August 16, 2010

Office of Consumer Information and Insurance Oversight

Department of Health and Human Services

Room 445-G Hubert H. Humphrey Building

200 Independence Ave., SW

Washington, D.C. 20201

Re: OCIIO-991-IFC, The Interim Final Rules for Group Health Plans and Health 

Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient 

Protection and Affordable Care Act

These comments are submitted for the record to the Office of Consumer Information and 

Insurance Oversight (OCIIO) and other associated agencies on behalf of the Small Business 

Coalition for Affordable Healthcare (the Coalition) Relating to Status as a Grandfathered Health 

Plan Under the Patient Protection and Affordable Care Act (PPACA) published in the June 17, 

2010, edition of the Federal Register. 

Representing the country's largest, oldest and most respected small business associations, the 

Small Business Coalition for Affordable Healthcare has spent more than a decade working to

increase access and affordability of private health insurance. The coalition’s membership 

includes small business organizations in the agricultural, construction, food service, floral, 

wholesaler, retail, rental, entertainment and houseware communities. As the nation’s leading 

small business coalition, our members actively participated in the healthcare debate and 

advocated for solutions that would increase choice, enhance competition for private insurance 

and that would increase the overall affordability of health insurance for America’s job creators: 

small business. 

Summary

The Coalition is concerned that the Interim Final Rules are based on a misguided approach to 

interpreting the legislative language and purpose of the PPACA. 

1. Congress conferred grandfathered health plan status on certain plans by statute, including 

insured and self-insured employer-sponsored plans providing employee coverage on the date of 

enactment. Grandfathered status increases a plan’s chances of survival, especially through 2014, 

so that if the consumer likes the plan, the consumer can keep it. The Interim Final Rules are 

based on an assumption that Congress intended the agencies to decide whether and under what 
2

circumstances a plan meeting the statutory test should be stripped of its grandfathered status, 

thereby exposing it to a greater risk of extinction. The agencies have not identified any statutory 

language to support this assumption. Moreover, the Coalition believes that the agencies’ 

assumption is inconsistent with a straightforward reading of Section 1251 of the Act, which 

certainly does not appear to give anyone the authority to take statutory status as a grandfathered 

health plan away after the fact. 

2. Moreover, the Interim Final Rules force employers to choose between the loss of statutorilyconferred grandfathered status or shouldering heavy regulatory burdens that are not even 

mentioned in the Act and which have no apparent connection with its purpose. The agencies do 

not identify any language in the statute justifying this regulatory approach. The agencies’ 

decision to adopt this approach seems to be based on a belief that Congress intended the 

Executive Branch to limit consumers’ freedom to keep the plans they liked. The agencies do not 

identify any basis for this belief in the language of the statute. To the contrary, the Preamble to 

the Interim Final Rules asserts that Congress left it to the Executive Branch to strike a “balance” 

between Congress’s stated objectives and certain otherwise unidentified “policy goals.” In the 

Coalition’s view, the Agencies’ belief in this regard is both mistaken and unsustainable. Section 

1251 of the Act confers grandfathered status on employer-sponsored group health plans with 

coverage in place on March 23, 2010, in order to protect consumer choice, including the choice 

to keep coverage that the consumer likes. In effect, the Preamble insinuates that the promise of 

consumer choice was little more than a smoke screen to secure passage of the Act and was never 

intended to be taken at face value, because Congress intended the Executive Branch to undercut 

that promise through post-enactment regulatory “balancing” that would discourage the continued 

existence of grandfathered plans. 

3. Many provisions of the Interim Final Rules also run counter to the objectives of the PPACA. 

For example, they include regulations under which grandfathered health plan status is 

automatically and permanently lost because of a single, modest change in plan design, even if the 

change is necessary to preserve the plan’s continued existence. The likely consequence of these 

rules will be to leave more Americans uninsured, especially during the run up to 2014—the very

opposite effect from what the PPACA was intended to accomplish. Judging from the Preamble, 

the agencies apparently have chosen to believe that consumers do not make the best coverage 

choices, and therefore the agencies feel justified in issuing regulations promoting or hastening 

the extinction of grandfathered plans to “protect” consumers from being offered the opportunity 

to choose their existing coverage. The agencies’ rationale in this regard is especially dubious 

because it leads to a conclusion that cannot be harmonized with the Act. The PPACA certainly 

does not authorize the Executive Branch to develop a regulatory counterweight to Congress’s 

own decision to preserve the right to choose. 

4. Even if Congress had authorized the Executive Branch to issue regulations for the express 

purpose of discouraging the continued existence of grandfathered plans that the Executive 

Branch thinks might lead consumers to make what the agencies believe are “wrong” choices, the 

Interim Final Regulations represent dangerously wrong decisions about discouraging the 

continued existence of plans offered by the small business community. The burdens of 

compliance under the Interim Final Rules will weigh more heavily on small businesses than large 

businesses, often making it impossible for small businesses to continue to offer health coverage 
3

to employees. This is dangerous because of the staggering number of Americans who rely on 

small business plans for their health coverage, and must continue to rely on those plans until at 

least 2014 when new purchasing options for small business become available.

