to grandfathered group health plan sponsors and 
issuers of grandfathered HDHPs, the final rules allow a grandfathered 
HDHP to make changes to fixed-amount cost-sharing requirements that 
otherwise could cause a loss of grandfather status without causing a 
loss of grandfather status, but only to the extent the increases are 
necessary to comply with the requirements for HDHPs under section 
223(c)(2)(A) of the Code.
    The Departments have concluded that providing this flexibility to 
grandfathered HDHPs will allow them to preserve their grandfather 
status even if they increase their cost-sharing requirements to meet a 
future adjusted minimum annual deductible requirement under section 
223(c)(2)(A) of the Code beyond the increase that would be permitted 
under paragraph (g)(1) of the 2015 final rules. Under section 223(g) of 
the Code, the required minimum deductible for an HDHP is adjusted for 
cost-of-living based on changes in the overall economy. Historically, 
the allowed increases under the 2015 final rules, which are based on 
changes in medical care costs (medical CPI-U), have exceeded increases 
based on changes in the overall economy (CPI-U or, for tax years 
beginning after December 31, 2017, C-CPI-U). Using 10 years of 
projections from the President's FY 2021 Budget, medical-CPI-U is 
expected to grow faster than CPI-U. Further, because the allowed 
increases under the 2015 final rules are based on the cumulative effect 
over a period of years, it is unlikely that using medical-CPI-U to 
index deductibles would result in lower deductibles than using C-CPI-U 
as required under section 223(g) of the Code.\30\ Therefore, the 
Departments note that, to the extent these trends continue, it is 
unlikely that an increase required under section 223 of the Code for a 
plan to remain an HDHP would exceed the allowed increases under the 
2015 final rules. Furthermore, to the extent that the revised 
definition of maximum percentage increase in the final rules will allow 
the deductible to grow as fast, or faster, than under the 2015 final 
rules, grandfathered HDHPs may not need to avail themselves of the 
additional flexibility provided in the final rules. Nevertheless, the 
Departments are of the view that affording this flexibility will make 
the rules more transparent to sponsors of grandfathered HDHPs. Thus, 
the final regulations will allow participants and beneficiaries 
enrolled in those plans to maintain their current coverage, continue 
contributing to any existing HSA, and potentially realize any reduction 
in premiums that may result from changes in cost-sharing requirements.
---------------------------------------------------------------------------

    \30\ As noted earlier in this preamble, the Tax Cuts and Jobs 
Act amended section 1(f)(3) of the Code, cross-referenced in section 
223(g) of the Code, to refer to C-CPI-U, instead of CPI-U, for tax 
years beginning after December 31, 2017.
---------------------------------------------------------------------------

Costs and Transfers
    The Departments recognize there are costs associated with the final 
rules that are difficult to quantify given the lack of information and 
data. For example, the Departments do not have data related to the 
current annual out-of-pocket costs for participants and beneficiaries 
in grandfathered group HDHPs or other grandfathered group health plans 
and grandfathered group health insurance coverage. The Departments 
recognize that as medical care costs increase, some participants and 
beneficiaries in grandfathered health plans could face higher out-of-
pocket costs for services that may be excluded by such plans, but that 
would be required to be covered by non-grandfathered group health plans 
and group health insurance coverage subject to PPACA market reforms. As 
noted earlier in this analysis, it is possible that lower premiums, 
compared to the likely premiums if these rules are not finalized, could 
partially offset these increased costs. Further, participants and 
beneficiaries who would otherwise be covered by a non-grandfathered 
plan could potentially face increases in adverse health outcomes if 
they forego treatment because certain services are not covered by their 
grandfathered plan or coverage. The Departments cannot precisely 
predict the number of group health plans and group health insurance 
coverage that will retain their grandfather status as a result of the 
final rules. According to the annual Kaiser Family Foundation Employer 
Health Benefits Survey, the percentage of employers offering health 
coverage that offered at least one grandfathered plan between 2016 and 
2019 has been relatively stable (23 percent in 2016 to 22 percent in 
2019).\31\ The Departments are of the view that a large change over 
that time period would have indicated that the 2015 final rules were 
too

[[Page 81110]]

restrictive and that a relaxation of those rules would have a large 
effect. The actual small change suggests the opposite. Therefore, the 
Departments do not expect a significant impact on the number of 
grandfathered group health plans or grandfathered group health 
insurance coverage as a result of the final rules.
---------------------------------------------------------------------------

    \31\ See Kaiser Family Foundation, ``2016 Employer Health 
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2016-employer-health-benefits-survey/; Kaiser Family 
Foundation, ``2017 Employer Health Benefits Survey,'' available at 
https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/; Kaiser Family Foundation, ``2018 Employer Health 
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2018-employer-health-benefits-survey/; and Kaiser Family 
Foundation, ``2019 Employer Health Benefits Survey,'' available at 
https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/. Despite the relative stability between 2016 and 
2019, the 2020 Employer Health Benefits Survey reported that the 
number of firms offering health coverage that offered at least one 
grandfathered plan in 2020 decreased to 16 percent. The Departments 
are of the view that this change may largely be attributable to 
issues with employer survey reporting during the COVID-19 pandemic, 
rather than to the 2015 final rules. The Kaiser Family Foundation 
reported a diminished response to the 2020 survey compared to 
previous years and attributed that lower response rate to a 
combination of factors including changing data collection firms, 
disruptions from the COVID-19 pandemic, and starting the fielding 
period later. Kaiser Family Foundation, ``2020 Employer Health 
Benefits Survey,'' available at https://www.kff.org/health-costs/report/2020-employer-health-benefits-survey/.
---------------------------------------------------------------------------