Moreover, creating rules that will selectively promote the extinction for health plans sponsored 

by small business is a disastrous policy choice. Under any given set of market conditions, the 

plans maintained by a small business are most likely to reflect the most manageable combination 

of quality and affordability available in that very limited marketplace, before, on, and after the 

date of enactment of the PPACA. Thus, of all the plans on which Congress conferred 

grandfathered health plan status, the plans maintained by a small business on the date of 

enactment are the plans that most need the flexibility to remain in existence.

Background: How Small Business Responds to Increases in Healthcare Costs

The small business community is all too familiar with the impact of high healthcare costs. With 

about 15 million employees accessing their health insurance through their employer in firms with 

less than 100 employees, small business employers are well aware of how the high cost of health 

insurance affects the men and women who work with them every day. 1For more than two 

decades, research has reinforced what small business owners across the country tell us every day:

the most significant obstacle to gaining access to health insurance is the prohibitive cost of 

coverage. The Coalition remains concerned that the Interim Final Rules, as issued, will leave 

small businesses with even less choice and flexibility. Instead, they will be faced with the 

difficult choice of paying more to maintain grandfathered coverage, shopping for a new (and 

more expensive) plan, or possibly dropping employer-sponsored coverage entirely. 

For small business the problem is obvious: health insurance is and remains one of the fastest 

growing and most unpredictable costs of doing business. According to the Kaiser Family 

Foundation, health insurance premiums (family coverage) for small firms with 3-199 employees 

increased 123 percent since 1999. 

Paramount to achieving more affordable coverage is creating an environment that provides 

employers with the flexibility necessary to adapt to changing insurance costs – and for small 

business that typically means that they need flexibility to deal with cost increases. Currently, 

when small business owners are faced with premium increases – often in the double digits – they 

are forced to evaluate their budget and their employees’ needs to determine how they can best 

adapt to this increased cost. 

As noted in the chart included below by the Kaiser Family Foundation, the Foundation’s 2009 

survey data suggests that in the face of premium increases employers look at a variety of options 

– changes in deductibles, co-pays, coinsurance – all the things they do before they do what 

scores lowest on the list – having to drop coverage entirely. However, as drafted, the Interim 

Final Rules severely restrict the ability of an employer to utilize any of the options outlined in 

the chart as a way of meaningfully helping to offset, adjust or minimize the overall increase in 

their health insurance policy. 

 

1

 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2009 Medical 

Expenditure Panel Survey-Insurance Component.
4

Among Firms Offering Health Benefits, Distribution of Firms 

Reporting the Likelihood of Making the Following Changes in 

the Next Year, 2009

Offer HSA-Qualified HDHP‡ 6% 16% 24% 54% <1%

Offer HDHP/HRA‡ 5% 15% 19% 59% 1%

Drop Coverage Entirely 2% 6% 6% 86% <1%

Coverage

Restrict Employees’ Eligibility for 4% 5% 8% 83% <1%

Increase the Amount Employees 

Pay for Prescription Drugs 14% 23% 19% 43% <1%

15% 25% 19% 41% <1%

Increase the Amount Employees 

Pay for Office Visit Copays or 

Coinsurance

Increase the Amount Employees 

Pay for Deductibles 16% 20% 18% 46% <1%

Increase the Amount Employees 

Pay for Health Insurance 21% 20% 14% 44% <1%

Don’t 

Know

Not At All 

Likely

Not Too 

Likely

Somewhat 

Likely

Very 

Likely

‡

Among firms not currently offering this type of HDHP/SO.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009.

For instance, consider a small business owner who, faced with increased costs, chooses to make 

a modest adjustment such as increasing a copayment from $30 to $45. As far as the Coalition is 

aware, employers, employees, nor any other stakeholder would seriously consider a change that 

small as the basis for concluding that the plan in existence on the date of enactment was 

transformed out of existence. Members of the small business community certainly would not 

reach that mistaken conclusion; they know better because they have been confronted year-in and 

year-out by the stark choice between terminating a plan completely or modifying its cost 

structure to preserve its continued existence. Yet, even though every rational employee and 

employer would agree that a modest copayment increase is a better alternative than having no 

plan at all, the Interim Final Rules limit flexibility so severely that it creates a stronger likelihood 

that an employer will drop coverage altogether.

The consequence of maintaining the overly restrictive guidelines outlined in the Interim Final 

Rules may well have the opposite effect of what the legislation was intended to achieve. Instead 

of fewer uninsured, we may well see more uninsured. The staggered timeline for 

implementation will leave any newly uninsured searching for coverage at a time when none of 

the new insurance rating reforms are in place, when no exchanges are open and when there is a 

greater likelihood that those who once had guaranteed coverage in the employer-based system 

find themselves denied for insurance in the individual market because of a pre-existing 

condition.

We have recently heard from hundreds of our members who have altered various pieces of their 

health insurance plan in the last year. In response to cost increases that threaten their continued 

ability to make coverage available to their employees, our members have increased co-pays, 

eliminated a specific service, increased employee contributions, and/or added co-pays for 

prescription drug coverage. These practices mirror the data from the 2009 Kaiser Employee 

Health Benefits survey, which shows that 21 percent of small firms reduced the scope of health 

benefits or increased cost sharing in the last year. See below.
5

Among Firms Offering Health Benefits, Percentage of Firms That Report 

They Made the Following Changes as a Result of the Economic Downturn, 

by Firm Size and Region, 2009

Reduced Scope of 

Health Benefits or 

Increased Cost 

Sharing

Increased the 

Worker's Share of 

the Premium

FIRM SIZE

200-999 Workers 23% 22%*

1,000-4,999 Workers 19% 21%

5,000 or More Workers 21% 19%

All Small Firms (3-199 Workers) 21% 15%*

All Large Firms (200 or More 

Workers) 22% 22%*

REGION

Northeast 31% 15%

Midwest 22% 18%

South 22% 16%

West 10%* 12%

ALL FIRMS 21% 15%

* Estimate is statistically different from estimate for all other firms not in the 

indicated size or region (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009.

The Coalition opposes implementing any restrictions on how plans can currently be changed or 

modified by employers and employees between now and 2014 when the healthcare law and its 

consumer options are fully implemented. If employers and employees make the determination to 

make adjustments to their plan so that “if you like your plan, you can keep it,” then they ought to 

have that freedom. Some might argue that freedom may lead to rate shocks in 2014 when new 

rating reforms are fully implemented. While employers and employees ought to be aware of the 

potential for rate shock, the spending and coverage decisions they make in an effort to maintain 

coverage today should not be restricted by arbitrary regulations imposed by the federal 

government. This is particularly true given that until 2014, employers and employees will not 

have Exchange-based coverage to fall back on. Forcing the small business community to walk 

yet another regulatory tightrope is bad enough; forcing them to walk that tightrope before there is 

a safety net for employees is unjustifiable.

While the most preferred solution would be to suspend in its entirety these severely restrictive 

practices, at the very least the final rules and regulations ought to reflect the primary challenge 

facing the small group market: cost. Small employers pay about 18 percent more for health 

insurance than their larger counterparts for the same group of services. Such data suggests that 

small employers either pay more for the same services or receive less (in terms of services) for 
6

their health insurance. Understanding that small employers are in a far more volatile 

marketplace, at the very least, the Coalition suggests that the Administration increase the

parameters for changes that employers can make to fixed-amount and percentage cost-sharing 

requirements to more appropriately reflect the premium increases in the small group market and 

still retain their grandfathered status. As a foundation for determining those parameters the 

agencies ought to consider the average premium increases in the small group market over a 10-

year period and then construct a formula that reflects those costs in some sort of combination 

with medical inflation.

Congress Did Not Authorize the Agencies to Devise Rules for Terminating the 

Grandfathered Status of Group Health Plans on Which Such Status Was Conferred by 

Statute

Throughout the legislative debate, small business owners called on Congress to address the rising 

cost of healthcare coverage, citing it as the most significant impediment to finding, accessing and 

maintaining health insurance. As small business enters the regulatory phase of implementation, 

we remain deeply concerned about the impact that rules and regulation will have on healthcare 

costs, particularly since there are few if any options if employers cannot maintain an offering of 

coverage prior to 2014. Based on a sensitivity analysis conducted by the Administration and 

featured in the Interim Final Rules, the government’s own analysis confirms what many small 

businesses fear most, that upwards of 80 percent of small employers could lose the plan they 

have today by 2013. 

The small business community is particularly concerned by the provisions of the Interim Final 

Rules that create circumstances under which grandfathered status conferred by the statute 

purportedly can be lost based on regulations.

As many have observed, neither PPACA Section 1251 nor any other provisions of the Act 

authorize or even contemplates post-enactment loss of grandfathered health plan status by a 

group health plan or employer-sponsored health insurance coverage that satisfied the 

requirements of Section 1251 on the date of enactment. Thus, insofar as they might be construed 

as a basis for applying the provisions of Subtitles A and C of the PPACA to apply prematurely to 

such plans or coverage based on post-enactment events, 45 C.F.R. § 147.140(g) and (a)(2) lack 

any apparent statutory basis. This observation about the text of the Act is confirmed in the nextto-last paragraph of Section II.A of the preamble to the Interim Final Rules. That paragraph 

makes essentially the same finding regarding the statutory facts. However, it draws the 

unwarranted conclusion from those facts that there is a “question” regarding “at what point 

changes to a group health plan or health insurance coverage in which an individual was enrolled 

on March 23, 2010, are significant enough to cause the plan or health insurance coverage to 

cease to be a grandfathered health plan,” and then bootstraps from that conclusion to decide that 

the statute “leav[es] that question to be addressed by regulatory guidance.” See also Section 

II.F (failing to cite any section of the Act but describing 45 C.F.R. § 147.140(g) as the 

regulatory answer to “[q]uestions [that] have arisen”). 