    For those plans and coverages that continue to maintain their 
grandfather status as a result of the flexibilities in the final rules, 
the participants and beneficiaries will continue to have coverage and 
may experience lower premiums when compared to non-grandfathered group 
health plans. Although some participants and beneficiaries will pay 
higher cost-sharing amounts, these increased costs may be partially 
offset by reduced employee premiums, and indirectly through potential 
wage adjustments that reflect reduced employer contributions due to any 
resulting lower premiums. In contrast, individuals who have low or no 
medical expenses, along with nonparticipants, will be unlikely to 
experience increased cost-sharing amounts and may benefit from lower 
employee premiums, and indirectly through potential wage adjustments.
    The Departments recognize there will be transfers associated with 
the final rules that are difficult to quantify given the lack of 
information and data. The Departments realize that if plan sponsors 
avail themselves of the flexibilities in the final rules, some 
participants and beneficiaries of grandfathered group health plans and 
grandfathered group health insurance coverage will potentially see 
increases in out-of-pocket costs depending on the changes made to their 
plans. Additionally, participants and beneficiaries in a grandfathered 
HDHP could face increases in the plan's deductible if plans increase 
their fixed-amount cost-sharing requirements to meet a future adjusted 
minimum annual deductible requirement beyond the increase that is 
permitted under the 2015 final rules. Changes in costs associated with 
increased deductibles or other cost sharing will be a transfer from 
participants and beneficiaries with higher out-of-pocket costs to 
participants and beneficiaries with lower or no out-of-pocket costs and 
to nonparticipants, as the related premium reductions could affect 
wages.
    Due to the overall lack of information and data related to what 
grandfathered group plan sponsors will choose to do, the Departments 
are unable to precisely estimate the overall economic impact, but the 
Departments anticipate that the overall impact will be minimal. 
However, there is a large degree of uncertainty regarding the effect of 
the final rules on any potential changes to cost sharing at the plan 
level so actual experience could differ.
    Commenters suggested that the provisions of the 2020 proposed rules 
would disadvantage consumers with pre-existing conditions. 
Specifically, commenters suggested that those individuals most likely 
to shoulder the burden of increased out-of-pocket costs are those who 
already have higher medical expenses and out-of-pocket costs (for 
example, those with blood cancer). Another commenter noted that the 
2020 proposed rules suggested that the resulting increases in out-of-
pocket expenditures for participants and beneficiaries of grandfathered 
plans could be offset by decreases in premiums or wage adjustments; 
however, according to this commenter, those potential benefits are 
minimal and uncertain, while participants and beneficiaries will likely 
be paying more for substandard health coverage. Another commenter 
suggested that the Departments should fully evaluate and publicly 
report on whether increased cost sharing will lead to decreased 
utilization of necessary medical care.
    The Departments appreciate these concerns. Nevertheless, the 
Departments are of the view that finalizing the 2020 proposed rules is 
important to help grandfathered group health plans and grandfathered 
group health insurance coverage maintain grandfather status and 
supports the goal of promoting greater choice in coverage, especially 
in light of rising healthcare costs. The Departments recognize that 
should a grandfathered group health plan or grandfathered group health 
insurance coverage avail itself of the flexibilities in the final 
rules, some participants and beneficiaries could incur higher out-of-
pocket costs for ongoing or future healthcare needs. However, as 
discussed previously in this preamble, participants and beneficiaries 
would continue to benefit from many PPACA consumer protections that are 
applicable to all group health plans and group health insurance 
coverage, regardless of grandfather status, including the prohibition 
on preexisting condition exclusions, the prohibition on waiting periods 
that exceed 90 days, and the prohibition on lifetime or annual dollar 
limits. Additionally, grandfathered group health plans and issuers of 
grandfathered group health insurance coverage are not prohibited from 
providing coverage consistent with any of PPACA market provisions that 
apply to non-grandfathered group health plans and may add coverage 
consistent with such market provisions without relinquishing 
grandfather status.
    As discussed later in the impact analysis, some participants and 
beneficiaries could experience savings in reduced premiums, wage 
adjustments, and continued access to tax-advantaged HSAs due to changes 
made as a result of the final rules. The Departments recognize that any 
increases in cost sharing, changes in premiums, or wage adjustments are 
at the discretion of the issuer or grandfathered group plan sponsor. 
The Departments are of the view that providing the flexibilities in the 
final rules could allow participants to retain their current coverage 
instead of finding alternate coverage, which may result in greater 
increases in cost-sharing or reduced benefits for those individuals. As 
noted later in the impact analysis, the Departments are of the view 
that because individuals with significant healthcare needs generally 
exceed the out-of-pocket limit for the plan year, they are only 
modestly affected by increases in cost-sharing requirements, while 
individuals with fewer healthcare needs are more likely to be affected 
by an increase in fixed-amount cost-sharing, but that they incur a 
small portion of the overall costs.
    The Departments have concluded that the final rules strike a proper 
balance between preserving the ability to maintain existing coverage 
with the goals of expanding access to and improving the quality of 
health coverage.
Revenue Impact of Final Rules
    This section of the preamble discusses the revenue impact of the 
final rules, considers a variety of approaches that employers offering 
grandfathered health plan coverage might have taken if the 2015 final 
rules were not amended, and compares the revenue impact of each 
approach under the 2015 final rules with the revenue impact under the 
final rules.
a. Employees Who Would Have Remained in Grandfathered Plans and 
Coverage Without the Final Rules
    If the 2015 final rules were not amended, some employers might have 
chosen to continue to maintain their grandfathered health plan 
coverage. This subsection discusses the revenue impact that the final 
rules may have on this group of employers and employees.
    Under the final rules, grandfathered group health plans and 
grandfathered group health insurance coverage will be allowed to 
increase fixed-amount cost-sharing requirements (such as copayments, 
deductibles, and out-of-

[[Page 81111]]

pocket limits) at a somewhat higher rate than under the 2015 final 
rules without losing grandfather status, which may result in a premium 
reduction (or similar cost reduction for a self-insured plan). 
Specifically, for increases in fixed-amount cost-sharing on or after 
the applicability date of the final rules, grandfathered group health 
plans and grandfathered group health insurance coverage may use an 
alternative standard for determining the maximum percentage increase 
that relies on the premium adjustment percentage, rather than medical 
inflation, to the extent that it yields a greater result than the 
standard under the 2015 final rules.
    The premium adjustment percentage is estimated to be about three 
percentage points higher than medical inflation in 2026, using FY2021 
President's Budget projections of medical CPI and National Health 
Expenditures premium projections. Therefore, as of that year, fixed-
amount copayments, deductibles, and out-of-pocket limits could be three 
percentage points higher under the final rules than under the 2015 
final rules. However, a grandfathered group plan that increases fixed-
amount cost-sharing to the maximum amount allowed under the final rules 
is likely to realize only a small reduction in premiums. This is 
because plans incur most of their costs for a relatively small fraction 
of participants--that is, from high-cost individuals. Because high-cost 
individuals generally exceed the out-of-pocket limit for the year, they 
are only modestly affected by higher out-of-pocket limits. Low-cost 
individuals are more likely to be affected by an increase in fixed-
amount cost-sharing, but they incur a small portion of the overall 
costs. Therefore, the impact of the final rules for a particular 
grandfathered group health plan will depend on the parameters of 
covered benefits under the plan, as well as the distribution of 
expenditures for the plan participants. In addition, increased cost 
sharing could result in participants and beneficiaries making fewer 
visits to providers (that is, lower utilization), which could result in 
lower medical costs for some individuals, but higher costs for others 
who delay needed medical care. If individuals generally forgo 
unnecessary care, but continue to go to providers when necessary, 
premiums could decline even more, but this outcome is uncertain.
    Because of the Federal tax exclusion for employer-sponsored 
coverage, a premium reduction would increase tax revenues due to 
reduced employer contributions and employee pre-tax contributions made 
through a cafeteria plan. However, some employees might partially 
offset their increases in out-of-pocket payments through increased pre-
tax contributions to health flexible spending arrangements (FSAs) or 
HSAs. Those potential increases in pre-tax contributions to health FSAs 
and HSAs would reduce tax revenues. Nonetheless, to the extent that 
employers would have continued to offer a grandfathered group health 
plan without changes to the 2015 final rules, under these final rules, 
the Departments expect tax revenues may increase slightly on net as a 
result of potential premium reductions. Further, there would be 
additional revenue gains to the extent that higher out-of-pocket 
payments discourage employees from continuing participation in the 
employer's group health plan. This increase may be offset by a 
reduction in revenue, however, if a reduction in premiums encourages 
non-participant employees to obtain coverage.
b. Employees Who Would No Longer Have Been Covered by Grandfathered 
Group Health Plans or Coverage Without the Final Rules
    If the 2015 final rules were not amended, some employers might have 
chosen to change their insured grandfathered group health plans to 
self-insured, non-grandfathered group health plans, rather than 
continue to comply with the 2015 final rules, which would result in 
little, if any, revenue change. Thus, with respect to these employers, 
the adoption of the final rules will have little, if any, revenue 
effect.
    Alternatively, assuming the 2015 final rules were not amended, an 
employer might switch to a fully insured non-grandfathered non-HDHP 
group health plan. With respect to small employers, employees who would 
transfer to the non-grandfathered group health plan could improve the 
small group market risk pool or make it worse. An employer with a 
healthy population might be more likely to self-insure, whereas a small 
employer with a less healthy population might be more likely to join an 
insurance pool.
    One commenter stated that because the non-grandfathered small group 
market is subject to modified community rating and single risk pool 
requirements, making it easier for small-group health plans to preserve 
their grandfather status would encourage firms with younger or 
healthier employees to find ways to opt out of the non-grandfathered 
small group market, at the expense of other firms that then would face 
higher premiums. The commenter noted that because premiums and medical 
claims costs in the small group market are higher for plans that are 
subject to all PPACA market reforms than for plans that are not, and 
because PPACA's changes to plan standards in the small group market 
were more significant than in the large group market, employees at 
small businesses have more to lose when employers avoid most PPACA 
market reforms. The commenter suggested that further extending 
grandfather status would only contribute to market segmentation that 
harms the non-grandfathered small-group market, rather than channeling 
younger and healthier groups into the insurance markets that generally 
are subject to PPACA market reforms, which would serve to bolster 
stability in those markets.
    The Departments acknowledge that the existence of grandfathered 
group health plans potentially creates market segmentation in the small 
group market. However, to the extent such market segmentation exists, 
the Departments do not anticipate that the additional flexibilities 
provided in the final rules will increase segmentation since the final 
rules do not provide any mechanism for non-grandfathered plans to 
become grandfathered. Moreover, the Departments do not expect the 
number of plans that maintain grandfather status because of the final 
rules to be so significant as to exacerbate any market segmentation 
that may already exist.
    Although the type of benefits covered in new, non-grandfathered 
plans (whether self-insured or fully insured) would likely be broader 
in some ways, such as for preventive care, the share of costs covered 
by the plan would likely decrease due to higher cost-sharing. 
Presumably, if the 2015 final rules were not amended, most employers 
would not make the switch from a grandfathered group health plan to a 
non-grandfathered group health plan unless the overall cost of 
providing benefits would decrease, which would cause some revenue gain. 
(Again, though, the revenue gain could be partially offset by increases 
in the employees' pre-tax contributions to health FSAs or HSAs.) On the 
other hand, if the final rules enable an employer that otherwise might 
switch to a non-grandfathered group health plan to retain its 
grandfather plan, this revenue gain would not occur, resulting in a 
revenue loss compared to the status quo under the 2015 final rules.
    Without the change to the 2015 final rules, some employers might 
replace their grandfathered group health plan with an individual 
coverage health reimbursement arrangement (individual coverage HRA). If 
the employer contributes a similar dollar amount to

[[Page 81112]]

the individual coverage HRA as it currently does to the grandfathered 
group health plan, the employees' tax exclusion would be at least 
roughly the same as for the grandfathered group health plan. Moreover, 
the employees offered the individual coverage HRA would be as likely to 
be ``firewalled'' from obtaining a premium tax credit as if they had 
continued to participate in the grandfathered group health plan. Thus, 
under this scenario, there would be very little revenue effect from the 
final rules.
c. Termination of Employer-Sponsored Coverage
    If the 2015 final rules were not amended, some employers might drop 
grandfathered group health coverage altogether and opt instead to make 
an employer shared responsibility payment, if required under section 
4980H of the Code, which may result in an increase in federal revenue. 
In this case, all affected employees would qualify for a special 
enrollment period to enroll in other group coverage, if available, or 
individual health insurance coverage on or off the Exchange. Many of 
those employees with household incomes between 100-400 percent of the 
federal poverty level might qualify for financial assistance to help 
pay for their Exchange coverage and related healthcare expenses, which 
would increase federal outlays, as discussed further later in this 
section. Others might have household incomes too high to be eligible 
for a premium tax credit or might receive a smaller tax subsidy through 
the income-related premium tax credit than through an employer-
sponsored health insurance tax exclusion. Accordingly, if these 
employers continue their grandfathered group health plan under the 
final rules, there may be an associated revenue loss. Other employees 
could purchase individual health insurance coverage but receive a 
premium tax credit that is greater than the value of the tax exclusion 
for their current employer plans. For this population, the final rules 
may result in a revenue gain. However, the employees for which there 
would be a revenue gain are likely a small population for an employer 
that is currently offering a grandfathered group health plan.
    Despite the availability of a special enrollment period, some 
affected employees might forgo enrolling in alternative health coverage 
and become uninsured or might opt instead to purchase short-term, 
limited-duration insurance. In this case, these employees would no 
longer receive a tax exclusion for the grandfathered group health plan, 
which, along with an employer shared responsibility payment, if any, 
may result in an increase in federal tax revenue. However, if these 
employees were to remain covered under a grandfathered group health 
plan as a result of the final rule, there may be a loss in federal 
revenue for this group.
    Overall, there are a number of potential revenue effects of the 
final rules, some of which could offset each other. Additionally, there 
is a large degree of uncertainty, including uncertainty regarding how 
many group health plans would have continued as grandfathered plans 
absent the final rules and what alternatives would have been chosen by 
employers who would not have kept grandfathered group health plans 
absent the final rules, as well as how many grandfathered group health 
plans will make plan design changes as a result of the final rules. As 
a result, it is unclear whether these effects in the aggregate would 
result in a revenue gain or revenue loss. Because the employer market 
is so large, even a small percentage change to aggregate premiums can 
result in large revenue changes. Nevertheless, the Departments are of 
the view that overall net effects are likely to be relatively small.
Regulatory Review Costs
    Affected entities will need to understand the requirements of the 
final rules before they can avail themselves of any of the 
flexibilities in the final rules. Sponsors and issuers of grandfathered 
group health plan coverage will be responsible for ensuring compliance 
with the final rules should they seek to make changes to their 
grandfathered group health plans' cost-sharing requirements.
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret the final rules, the 
Departments seek to estimate the cost associated with regulatory 
review. Due to the uncertainty involved with accurately quantifying the 
number of entities that will review and interpret the final rules, the 
Departments assume that the total number of grandfathered group health 
plan coverage sponsors and issuers that will be able to avail 
themselves of the flexibilities provided by the final rules is a fair 
estimate of the number of entities affected. The Departments estimate 
414,288 grandfathered plan sponsors and issuers of grandfathered group 
health insurance coverage will incur burdens related to reviewing the 
final rules.
    The Departments acknowledge that this assumption may understate or 
overstate the costs of reviewing the final rules. It is possible that 
not all affected entities will review the final rules in detail and 
that others may seek the assistance of outside counsel to read and 
interpret the final rules. For example, firms providing or sponsoring a 
grandfathered group health plan may not read the final rules and might 
rely upon an issuer or a third-party administrator, if self-funded, to 
read and interpret the final rules. For these reasons, the Departments 
are of the view that the number of grandfathered group health plan 
coverage sponsors and issuers is a fair estimate of the number of 
reviewers of the final rules. The Departments sought, but did not 
receive, comments on the approach to estimating the number of affected 
entities that will review and interpret the final rules.
    Using the wage information from the Bureau of Labor and Statistics 
(BLS) for a Compensation and Benefits Manager (Code 11-3111), the 
Departments estimate that the cost of reviewing the final rules is 
$129.04 per hour, including overhead and fringe benefits.\32\ Assuming 
an average reading speed, the Departments estimate that it would take 
approximately 0.5 hour for the staff to review and interpret the final 
rules; therefore, the Departments estimate that the cost of reviewing 
and interpreting the final rules for each grandfathered group health 
plan coverage sponsor and issuer is approximately $64.52. Thus, the 
Departments estimate that the overall cost for the estimated 414,288 
grandfathered group health plan coverage sponsors and issuers will be 
$26,729,861.76 ($64.52 * 414,288 total number of estimated 
grandfathered plan sponsors and issuers).\33\
---------------------------------------------------------------------------

    \32\ Wage information is available at https://www.bls.gov/oes/current/oes_nat.htm. Hourly wage rate is determining by multiplying 
the mean hourly wage by 100 percent to account for overhead and 
fringe benefits. The mean hourly wage for a Compensation and Benefit 
Manager (Code 11-3111) is $64.52, when multiplied by 100 percent 
results in a total adjusted hourly wage of $129.04.
    \33\ The total number of grandfathered plan sponsors and issuers 
of grandfathered group health insurance coverage, discussed earlier 
in the preamble, was derived from the total number of ERISA covered 
plan sponsors multiplied by the percentage of entities offering 
grandfathered health plans (2.5 million * 0.16 = 400,000), the 
number of state and local governments multiplied by the percentage 
of entities offering grandfathered health plans (84,087 * 0.16 = 
13,454), and the 834 issuers offering at least one grandfathered 
health plan (400,000 + 13,454 + 843 = 414,288).
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D. Regulatory Alternatives Considered

    In developing the policies contained in the final rules, the 
Departments considered alternatives to the final rules. In the 
following paragraphs, the Departments discuss the key regulatory 
alternatives considered.