Naturally, the Coalition agrees about the objective legislative fact; the PPACA is completely 

silent on the subject matter addressed by 45 C.F.R. § 147.140(g) and (a)(2). However, the 
7

Coalition believes that the conclusion drawn by the agencies from this fact is erroneous. The 

legislative silence on the subject matter addressed by 45 C.F.R. § 147.140(g) and (a)(2) does not 

raise a “question” regarding “at what point changes to a group health plan . . . are significant 

enough to cause the plan . . . to cease to be a grandfathered health plan.” To the contrary, 

PPACA § 1251(e) defines the term “grandfathered health plan” with respect to criteria that must 

be satisfied as of March 23, 2010, and Section 1251 as a whole does not even mention “changes 

to a group health plan,” much less any distinction between “significant” changes and other 

changes, and it certainly does not mention or allude to any relationship between the 

“significance” of a post-enactment plan amendment and a loss of grandfathered status. Indeed, it 

does not mention or even allude to any possibility of loss of grandfathered health plan status, 

much less of “ceas[ing] to be a grandfathered health plan.” 

Nor can the existence of any such “question” be inferred without at least implicitly contradicting 

the language of the Act. A straightforward interpretation of the actual terms of PPACA § 

1251(c) shows that the provisions of Subtitles A and C of the PPACA from which a group health 

plan is exempt as a grandfathered health plan never become applicable to a group health plan 

described in that section. 

Finally, the Coalition has grave reservations about the very concept on which the agencies seem 

to have based 45 C.F.R. § 147.140(g) and (a)(2). The agencies appear to have concluded as a 

general principle that a statute’s failure to mention a topic automatically raises a “question” 

regarding how that topic should be addressed in regulations. The Coalition cannot agree that 

legislative silence on any given topic always raises a question regarding that topic. To the 

contrary, that belief often would lead to outlandish and absurd conclusions. For example, there 

is no mention of a general sunset date for the Internal Revenue Code of 1986 as a whole, and the 

legislative silence on this topic is fully explained by Congress’s decision that the Code as a 

whole would not “expire” in some future taxable year. The legislative silence cannot be 

interpreted rationally as a basis for Treasury regulations regarding how to determine the Code’s 

expiration date.

Moreover, even if a statute’s complete failure to mention a topic could raise a question regarding 

a legal norm applicable to that topic, there is no basis to treat a statute’s complete silence on a 

topic as a delegation of regulatory authority to the Executive Branch. To the contrary, if a statute 

is silent on a topic, then by definition it does not articulate the “intelligible standards” necessary 

to delegate rule-making power regarding the topic. See, e.g., Touby v. United States, 500 U.S. 

160 (1991).

The Rules Are Based on the Erroneous Assumption of a Conflict Between Congressional 

Objectives and Policy Goals 

In Section IV.B.1 of the Preamble, HHS and the Department of Labor state that in drafting the 

Interim Final Rules, “the Departments attempted to balance a number of competing interests.” 

This section of the Preamble illustrates the Departments’ attempted balancing with one example. 

Interestingly, the example of departmental “balancing” involves an issue that is not mentioned 

anywhere in the PPACA itself, namely providing “adequate flexibility” to ease an otherwiseunidentified “transition” while at the same time “avoiding excessive flexibility” that the 
8

Departments inexplicably state “would conflict with the general goal of permitting individuals 

who like their healthcare to keep it.” 

As explained above, the Coalition agrees with the traditional view of the relationship among the 

branches of government. According to this view, the task of striking a balance among 

“competing interests” is regarded as the exclusive job of the legislative branch. The 

Departments’ example of how it balanced or re-balanced competing interests after the PPACA 

was enacted does nothing to alter the Coalition’s adherence to the mainstream, conventional 

principles of the separation of powers. That example is not evidence that the Executive Branch 

does a better job of balancing competing interests than Congress does. If anything, the 

particulars disclosed in the Preamble confirm the wisdom of the conventional view. Those 

particulars convince us the balancing act attempted by the Departments was fundamentally 

flawed. 

It appears that the Departments determined their task involved striking a balance between 

allowing “adequate flexibility” and permitting flexibility that the Departments regard as 

“excessive” insofar as that flexibility would “conflict with the general goal of permitting 

individuals who like their healthcare to keep it.” This conclusion strikes us as unsound because 

it assumes that there is a conflict between employers’ flexibility and employees’ ability to keep 

healthcare that they like. Section 1251 of the Act does not assume the existence of any such 

“conflict.” Quite the opposite is the case, based on the language and structure of Section 1251. 

Section 1251(a)(1) was intended to express an individual’s right to keep a plan that he or she 

likes, and it reflects the frequently-repeated promise of an individual’s right to choose that was 

politically essential to the adoption of the Act. Sections 1251(a)(2) and (c) require the continued 

existence of the employer-sponsored plans under which coverage choices are offered. Congress 

clearly understood that if employer-sponsored group health plans were not protected, the 

individual right to choose coverage under those plans could not be effectively exercised. 