[[Page 81113]]

    The Departments considered whether to modify each of the six types 
of changes, measured from March 23, 2010, that cause a group health 
plan or group health insurance coverage to cease to be grandfathered. 
To provide more flexibility regarding changes to fixed cost-sharing 
requirements, the Departments considered revising the definition of 
maximum percentage increase to increase the allowed percentage points 
that are added to medical inflation. However, the Departments are of 
the view that the final rules allow for the desired flexibility, while 
better reflecting underlying costs for grandfathered group health plans 
and grandfathered group health insurance coverage. The Departments 
acknowledge that the premium adjustment percentage, which the 
Departments incorporate into the definition of maximum percentage 
increase, reflects the changes in premiums in both the individual and 
group market, and that individual market premiums have increased faster 
than premiums in the group market. Due to the comparative sizes of the 
individual and group markets, however, the historically faster growth 
in the individual market has had a minimal impact on the premium 
adjustment percentage index. Therefore, the Departments are of the view 
that the premium adjustment percentage is an appropriate measure to 
incorporate into the definition of maximum percentage increase.
    Another option the Departments considered was allowing a decrease 
in contribution rates by an employer or employee organization without 
triggering a loss of grandfather status. Under the 2015 final rules, an 
employer or employee organization cannot decrease contribution rates 
based on cost of coverage toward the cost of any tier of coverage for 
any class of similarly situated individuals by more than five 
percentage points below the contribution rate for the coverage period 
that included March 23, 2010 without losing grandfather status. The 
Departments considered permitting group health plans and group health 
insurance coverage with grandfather status to decrease the contribution 
rates by more than five percentage points. This change would increase 
employer flexibility, but the Departments were concerned that a 
decrease in the contribution rate could change the plan or coverage to 
such an extent that the plan or coverage could not reasonably be 
described as being the same plan or coverage that was offered on March 
23, 2010. As a result, this option was not included in the final rules.
    Another option the Departments considered was allowing a change to 
annual dollar limits for a group health plan or health insurance 
coverage without triggering a loss of grandfather status. Under the 
2015 final rules, a group health plan or group health insurance 
coverage that did not have an annual dollar limit on March 23, 2010, 
may not establish an annual dollar limit for any individual, whether 
provided in-network or out-of-network, without relinquishing 
grandfather status. If the plan or coverage had an annual dollar limit 
on March 23, 2010, it may not decrease the limit. Although for plan 
years beginning on or after January 1, 2014, group health plans and 
health insurance issuers generally may no longer impose annual or 
lifetime dollar limits on essential health benefits, permitting changes 
to annual dollar limits on benefits that are not essential health 
benefits may still represent a significant change to participants and 
beneficiaries who rely upon the benefits to which a limit is applied. 
Therefore, this option was not included in the final rules.
    The Departments considered options to offset cost-sharing 
requirement changes by allowing sponsors of grandfathered group health 
plans and issuers of grandfathered group health insurance coverage to 
increase different types of cost-sharing requirements as long as any 
increase is offset by lowering another cost-sharing requirement to 
preserve the plan's or coverage's actuarial value. As discussed in 
previous rulemaking, however, an actuarial equivalency standard would 
allow a plan or coverage to make fundamental changes to the benefit 
design and still retain grandfather status, potentially conflicting 
with the goal of allowing participants and beneficiaries to retain 
health plans they like.\34\ There would also be significant complexity 
involved in defining and determining actuarial value for these 
purposes, as well as significant burdens associated with administering 
and ensuring compliance with such rules. Therefore, the Departments did 
not include this option in the final rules.
---------------------------------------------------------------------------

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

    The Departments considered changing the date of measurement for 
calculating whether changes to group health plans or health insurance 
coverage will cause a loss of grandfather status. For example, instead 
of looking at the cumulative change from March 23, 2010, the rules 
could measure the annual increases, starting from the applicability 
date of the final rules. However, the Departments concluded that this 
option could limit flexibility for some employers. For example, some 
employers might want to keep the terms of the grandfathered group 
health plan the same for a few years and then make a more significant 
change later.
    The Departments also considered making changes to the 2015 final 
rules to encourage more cost-effective care. One option the Departments 
considered was allowing unlimited changes to cost-sharing for out-of-
network benefits. However, the Departments are concerned that unlimited 
discretion to change cost-sharing requirements for out-of-network 
benefits could result in changes to grandfathered group health plans or 
coverages so extensive that these plans or coverages could not 
reasonably be described as being the same plans or coverages that were 
offered on March 23, 2010. Additionally, the Departments decided that 
the change in the applicable index for medical inflation provides 
sufficient flexibility for fixed cost-sharing requirements. This option 
will give flexibility to grandfathered group health plans and 
grandfathered group health insurance coverage with respect to all 
fixed-amount cost-sharing requirements, including for out-of-network 
benefits.

E. Collection of Information Requirements

    The final rules do not impose new information collection 
requirements; that is, reporting, recordkeeping, or third-party 
disclosure requirements. Consequently, there is no need for OMB review 
under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501, et seq.). Though the final rules do not contain any new 
information collection requirements, the Departments are maintaining 
the current requirements that grandfathered plans maintain records 
documenting the terms of the plan in effect on March 23, 2010, include 
a statement in any summary of benefits that the plan or coverage 
believes it is grandfathered health plan coverage and that plans and 
coverages must provide contact information for participants to direct 
questions and complaints. Additionally, the Departments are maintaining 
the requirement that a grandfathered group health plan that is changing 
health insurance issuers must provide the succeeding health insurance 
issuer documentation of plan terms under the prior health insurance 
coverage sufficient to determine whether the standards of paragraph 26 
CFR 54.9815-1251(g)(1), 29 CFR 2590.715-1251(g)(1) and 45 CFR 
147.140(g)(1) are met, and

[[Page 81114]]

that insured group health plans (or multiemployer plans) that are 
grandfathered plans are required to notify the issuer (or multiemployer 
plan) if the contribution rate changes at any point during the plan 
year. The Departments do not anticipate that the final rules will make 
a substantive or material modification to the collections currently 
approved under the collection of information OMB control number 0938-
1093 (CMS-10325), OMB control number 1210-0140 (DOL), and OMB control 
number 1545-2178 (Department of the Treasury).