Thus, the statutory provisions that require maximizing employer’s flexibility to adapt existing 

plans to ensure their continued survival and the statutory provisions guarant eeing the individual 

right to choose are not mutually inconsistent. It is inherently unlikely that when dealing with a 

matter of this importance, Congress would fail to notice if there were “conflicting goals” in 

different parts of the very same section of the Act or that Congress would simply pass over any 

such “conflict” in silence and leave it to the Departments to sort things out afterwards. Contrary 

to what the Departments appear to have assumed about the legislation, two statutory objectives 

spelled out in Section 1251 are halves of the same whole. By allowing the Interim Final Rules to 

be forged based on the assumption that Congress not only created a conflict with the individual 

right to choose but then also delegated the resolution of that conflict to the Executive Branch is 

not only unfounded, it reflects a willingness to believe that, in the last analysis, the Act’s passage 

was procured by a cleverly-worded but an utterly insincere promise. Since the Departments have 

not presented evidence to substantiate that belief, the Coalition believes the regulatory results of 

endorsing it are presumptively unsound. 

Rather Than Preserving the Individual Right to Maintain the Coverage the Consumer 

Prefers, the Rules Adopt the Position That Individuals Should Not Be Permitted to Make 

That Choice
9

Furthermore, the “balance” struck by the Departments manifestly is not based on preserving an 

individual’s right to maintain coverage on the basis of his or her own preference for that 

coverage. Instead, it is based on what can only be called an invidious stereotype about American 

employees, according to which their express preferences are likely to be “wrong” and therefore 

are not only unworthy of preserving, but should not even be permitted to be made. According to 

Section IV.B.4 of the preamble, 

Decisions by plan sponsors and issuers may be significantly affected by the 

preferences and behavior of the enrollees, especially a tendency among many 

towards inertia and resistance to change. There is limited research that has 

directly examined what drives this tendency – whether individuals remain with 

health plans because of simple inertia and procrastination, a lack of relevant 

information, or because they want to avoid risk associated with switching to new 

plans. One study that examined the extent to which premium changes influenced 

plan switching determined that younger low-risk employees were the most pricesensitive to premium changes; older, high-risk employees were the least pricesensitive. This finding suggests that, in particular, individuals with substantial 

health needs may be more apt to remain with a plan because of inertia as such or 

uncertainties associated with plan switching rather than quality per se – a 

phenomenon some behavioral economists have called “status quo bias,” which 

can be found when people stick with the status quo even though a change would 

have higher expected value. 

Even when an enrollee could reap an economic or other advantage from changing 

plans, that enrollee may not make the change because of inertia, a lack of relevant 

information, or because of the cost and effort involved in examining new options 

and uncertainty about the alternatives. Consistent with well-known findings in 

behavioral economics, studies of private insurance demonstrate the substantial 

effect of inertia in the behavior of the insured. One survey found that 

approximately 83 percent of privately insured individuals stuck with their plans in 

the year prior to the survey. Among those who did change plans, well over half 

sought the same type of plan they had before. Those who switched plans also 

tended to do so for reasons other than preferring their new plans. For example, 

many switched because they changed jobs or their employer changed insurance 

offerings, compelling them to switch. 

Emphasis added, footnotes omitted. 

The underscored language indicates that the Departments’ analysis depends on a very 

unflattering generalization about consumers’ motivation, ability and confidence to make their 

own choices wisely. The Coalition does not share the pessimistic view reflected in the broad 

stereotype of the American consumer on which the Departments chose to rely. Moreover, the 

Coalition does not believe that sweeping and invidious generalizations of this type should have 

any role to play in formulating regulations under the Act. 
10

Plans Sponsored by Small Businesses are the Grandfathered Plans Most Deserving of 

Preservation as Grandfathered Plans 

When it comes to plans sponsored by small businesses, there is certainly no place for the 

Department’s apparent conclusion that it has a mandate to take choices away from American 

employees to prevent the possibility of what practitioners of “behavioral economics,” academics, 

survey takers, and others may regard as sub-optimal choices. For obvious economic reasons, the 

plans offered by the small business community are likely to represent the optimum selection 

from among any available alternatives. This is so for two reasons.

First, small businesses cannot survive unless they are smart shoppers who systematically seek 

out the best ratio of value to cost with respect to virtually every good or service they pay for, 

from cleaning supplies to health coverage. It is completely illogical to believe that a small 

business owner would spend countless hours after the regular business day is over comparison 

shopping for miniscule differences in the cost of office supplies, only to select its health plan on 

a random or heedless basis. This is particularly unlikely to be true when one considers that the 

vast majority of entrepreneurs are owner-employees. They want to make the best coverage 

choice possible under prevailing circumstances, not only for the sake of their employees, but for 

their own sake and the sake of their families as well.

Second, small business tends to attract employees who are very good at making the best 

decisions possible in response to rapidly-changing circumstances. The same tendency means 

that the employees of small businesses are more likely to “vote with their feet” if they find that 

their employer’s compensation and benefits package is no longer suited to their individual needs. 

Thus, over time, employees of small businesses are more likely to align themselves with 

employers whose plan design decisions, however they are made, best fit employees’ perceptions 

of their overall best interests. 

Loss of Grandfather Status Subjects Small Business to New Rules and Regulations That 

Increase Costs

A concern that has been raised upon reviewing the proposed grandfathering regulations is the 

economic impact that will be placed on those four out of five small employers who are unable to 

maintain their grandfathered status. In the event that an employer is forced to transition to a new 

plan, that employer will also become subject to a new set of requirements that are put upon those 

who are not considered grandfathered. This has both short-term and long-term cost implications 

for the employer and employee. 

In stark contrast to much of the rhetoric supplied in talking points, fact sheets and press releases, 

the economic impact on small employers who are forced to surrender their grandfather status is 

significant. In addition to other requirements that will be placed on all plans – regardless of 

grandfathering status – plans that lose grandfathered status will immediately pick up two new 

coverage requirements: coverage of recommended prevention services with no cost sharing; and 

patient protections such as access to OB-GYNs and pediatricians without a referral by a separate 

primary care provider. But, those two new requirements are just the beginning. The most 

significant impact is the plethora of new requirements that these same small employers will be 
11

subjected to as the overall healthcare law is fully implemented. As outlined in PPACA, although 

the final essential benefits package remains to be determined by the regulatory process, PPACA 

notes that the “Secretary shall define the essential health benefits, except that such benefits shall 

include at least the following general categories and the items and services covered within the 

categories: (A) Ambulatory patient services, (B) Emergency services, (C) Hospitalization, (D) 

Maternity and newborn care, (E) Mental health and substance use disorder services, including 

behavioral health treatment, (F) Prescription drugs, (G) Rehabilitative and habilitative services 

and devices, (H) Laboratory services, (I) Preventive and wellness services and chronic disease 

management and (J) Pediatric services, including oral and vision care.”2

The effect of these new requirements, in combination with the other requirements that will befall 

all plans, is certain to have an impact on the cost of those plans. As noted in a June 23 Wall 

Street Journal article, “The U.S. Chamber of Commerce estimates that 20 or so new rules [in 

PPACA] could raise companies' health bills by 1 percent to 3 percent each.” 3

Although the examination of the essential benefits package will be discussed in future regulatory 

processes, its composition, and the breadth of requirements outlined in the PPACA will directly 

affect those losing grandfathered status today because they will become a part of the nongrandfathered population subject too all of these new requirements. While small employers 

might have some of these requirements in some states, all of the new benefit requirements along 

with all of these additional changes – minimum loss ratios, capped deductibles in the small group 

market, and changes to lifetime and annual limits, etc., will have an effect on the overall cost of 

small employer coverage. As passed, it is highly likely that these combinations of cost factors 

will result in plans that are more expensive than what small employers are currently purchasing 

today. 

Research by the Council for Affordable Health Insurance (CAHI), reaffirms that cost increases 

can result from the imposition of new insurance mandates. Consider the following from CAHI’s 

2009 report on the cost of mandates to the states.

“CAHI’s independent Actuarial Working Group on State Mandated Benefits analyzed company 

data and their experience and provided cost-range estimates — less than 1 percent, 1-3 percent, 

3-5 percent and 5-10 percent — if the mandate were added to a policy that did not include the 

coverage. These estimates are based on real health insurance policies and are not based on 

theory or modeling. However, mandate legislation differs from bill to bill and from state to state. 

For example, one state may require insurance to cover a limited number of chiropractor visits per 

year, while another state may require chiropractors to be covered equally with medical doctors. 

The second will have a greater impact on the cost of a health insurance policy than the first. It 

would be impossible to make a detailed assessment of the cost of each state’s mandates without 

evaluating each piece of legislation...Although most mandates only increase the cost of a policy 

by less than 1 percent, 40 such mandates will price many people out of the market. It is the 

 

2

 USC18022 Section 1302 (b)(1) pp. 163-164

3

 http://online.wsj.com/article/SB10001424052748703513604575311013340405940.html? “Firms Find Changing 

Insurance Is Trickier” (Johnson, 2010)
12

accumulated impact of dozens of mandates, not just one that makes health insurance 

unaffordable.”4

For small employers who generally purchase fully-insured health coverage for their employees 

(as opposed to larger employers who are more able to self-insure their group health plans and 

thus have more control over what changes are made to their plans), the health insurance 

providers will be the “actors” making changes to the plans. Therefore, there is a greater 

likelihood that because health insurers will be under greater pressure to conform their plans or 

policies to the reform provisions in PPACA, small employers will have little choice but to watch 

the plan “they like” lose its grandfathered status.

We have heard from many of our members who have already been told that they will lose the 

plan they have today – meaning they will lose their grandfathered status. The employers are not 

consciously deciding to give up these plans. Rather, they are being told by insurers that the plan 

they have and know will no longer be available. 

Absence of a small employer perspective is analogous to leaving the largest sector of job creators 

without representation. In previous years, there has been a movement in Congress to increase 

awareness about the “one-size fits all” approach to legislating. In response, the Regulatory 

Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act 

(SBREFA) was passed so that Congress can more closely examine the impact of regulation on 

smaller entities. Specifically, under Section 609 (b) procedures are set forth so that “covered 

agencies” (OSHA and EPA) can convene a Small Business Advocacy Review Panel prior to the 

agency proposing a rule that will “significantly impact a substantial number of small entities.” 