F. Regulatory Flexibility Act

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

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

    The Departments are of the view that health insurance issuers would 
be classified under the North American Industry Classification System 
code 524114 (Direct Health and Medical Insurance Carriers). According 
to SBA size standards, entities with average annual receipts of $41.5 
million or less would be considered small entities for these North 
American Industry Classification System codes. Issuers could possibly 
be classified in 621491 (Health Maintenance Organization (HMO) Medical 
Centers) and, if this is the case, the SBA size standard would be $35 
million or less.\35\ Few, if any, insurance companies underwriting 
comprehensive health insurance policies (in contrast, for example, to 
travel insurance policies or dental discount policies) fall below these 
size thresholds. Based on data from MLR annual report submissions for 
the 2019 MLR reporting year, approximately 74 out of 483 issuers of 
health insurance coverage nationwide had total premium revenue of $41.5 
million or less.\36\ This estimate may overstate the actual number of 
small health insurance companies that may be affected, since over 68 
percent of these small companies belong to larger holding groups. Most, 
if not all, of these small companies are likely to have non-health 
lines of business that will result in their revenues exceeding $41.5 
million, and it is likely not all of these companies offer 
grandfathered group health plans or grandfathered group health 
coverage. The Departments do not expect any of these 74 potentially 
small entities to experience a change in revenues of more than three to 
five percent as a result of the final rules. Therefore, the Departments 
do not expect the provisions of the final rules to affect a substantial 
number of small entities. Due to the lack of knowledge regarding what 
small entities may decide to do with regard to the provisions in the 
final rules, the Departments are not able to precisely ascertain the 
economic effects on small entities. However, the Departments are of the 
view that the flexibilities provided for in the final rules will result 
in overall benefits for small entities by allowing them to make changes 
to certain cost-sharing requirements within limits and maintain their 
current grandfathered group health plans. The Departments sought, but 
did not receive, comments on ways that the 2020 proposed rules may 
impose additional costs and burdens on small entities.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \37\ The DOL consulted with the SBA in making this determination 
as required by 5 U.S.C. 603(c) and 13 CFR 121.903(c).
---------------------------------------------------------------------------

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

    Pursuant to section 7805(f) of the Code, the proposed rules that 
preceded these final rules were submitted to the Chief Counsel for 
Advocacy of the SBA for comment on their impact on small business, and 
no comments were received.

I. Effects on Small Rural Hospitals

    Section 1102(b) of the SSA (42 U.S.C. 1302) requires agencies to 
prepare an RIA if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions

[[Page 81115]]

of section 604 of the RFA. For purposes of section 1102(b) of the SSA, 
HHS defines a small rural hospital as a hospital that is located 
outside of a metropolitan statistical area and has fewer than 100 beds. 
The final rules would not materially affect small rural hospitals. 
Therefore, while the final rules are not subject to section 1102(b) of 
the SSA, the Departments have determined that the final rules will not 
have a significant impact on the operations of a substantial number of 
small rural hospitals.

J. Unfunded Mandates

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

K. Federalism

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

L. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017, and 
requires that the costs associated with significant new regulations 
``shall, to the extent permitted by law, be offset by the elimination 
of existing costs associated with at least two prior regulations.'' It 
has been determined that the final rules are an action that primarily 
results in transfers and does not impose more than de minimis costs as 
described above and thus is not a regulatory or deregulatory action for 
the purposes of Executive Order 13771.

V. Statutory Authority

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

List of Subjects

26 CFR Part 54

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

[[Page 81116]]

29 CFR Part 2590

    Employee benefit plans, Health care, Health insurance, Penalties, 
Pensions, Privacy, Reporting and recordkeeping requirements.

45 CFR Part 147

    Age discrimination, Citizenship and naturalization, Civil rights, 
Health care, Health insurance, Individuals with disabilities, 
Intergovernmental relations, Reporting and recordkeeping requirements, 
Sex discrimination.

Sunita Lough,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.

    Approved: December 7, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).

    Dated: December 9, 2020.
Jeanne Klinefelter Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration, 
U.S. Department of Labor.

    Dated: November 30, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: December 2, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Amendments to the Regulations

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

PART 54--PENSION EXCISE TAXES

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

    Authority:  26 U.S.C. 7805, unless otherwise noted.
* * * * *

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


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

* * * * *
    (g) * * *
    (1) * * * Subject to paragraphs (g)(2) and (3) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan. * * *
* * * * *
    (iii) Increase in a fixed-amount cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
pocket limit), determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be 
a grandfathered health plan, if the total percentage increase in the 
cost-sharing requirement measured from March 23, 2010 exceeds the 
maximum percentage increase (as defined in paragraph (g)(4)(ii) of this 
section).
    (iv) * * *
    (A) An amount equal to $5 increased by medical inflation, as 
defined in paragraph (g)(4)(i) of this section (that is, $5 times 
medical inflation, plus $5); or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(4)(ii) of this section), determined by expressing the total 
increase in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution rate based on cost of coverage (as defined 
in paragraph (g)(4)(iii)(A) of this section) towards the cost of any 
tier of coverage for any class of similarly situated individuals (as 
described in Sec.  54.9802(d)) by more than 5 percentage points below 
the contribution rate for the coverage period that includes March 23, 
2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health 
plan if the employer or employee organization decreases its 
contribution rate based on a formula (as defined in paragraph 
(g)(4)(iii)(B) of this section) towards the cost of any tier of 
coverage for any class of similarly situated individuals (as described 
in Sec.  54.9802(d)) by more than 5 percent below the contribution rate 
for the coverage period that includes March 23, 2010.
* * * * *
    (3) Special rule for certain grandfathered high deductible health 
plans. With respect to a grandfathered group health plan or group 
health insurance coverage that is a high deductible health plan within 
the meaning of section 223(c)(2), increases to fixed-amount cost-
sharing requirements made effective on or after June 15, 2021 that 
otherwise would cause a loss of grandfather status will not cause the 
plan or coverage to relinquish its grandfather status, but only to the 
extent such increases are necessary to maintain its status as a high 
deductible health plan under section 223(c)(2)(A).
    (4) * * *
    (i) Medical inflation defined. For purposes of this paragraph (g), 
the term medical inflation means the increase since March 2010 in the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers (CPI-U) (unadjusted) published by the Department of 
Labor using the 1982-1984 base of 100. For purposes of this paragraph 
(g)(4)(i), the increase in the overall medical care component is 
computed by subtracting 387.142 (the overall medical care component of 
the CPI-U (unadjusted) published by the Department of Labor for March 
2010, using the 1982-1984 base of 100) from the index amount for any 
month in the 12 months before the new change is to take effect and then 
dividing that amount by 387.142.
    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means:
    (A) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after March 23, 2010, 
and before June 15, 2021, medical inflation (as defined in paragraph 
(g)(4)(i) of this section), expressed as a percentage, plus 15 
percentage points; and
    (B) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after June 15, 2021, the 
greater of:
    (1) Medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points; or
    (2) The portion of the premium adjustment percentage, as defined in 
45 CFR 156.130(e), that reflects the relative

[[Page 81117]]

change between 2013 and the calendar year prior to the effective date 
of the increase (that is, the premium adjustment percentage minus 1), 
expressed as a percentage, plus 15 percentage points.
* * * * *
    (5) * * *
    Example 3. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment requirement of $30 per office visit for 
specialists. The plan is subsequently amended to increase the copayment 
requirement to $40, effective before June 15, 2021. Within the 12-month 
period before the $40 copayment takes effect, the greatest value of the 
overall medical care component of the CPI-U (unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40-30 = 10; 10 / 
30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(4)(i) of this section) from March 2010 is 0.2269 (475-
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3 of this paragraph 
(g)(5), except the grandfathered group health plan subsequently 
increases the $40 copayment requirement to $45 for a later plan year, 
effective before June 15, 2021. Within the 12-month period before the 
$45 copayment takes effect, the greatest value of the overall medical 
care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(4)(i) of this 
section) from March 2010 is 0.2527 (485-387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be 
a grandfathered health plan under paragraph (g)(1)(iv) of this section 
is the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 (5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. Same facts as Example 4 of this paragraph 
(g)(5), except the grandfathered group health plan increases the 
copayment requirement to $45, effective after June 15, 2021. The 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) in the preceding 12-month period is still 485. In the 
calendar year that includes the effective date of the increase, the 
applicable portion of the premium adjustment percentage is 36%.
    (ii) Conclusion. In this Example 5, the grandfathered health plan 
may increase the copayment by the greater of: Medical inflation, 
expressed as a percentage, plus 15 percentage points; or the applicable 
portion of the premium adjustment percentage for the calendar year that 
includes the effective date of the increase, plus 15 percentage points. 
The latter amount is greater because it results in a 51% maximum 
percentage increase (36% + 15% = 51%) and, as demonstrated in Example 4 
of this paragraph (g)(5), determining the maximum percentage increase 
using medical inflation yields a result of 40.27%. The increase in the 
copayment, expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 
0.5; 0.5 = 50%). Because the 50% increase in the copayment is less than 
the 51% maximum percentage increase, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 6. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment of $10 per office visit for primary care 
providers. The plan is subsequently amended to increase the copayment 
requirement to $15, effective before June 15, 2021. Within the 12-month 
period before the $15 copayment takes effect, the greatest value of the 
overall medical care component of the CPI-U (unadjusted) is 415.
    (ii) Conclusion. In this Example 6, the increase in the copayment, 
expressed as a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). 
Medical inflation (as defined in paragraph (g)(4)(i) of this section) 
from March 2010 is 0.0720 (415.0-387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a group plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20%), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 would not 
cause the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) of this section, which would permit an increase in 
the copayment of up to $5.36.
    Example 7. (i) Facts. Same facts as Example 6 of this paragraph 
(g)(5), except on March 23, 2010, the grandfathered health plan has no 
copayment ($0) for office visits for primary care providers. The plan 
is subsequently, amended to increase the copayment requirement to $5, 
effective before June 15, 2021.
    (ii) Conclusion. In this Example 7, medical inflation (as defined 
in paragraph (g)(4)(i) of this section) from March 2010 is 0.0720 
(415.0-387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that 
would cause a plan to cease to be a grandfathered health plan under 
paragraph (g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36; 
$0.36 + $5 = $5.36). The $5 increase in copayment in this Example 7 is 
less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of 
this section of $5.36. Thus, the $5 increase in copayment does not 
cause the plan to cease to be a grandfathered health plan.
    Example 8. (i) Facts. On March 23, 2010, a self-insured group 
health plan provides two tiers of coverage--self-only and family. The 
employer contributes 80% of the total cost of coverage for self-only 
and 60% of the total cost of coverage for family. Subsequently, the 
employer reduces the contribution to 50% for family coverage, but keeps 
the same contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 8, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. 
The fact that the contribution rate for self-only coverage remains the 
same does not change the result.
    Example 9. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5,000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1,000 for self-only 
coverage and $4,000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for 
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage. 
For a subsequent plan year, the COBRA premium is $6,000 for self-only 
coverage and $15,000 for family coverage. The employee contributions 
for that plan year are $1,200 for self-only coverage and $5,000 for 
family coverage. Thus, the contribution rate based on cost of coverage 
is 80% ((6,000-1,200)/6,000) for self-only

[[Page 81118]]

coverage and 67% ((15,000-5,000)/15,000) for family coverage.
    (ii) Conclusion. In this Example 9, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125.
    Example 10. (i) Facts. A group health plan not maintained pursuant 
to a collective bargaining agreement offers three benefit packages on 
March 23, 2010. Option F is a self-insured option. Options G and H are 
insured options. Beginning July 1, 2013, the plan increases coinsurance 
under Option H from 10% to 15%.
    (ii) Conclusion. In this Example 10, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).
    Example 11. (i) Facts. A group health plan that is a grandfathered 
health plan and also a high deductible health plan within the meaning 
of section 223(c)(2) had a $2,400 deductible for family coverage on 
March 23, 2010. The plan is subsequently amended after June 15, 2021 to 
increase the deductible limit by the amount that is necessary to comply 
with the requirements for a plan to qualify as a high deductible health 
plan under section 223(c)(2)(A), but that exceeds the maximum 
percentage increase.
    (ii) Conclusion. In this Example 11, the increase in the deductible 
at that time does not cause the plan to cease to be a grandfathered 
health plan because the increase was necessary for the plan to continue 
to satisfy the definition of a high deductible health plan under 
section 223(c)(2)(A).

DEPARTMENT OF LABOR

Employee Benefits Security Administration

    Accordingly, the Department of Labor amends 29 CFR part 2590 as 
follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

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

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


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


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

* * * * *
    (g) * * *
    (1) * * * Subject to paragraphs (g)(2) and (3) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan. * * *
* * * * *
    (iii) Increase in a fixed-amount cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
pocket limit), determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be 
a grandfathered health plan, if the total percentage increase in the 
cost-sharing requirement measured from March 23, 2010 exceeds the 
maximum percentage increase (as defined in paragraph (g)(4)(ii) of this 
section).
    (iv) * * *
    (A) An amount equal to $5 increased by medical inflation, as 
defined in paragraph (g)(4)(i) of this section (that is, $5 times 
medical inflation, plus $5); or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(4)(ii) of this section), determined by expressing the total 
increase in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution rate based on cost of coverage (as defined 
in paragraph (g)(4)(iii)(A) of this section) towards the cost of any 
tier of coverage for any class of similarly situated individuals (as 
described in Sec.  2590.702(d)) by more than 5 percentage points below 
the contribution rate for the coverage period that includes March 23, 
2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health 
plan if the employer or employee organization decreases its 
contribution rate based on a formula (as defined in paragraph 
(g)(4)(iii)(B) of this section) towards the cost of any tier of 
coverage for any class of similarly situated individuals (as described 
in Sec.  2590.702(d)) by more than 5 percent below the contribution 
rate for the coverage period that includes March 23, 2010.
* * * * *
    (3) Special rule for certain grandfathered high deductible health 
plans. With respect to a grandfathered group health plan or group 
health insurance coverage that is a high deductible health plan within 
the meaning of section 223(c)(2) of the Internal Revenue Code, 
increases to fixed-amount cost-sharing requirements made effective on 
or after June 15, 2021 that otherwise would cause a loss of grandfather 
status will not cause the plan or coverage to relinquish its 
grandfather status, but only to the extent such increases are necessary 
to maintain its status as a high deductible health plan under section 
223(c)(2)(A) of the Internal Revenue Code.
    (4) * * *
    (i) Medical inflation defined. For purposes of this paragraph (g), 
the term medical inflation means the increase since March 2010 in the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers (CPI-U) (unadjusted) published by the Department of 
Labor using the 1982-1984 base of 100. For purposes of this paragraph 
(g)(4)(i), the increase in the overall medical care component is 
computed by subtracting 387.142 (the overall medical care component of 
the CPI-U (unadjusted) published by the Department of Labor for March 
2010, using the 1982-1984 base of 100) from the index amount for any 
month in the 12 months before the new change is to take effect and then 
dividing that amount by 387.142.