We recommend that all agencies with jurisdiction over grandfathering regulations conduct some 

form of a Small Business Advocacy Review Panel prior to the agency finalizing the rules so that 

it can determine whether these regulations will “significantly impact a substantial number of 

small entities.” Acquiring this small business input is critical to understanding the impact on 

small business and the best way to mitigate any unintended consequences. If the impact is found 

to be significant, we further recommend that the agencies halt all rules until alternative 

arrangements can be proposed, examined and finalized so that small employers will not be 

adversely and disproportionately harmed. 

Regulations Fail to Treat All Members of the Employer Community Equally

 

Throughout the legislative processes, many accommodations were made to meet the needs or 

demands of various entities and political interests. One such accommodation was a special rule 

for grandfathered status for group health plans established pursuant to one or more collective 

bargaining arrangement (“CBA”). Section 1251(d) allows such plans to maintain grandfathered 

status “automatically” until after the last CBA terminates to determine if the plan has lost its 

grandfathered status. As a result, throughout the life of the CBA, the plan is free to change its 

terms (as much as it wants) and will not lose its grandfathered status until the last CBA 

terminates, at the earliest. 

 

4

 http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2009.pdf “Health Insurance Mandates 

in the States 2009” Council for Affordable Health Insurance (Bunce and Wieske, 2009).
13

The Coalition believes that if it was appropriate for the agencies to “balance” policy concerns in 

formulating the Interim Final Rules, one of the most important policies to be applied should have 

been fairness, which would have resulted in more even-handed treatment of plans sponsored by 

small businesses and plans established by collective bargaining agreements. Instead, the Interim 

Final Rules force an employer sponsoring a non-collectively-bargained plan to choose almost 

immediately between the extraordinary burdens of regulatory compliance, including the loss of 

flexibility regarding plan design, or giving up grandfathered status. Collectively bargained plans 

would not be forced to make that choice until the expiration of the last CBA pursuant to which 

the plan is maintained. Yet both categories of plans will be exposed to the same market 

conditions in the years ahead, and neither has a better ability than the other to predict what will 

happen in that market between now and 2014. 

Thus, the disparate treatment of these two categories of plans cannot be justified on the basis of 

any realistic difference between them. That is why the different treatment of these two 

categories of plans is one of the Coalition’s greatest areas of concern.

The ability for small employers to shop for coverage as a response to premium increases is 

critical to maintaining the offer of employer-sponsored coverage in the small business 

community. Small employers, like others who offer employer-based coverage, often/frequently 

shop around for new coverage options and opportunities. According to the Kaiser Family 

Foundation, 63 percent of small firms (3–199 workers) have shopped for coverage in the past 

year. Among firms that shopped, 31 percent of small firms have changed the type of health plan.

Further, they shop in response to cost pressures. A national survey of small employers found 

that 45 percent of small employers who shopped for health insurance in the last three years did 

so in an effort to lower premium costs.

The necessity for employers in the small business community to have maximum flexibility has 

also been acknowledged by the Administration. A press release issued by the Department of 

Health and Human Services, notes that small employers “typically buy commercial insurance 

and frequently make changes in insurers and coverage.” The same press release goes on to note 

that “Limited purchasing power and high overhead often force a trade-off between dramatic 

changes in benefits and cost sharing and affordable premiums.” However, despite the 

government’s acknowledgement of this common practice by employers trapped in such a volatile 

marketplace, small employers do not retain such freedom or flexibility under the proposed 

Interim Final Rules.5 

Small businesses need flexibility and a reduction of regulatory burdens at least as much if not 

more than large unions and industry groups. In the small business segment of the employment 

arena, the flexibility to make changes between the date of enactment of PPACA and the date that 

the exchanges are set up in 2014 is especially crucial to maintaining the offer of employersponsored coverage in the small business community. The Coalition suggests that small 

employers retain the same opportunity to shop for and switch plans that CBA has under the 

Interim Final Rule. Like CBA plans, small employers should have the right to exercise this 

 

5

http://www.hhs.gov/news/press/2010pres/06/20100614e.html “U.S. Departments of Health and Human Services, 

Labor, and Treasury Issue Regulation on ‘Grandfathered’ Health Plans under the Affordable Care Act” (2010)
14

much-needed flexibility without being forced by the government to relinquish their 

grandfathered status.

Comments Requested to Other Topics for Which Rules Were Not Issued

In its Interim Final Rules, the government specifically asked for interested parties to provide 

comments on whether four specific changes ought to result in cessation of grandfather status. 

Those specific changes included: (1) changes to plan structure (switching from a health 

reimbursement arrangement to major medical coverage, or from an insured product to a selfinsured product); (2) changes in a network plan’s provider network and what magnitude of 

changes would have to be made; (3) changes to a prescription drug formulary; and (4) changes to 

overall benefit design. The Coalition offers the following thoughts on two of the categories 

outlined above.

(1) Changes to plan structure and (2) Changes in a network plan’s provider network.

When confronted with increased healthcare costs, small businesses often respond by changing 

plans and carriers. As depicted in the Kaiser Family Foundation 2009 employer survey, 31 

percent of small business owners who offer health benefits and have shopped for a new plan or 

insurance carrier in the last year changed the type of health plan they offered to their employees. 

Only 18 percent of the largest employers made these same changes. In regards to changing 

insurance carriers, 20 percent of small business owners who offer health insurance and have 

shopped have changed insurance carriers, while 35 percent of the largest insurance carriers have 

done this. 

Among Firms Offering Health Benefits That Shopped for a 

New Plan or Insurance Carrier, Percentage Reporting That 

They Changed Insurance Carrier and/or Health Plan Type in 

the Past Year, by Firm Size, 2009

23%

20%

31%* 31%

20% 21% 20%* 20%* 18%*

35%*

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Changed Insurance Carrier Changed Health Plan Type

3-199 Workers

200-999 Workers

1,000-4,999 Workers

5,000 or More Workers

ALL FIRMS

*Estimate is statistically different within category from estimate for firms not in the 

indicated size category (p<.05). 

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009. 

Changes such as these can often result in a change of networks and providers. When asked, 

small employers indicated that in the last year they have made changes that have resulted in 

going to new or different hospitals or doctors to obtain their medical services. The changes 
15

outlined in this section only reinforce what we’ve long heard from employers – increasing, rather 

than decreasing flexibility and options are critical to maintaining the ability of a small business 

to offer employer-based coverage. When asked, members have told us that cost is a main reason 

for their decision to both shop, and in some cases to cease offering coverage to their employees. 

For those firms who are still able to offer coverage, the limitations imposed by the 

grandfathering regulations will likely cause even more business owners to cease offering 

coverage. Therefore, the Coalition strongly recommends against taking additional steps to limit 

the ever-shrinking amount of options that employers have to adjust costs and still maintain 

grandfather status. Adopting tighter restrictions on the categories listed above would, in fact, 

limit those options.

Conclusion

For more than a decade the Small Business Coalition for Affordable Healthcare has been a 

constructive participant in seeking to develop solutions that bring about lower costs, more 

choices and greater competition for private insurance. Unfortunately, as drafted, the rules are 

overly restrictive and create an even stronger likelihood that small businesses faced with 

unsustainable premium increases may choose to drop their plans prior to 2014. Instead of 

lowering the number of uninsured Americans, these rules may very likely increase the number of 

uninsured before the law is fully enacted. Specifically, the Coalition remains concerned that the 

Interim Final Rules:

• Overstep the boundaries of the PPACA and assume that the agencies have been vested 

with more authority than provided by Congress and the PPACA (Sec. 1251);

• Fail to acknowledge that the Interim Final Rules, as drafted, will increase, rather than 

decrease cost for small businesses;

• Fail to conduct appropriate research and analysis to evaluate the affect that the Interim 

Final Rules will have on the small group market where about 15 million employees 

access coverage today;

• Give preferential treatment to CBA plans by allowing them to switch plans until their 

final CBA terminates, but doesn’t allow small businesses the same flexibility;

• Will force small employers, their employees and families out of the small group market 

where they are guaranteed an offer of coverage and into the individual marketplace where 

they can be denied insurance;

• Will force those employers into a new marketplace (created by the PPACA) where they 

will be exposed to a more expensive insurance marketplace, a greater set of requirements 

and more expansive regulations; and 

• Will increase the uninsured population because there will not be exchanges, insurance 

reforms or other safety net options so that employers, employees and their families can 

effectively “bridge” to 2014 when those reforms become available.

Most importantly, neither the PPACA nor these Interim Final Rules address the core problem 

facing small businesses – the rising costs of healthcare. Instead, the rule does the opposite. It 

strips small employers of the ability to exercise realistic flexibility to adjust to cost increases in a 

meaningful way so they can maintain their current plan. The Interim Final Rules should allow 
16

for more flexibility to keep more plans in grandfathered status. As written, the rules run counter 

to the spirit of the law on which they should be based.

Thank you for your time and consideration. 

Aeronautical Repair Station Association

Agricultural Retailers Association

American Bakers Association

American Farm Bureau Federation

American Hotel & Lodging Association

American Institute of Architects

American Rental Association

American Veterinary Medical Association

Associated Builders and Contractors

Associated Equipment Distributors

Associated Food and Petroleum Dealers

Associated General Contractors

Association of Ship Brokers & Agents 

Automotive Recyclers Association

Bowling Proprietors Association of America

Commercial Photographers International

Electronic Security Association (ESA)

Gasoline and Automotive Service Dealers Association

Independent Electrical Contractors, Inc

Independent Office Products & Furniture Dealers Association 

International Franchise Association

International Housewares Association

National Association of Home Builders

National Association of Manufacturers

National Association of REALTORS

National Association of Theatre Owners

National Association of Wholesaler-Distributors

National Club Association

National Federation of Independent Business

National Newspaper Association

National Retail Federation

National Roofing Contractors Association

National Tooling and Machining Association

National Utility Contractors Association

Petroleum Retailers and Auto Repair Association (PRARA)

Precision Machined Products Association

Precision Metalforming Association

Printing Industries of America

Professional Golfer's Association of America

Professional Photographers of America

Repair-Shop & Gasoline Dealers Association
17

Service Station Dealers of America and Allied Trades

Small Business & Entrepreneurship Council

Society of American Florists

Society of Sport and Event Photographers

Stock Artist Alliance

Textile Rental Services Association

Tire Industry Association