[[Page 81119]]

    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means:
    (A) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after March 23, 2010, 
and before June 15, 2021, medical inflation (as defined in paragraph 
(g)(4)(i) of this section), expressed as a percentage, plus 15 
percentage points; and
    (B) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after June 15, 2021, the 
greater of:
    (1) Medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points; or
    (2) The portion of the premium adjustment percentage, as defined in 
45 CFR 156.130(e), that reflects the relative change between 2013 and 
the calendar year prior to the effective date of the increase (that is, 
the premium adjustment percentage minus 1), expressed as a percentage, 
plus 15 percentage points.
* * * * *
    (5) * * *
    Example 3. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment requirement of $30 per office visit for 
specialists. The plan is subsequently amended to increase the copayment 
requirement to $40, effective before June 15, 2021. Within the 12-month 
period before the $40 copayment takes effect, the greatest value of the 
overall medical care component of the CPI-U (unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40-30 = 10; 10 / 
30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(4)(i) of this section) from March 2010 is 0.2269 (475-
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3 of this paragraph 
(g)(5), except the grandfathered group health plan subsequently 
increases the $40 copayment requirement to $45 for a later plan year, 
effective before June 15, 2021. Within the 12-month period before the 
$45 copayment takes effect, the greatest value of the overall medical 
care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(4)(i) of this 
section) from March 2010 is 0.2527 (485-387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be 
a grandfathered health plan under paragraph (g)(1)(iv) of this section 
is the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 (5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. Same facts as Example 4 of this paragraph 
(g)(5), except the grandfathered group health plan increases the 
copayment requirement to $45, effective after June 15, 2021. The 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) in the preceding 12-month period is still 485. In the 
calendar year that includes the effective date of the increase, the 
applicable portion of the premium adjustment percentage is 36%.
    (ii) Conclusion. In this Example 5, the grandfathered health plan 
may increase the copayment by the greater of: Medical inflation, 
expressed as a percentage, plus 15 percentage points; or the applicable 
portion of the premium adjustment percentage for the calendar year that 
includes the effective date of the increase, plus 15 percentage points. 
The latter amount is greater because it results in a 51% maximum 
percentage increase (36% + 15% = 51%) and, as demonstrated in Example 4 
of this paragraph (g)(5), determining the maximum percentage increase 
using medical inflation yields a result of 40.27%. The increase in the 
copayment, expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 
0.5; 0.5 = 50%). Because the 50% increase in the copayment is less than 
the 51% maximum percentage increase, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 6. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment of $10 per office visit for primary care 
providers. The plan is subsequently amended to increase the copayment 
requirement to $15, effective before June 15, 2021. Within the 12-month 
period before the $15 copayment takes effect, the greatest value of the 
overall medical care component of the CPI-U (unadjusted) is 415.
    (ii) Conclusion. In this Example 6, the increase in the copayment, 
expressed as a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). 
Medical inflation (as defined in paragraph (g)(4)(i) of this section) 
from March 2010 is 0.0720 (415.0-387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a group plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20%), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 would not 
cause the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) of this section, which would permit an increase in 
the copayment of up to $5.36.
    Example 7. (i) Facts. Same facts as Example 6 of this paragraph 
(g)(5), except on March 23, 2010, the grandfathered health plan has no 
copayment ($0) for office visits for primary care providers. The plan 
is subsequently, amended to increase the copayment requirement to $5, 
effective before June 15, 2021.
    (ii) Conclusion. In this Example 7, medical inflation (as defined 
in paragraph (g)(4)(i) of this section) from March 2010 is 0.0720 
(415.0-387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that 
would cause a plan to cease to be a grandfathered health plan under 
paragraph (g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36; 
$0.36 + $5 = $5.36). The $5 increase in copayment in this Example 7 is 
less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of 
this section of $5.36. Thus, the $5 increase in copayment does not 
cause the plan to cease to be a grandfathered health plan.
    Example 8. (i) Facts. On March 23, 2010, a self-insured group 
health plan provides two tiers of coverage--self-only and family. The 
employer contributes 80% of the total cost of coverage for self-only 
and 60% of the total cost of coverage for family. Subsequently, the 
employer reduces the contribution to 50% for family coverage, but keeps 
the same contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 8, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. 
The fact that the contribution rate for self-only coverage remains the 
same does not change the result.

[[Page 81120]]

    Example 9. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5,000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1,000 for self-only 
coverage and $4,000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for 
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage. 
For a subsequent plan year, the COBRA premium is $6,000 for self-only 
coverage and $15,000 for family coverage. The employee contributions 
for that plan year are $1,200 for self-only coverage and $5,000 for 
family coverage. Thus, the contribution rate based on cost of coverage 
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
    (ii) Conclusion. In this Example 9, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125 of the Internal Revenue Code.
    Example 10. (i) Facts. A group health plan not maintained pursuant 
to a collective bargaining agreement offers three benefit packages on 
March 23, 2010. Option F is a self-insured option. Options G and H are 
insured options. Beginning July 1, 2013, the plan increases coinsurance 
under Option H from 10% to 15%.
    (ii) Conclusion. In this Example 10, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).
    Example 11. (i) Facts. A group health plan that is a grandfathered 
health plan and also a high deductible health plan within the meaning 
of section 223(c)(2) of the Internal Revenue Code had a $2,400 
deductible for family coverage on March 23, 2010. The plan is 
subsequently amended after June 15, 2021 to increase the deductible 
limit by the amount that is necessary to comply with the requirements 
for a plan to qualify as a high deductible health plan under section 
223(c)(2)(A) of the Internal Revenue Code, but that exceeds the maximum 
percentage increase.
    (ii) Conclusion. In this Example 11, the increase in the deductible 
at that time does not cause the plan to cease to be a grandfathered 
health plan because the increase was necessary for the plan to continue 
to satisfy the definition of a high deductible health plan under 
section 223(c)(2)(A) of the Internal Revenue Code.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

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

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

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

    Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92, as amended, and section 3203, Pub. L. 116-136, 134 Stat. 
281.


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


Sec.  147.140   Preservation of right to maintain existing coverage.

* * * * *
    (g) * * *
    (1) * * * Subject to paragraphs (g)(2) and (3) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan. * * *
* * * * *
    (iii) Increase in a fixed-amount cost-sharing requirement other 
than a copayment. Any increase in a fixed-amount cost-sharing 
requirement other than a copayment (for example, deductible or out-of-
pocket limit), determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be 
a grandfathered health plan, if the total percentage increase in the 
cost-sharing requirement measured from March 23, 2010 exceeds the 
maximum percentage increase (as defined in paragraph (g)(4)(ii) of this 
section).
    (iv) * * *
    (A) An amount equal to $5 increased by medical inflation, as 
defined in paragraph (g)(4)(i) of this section (that is, $5 times 
medical inflation, plus $5); or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(4)(ii) of this section), determined by expressing the total 
increase in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution rate based on cost of coverage (as defined 
in paragraph (g)(4)(iii)(A) of this section) towards the cost of any 
tier of coverage for any class of similarly situated individuals (as 
described in Sec.  146.121(d) of this subchapter) by more than 5 
percentage points below the contribution rate for the coverage period 
that includes March 23, 2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health 
plan if the employer or employee organization decreases its 
contribution rate based on a formula (as defined in paragraph 
(g)(4)(iii)(B) of this section) towards the cost of any tier of 
coverage for any class of similarly situated individuals (as described 
in Sec.  146.121(d) of this subchapter) by more than 5 percent below 
the contribution rate for the coverage period that includes March 23, 
2010.
* * * * *
    (3) Special rule for certain grandfathered high deductible health 
plans. With respect to a grandfathered group health plan or group 
health insurance coverage that is a high deductible health plan within 
the meaning of section 223(c)(2) of the Internal Revenue Code, 
increases to fixed-amount cost-sharing requirements made effective on 
or after June 15, 2021 that otherwise would cause a loss of grandfather 
status will not cause the plan or coverage to relinquish its 
grandfather status, but only to the extent such increases are necessary 
to maintain its status as a high deductible health plan under section 
223(c)(2)(A) of the Internal Revenue Code.
    (4) * * *

[[Page 81121]]

    (i) Medical inflation defined. For purposes of this paragraph (g), 
the term medical inflation means the increase since March 2010 in the 
overall medical care component of the Consumer Price Index for All 
Urban Consumers (CPI-U) (unadjusted) published by the Department of 
Labor using the 1982-1984 base of 100. For purposes of this paragraph 
(g)(4)(i), the increase in the overall medical care component is 
computed by subtracting 387.142 (the overall medical care component of 
the CPI-U (unadjusted) published by the Department of Labor for March 
2010, using the 1982-1984 base of 100) from the index amount for any 
month in the 12 months before the new change is to take effect and then 
dividing that amount by 387.142.
    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means:
    (A) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after March 23, 2010, 
and before June 15, 2021, medical inflation (as defined in paragraph 
(g)(4)(i) of this section), expressed as a percentage, plus 15 
percentage points;
    (B) With respect to increases for a group health plan and group 
health insurance coverage made effective on or after June 15, 2021, the 
greater of:
    (1) Medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points; or
    (2) The portion of the premium adjustment percentage, as defined in 
Sec.  156.130(e) of this subchapter, that reflects the relative change 
between 2013 and the calendar year prior to the effective date of the 
increase (that is, the premium adjustment percentage minus 1), 
expressed as a percentage, plus 15 percentage points; and
    (C) With respect to increases for individual health insurance 
coverage, medical inflation (as defined in paragraph (g)(4)(i) of this 
section), expressed as a percentage, plus 15 percentage points.
* * * * *
    (5) * * *
    Example 3. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment requirement of $30 per office visit for 
specialists. The plan is subsequently amended to increase the copayment 
requirement to $40, effective before June 15, 2021. Within the 12-month 
period before the $40 copayment takes effect, the greatest value of the 
overall medical care component of the CPI-U (unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40-30 = 10; 10 / 
30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(4)(i) of this section) from March 2010 is 0.2269 (475-
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3 of this paragraph 
(g)(5), except the grandfathered group health plan subsequently 
increases the $40 copayment requirement to $45 for a later plan year, 
effective before June 15, 2021. Within the 12-month period before the 
$45 copayment takes effect, the greatest value of the overall medical 
care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(4)(i) of this 
section) from March 2010 is 0.2527 (485-387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be 
a grandfathered health plan under paragraph (g)(1)(iv) of this section 
is the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 (5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. Same facts as Example 4 of this paragraph 
(g)(5), except the grandfathered group health plan increases the 
copayment requirement to $45, effective after June 15, 2021. The 
greatest value of the overall medical care component of the CPI-U 
(unadjusted) in the preceding 12-month period is still 485. In the 
calendar year that includes the effective date of the increase, the 
applicable portion of the premium adjustment percentage is 36%.
    (ii) Conclusion. In this Example 5, the grandfathered health plan 
may increase the copayment by the greater of: Medical inflation, 
expressed as a percentage, plus 15 percentage points; or the applicable 
portion of the premium adjustment percentage for the calendar year that 
includes the effective date of the increase, plus 15 percentage points. 
The latter amount is greater because it results in a 51% maximum 
percentage increase (36% + 15% = 51%) and, as demonstrated in Example 4 
of this paragraph (g)(5), determining the maximum percentage increase 
using medical inflation yields a result of 40.27%. The increase in the 
copayment, expressed as a percentage, is 50% (45-30 = 15; 15 / 30 = 
0.5; 0.5 = 50%). Because the 50% increase in the copayment is less than 
the 51% maximum percentage increase, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 6. (i) Facts. On March 23, 2010, a grandfathered group 
health plan has a copayment of $10 per office visit for primary care 
providers. The plan is subsequently amended to increase the copayment 
requirement to $15, effective before June 15, 2021. Within the 12-month 
period before the $15 copayment takes effect, the greatest value of the 
overall medical care component of the CPI-U (unadjusted) is 415.
    (ii) Conclusion. In this Example 6, the increase in the copayment, 
expressed as a percentage, is 50% (15-10 = 5; 5 / 10 = 0.5; 0.5 = 50%). 
Medical inflation (as defined in paragraph (g)(4)(i) of this section) 
from March 2010 is 0.0720 (415.0-387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a group plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20%), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 would not 
cause the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) of this section, which would permit an increase in 
the copayment of up to $5.36.
    Example 7. (i) Facts. Same facts as Example 6 of this paragraph 
(g)(5), except on March 23, 2010, the grandfathered health plan has no 
copayment ($0) for office visits for primary care providers. The plan 
is subsequently, amended to increase the copayment requirement to $5, 
effective before June 15, 2021.
    (ii) Conclusion. In this Example 7, medical inflation (as defined 
in paragraph (g)(4)(i) of this section) from March 2010 is 0.0720 
(415.0-387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that 
would cause a plan to cease to be a grandfathered health plan under 
paragraph (g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36;

[[Page 81122]]

$0.36 + $5 = $5.36). The $5 increase in copayment in this Example 7 is 
less than the amount calculated pursuant to paragraph (g)(1)(iv)(A) of 
this section of $5.36. Thus, the $5 increase in copayment does not 
cause the plan to cease to be a grandfathered health plan.
    Example 8. (i) Facts. On March 23, 2010, a self-insured group 
health plan provides two tiers of coverage--self-only and family. The 
employer contributes 80% of the total cost of coverage for self-only 
and 60% of the total cost of coverage for family. Subsequently, the 
employer reduces the contribution to 50% for family coverage, but keeps 
the same contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 8, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. 
The fact that the contribution rate for self-only coverage remains the 
same does not change the result.
    Example 9. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5,000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1,000 for self-only 
coverage and $4,000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5,000-1,000)/5,000) for 
self-only coverage and 67% ((12,000-4,000)/12,000) for family coverage. 
For a subsequent plan year, the COBRA premium is $6,000 for self-only 
coverage and $15,000 for family coverage. The employee contributions 
for that plan year are $1,200 for self-only coverage and $5,000 for 
family coverage. Thus, the contribution rate based on cost of coverage 
is 80% ((6,000-1,200)/6,000) for self-only coverage and 67% ((15,000-
5,000)/15,000) for family coverage.
    (ii) Conclusion. In this Example 9, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125 of the Internal Revenue Code.
    Example 10. (i) Facts. A group health plan not maintained pursuant 
to a collective bargaining agreement offers three benefit packages on 
March 23, 2010. Option F is a self-insured option. Options G and H are 
insured options. Beginning July 1, 2013, the plan increases coinsurance 
under Option H from 10% to 15%.
    (ii) Conclusion. In this Example 10, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).
    Example 11. (i) Facts. A group health plan that is a grandfathered 
health plan and also a high deductible health plan within the meaning 
of section 223(c)(2) of the Internal Revenue Code had a $2,400 
deductible for family coverage on March 23, 2010. The plan is 
subsequently amended after June 15, 2021 to increase the deductible 
limit by the amount that is necessary to comply with the requirements 
for a plan to qualify as a high deductible health plan under section 
223(c)(2)(A) of the Internal Revenue Code, but that exceeds the maximum 
percentage increase.
    (ii) Conclusion. In this Example 11, the increase in the deductible 
at that time does not cause the plan to cease to be a grandfathered 
health plan because the increase was necessary for the plan to continue 
to satisfy the definition of a high deductible health plan under 
section 223(c)(2)(A) of the Internal Revenue Code.

[FR Doc. 2020-27498 Filed 12-11-20; 8:45 am]
BILLING CODE P