Department of Labor

Department of Health and Human Services
Internal Revenue Service

June 21, 2010

Page 4

B. Grandfathered Status.

The Departments also conclude that plans which are entitled to the delayed effective date are
grandfathered plans from the date of enactment. Hence, despite the clear language in Section
1251(d), which delays all of the provisions of Subtitle A and Subtitle C, the Departments conclude
that only some of those provisions are delayed. Accordingly, provisions such as the elimination of
annual and lifetime benefit caps, which are contained in Subtitle A, are purportedly operative at the
same time as they are for noncollectively bargained plans.

The Departments conclude, without analysis or explanation, that the delayed effective date
provisions in Section 1251(d) merely mean that plans described in that Section will not lose
grandfathered status if they engage in any of the proscribed actions (e.g., increasing copayments)
prior to the expiration of the last collective bargaining agreement. In effect, the Departments have
arbitrarily created two kinds of group health plans: “ordinary grandfathered” plans, which can lose
grandfathered status at any time, and “super-grandfathered” plans, which cannot lose grandfathered
status until the delayed effective date. Nothing in the Act supports this construction.

We suspect that the Departments’ interpretation comes from the language in Section 1251(e),
which says that “grandfathered health plan” means any plan “to which this Section applies.”
However, “this Section” (meaning Section 1251) is part of Subtitle C. No part of Subtitle C,
including Section 1251(e), becomes effective until after the delayed effective date. Accordingly, the
proper construction is that plans entitled to the delayed effective date do not become grandfathered
plans until after that date.

This construction not only follows the statutory language, but is consistent with the policy
reasons behind the delayed effective date that are discussed above. Again, it has always been the
intent of Congress to delay the implementation of health care changes that significantly impact the
costs of Taft-Hartley plans, since those costs are an integral part of the negotiation process. It makes
no sense to abandon that policy here.

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Of ST. JOHN, WALLACE, BRENNAN & FOLAN LLP

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REG- 1184210

ST. JOHN WALLACE BRENNAN & FOLAN LLP

Taw FFI —
JUN 28 2010 orn

LEGAL PROCESSING DIVISION
PUBLICATION & REGULATIONS
BRANCH

June 21, 2010

By U.S. Mail

U.S. Department of Labor

Office of Health Plan Standards and Compliance Assistance
Employee Benefits Security Administration

Room N-5653

Attn: RIN1210-AB42

200 Constitution Avenue N.W.

Washington D.C. 20210

Office of Consumer Information and Insurance Oversight
Department of Health and Human Services

Attn: OCIIO-9991-IFC

P.O. Box 8016

Baltimore, MD 21244-1850

Internal Revenue Service
CC:PA:LPD:PR (Reg-118412-10)
Room 5205

P.O. Box 7604

Ben Franklin Station

Washington D.C. 20004

Re: Comments on Interim Final Rule Regarding
Status of Grandfathered Plans

To Whom It May Concern:

21515 Hawthorne Boulevard
Suite 1120
Torrance, CA 90503-6504

Tel (310) 792-1075
Fax (310) 792-0635

Writer’s E-Mail:
jrstjohn@swbf.net

This office is counsel to certain employee benefit trust funds established through collective
bargaining agreements. As you likely know, these funds are commonly referred to as “Taft-Hartley
plans.” They are also multiemployer plans as that term is defined in the Employee Retirement

Income Security Act (“ERISA”).


Department of Labor

Department of Health and Human Services
Internal Revenue Service

June 21, 2010

Page 2

We wish to comment on the Interim Final Rules regarding grandfathered plan status that were
jointly issued last week by the Department of Health and Human Services, the Department of Labor,
and the Internal Revenue Service (collectively “the Departments”). In particular, we want to address
certain assumptions and conclusions set forth in Section II.E of the Preamble.

In that Section the Departments discuss the scope and application of Section 1251(d) of the
Patient Protection and Affordable Care Act (“the Act”). There are two areas where we believe that
the Departments have clearly misinterpreted this Section.

A. Scope.

The Departments conclude that because Section 1251(d) uses the words “in the case of health
insurance coverage maintained pursuant to one or more collective bargaining agreements” instead
of “in the case of a group health plan maintained pursuant to one or more collective bargaining
agreements,” Congress must have intended that this Section applies only to Taft-Hartley plans that
provide benefits through insurance contracts purchased from insurance issuers. The Departments
expressly state that Section 1251(d) does not apply to self-funded Taft-Hartley plans.

The vast majority of Taft-Hartley plans provide at least some of their benefits on a self-
funded basis. We find it hard to believe that the Departments would be unaware of this fact. Asa
practical matter, the Departments’ interpretation of Section 1251(d) would effectively render this
Section moot in nearly all cases.

We are confident that the Departments fully understand the policy reasons behind delayed
effective date provisions like those in Section 1251(d). In any legislation where significant benefit
costs are imposed on Taft-Hartley plans there has always been a provision which delays the etfective
date until the expiration of the last collective bargaining agreement that was in effect before the
legislation was adopted.

The obvious reason is to preserve the economic terms of the collective bargaining agreements
at the time they were negotiated. Employee benefits are cost items which affect the negotiation of
overall employee compensation. Statutory changes which increase the cost of these benefits would
obviously interfere with the give-and-take of the bargaining process if they were imposed during the
term of the agreements. Avoiding such interference is exactly the reason why Congress always
delays the required implementation of benefit changes until after all prior negotiated agreements
have expired. When negotiations for new agreements begin the parties are able to take into account
the costs resulting from the statutory mandates.



Department of Labor

Department of Health and Human Services
Internal Revenue Service

June 21, 2010

Page 3

There is simply no rational support for the proposition that Congress intended to delay the
application of the changes made by the Act for Taft-Hartley plans that purchase insurance but to
deny such delay for Taft-Hartley plans which are self-insured. What federal labor policies would
such a bizarre distinction promote? We are not aware of any.

Not only is there no reason to make this distinction, but there is absolutely no prior precedent
for this treatment. Whenever Congress has delayed the effective date of health care changes for Taft-
Hartley plans, it has done so for all such plans.

We are aware that the definition of “health insurance coverage” in Section 733(b)(1) of
ERISA conforms to your interpretation. However, in that Section “health insurance coverage” does
not include a group health plan that provides coverage through a health insurance issuer.” This
means that the narrow definition of “health insurance coverage” in Section 733 could not possibly
support the Department’s interpretation of Section 1251(d). If that strict definition were used, it
would exclude all group health plans, since as used in that Section “group health plan” and “health
insurance coverage” are mutually exclusive terms. Because all Taft-Hartley plans that provide
medical benefits are group health plans, the Departments’ reliance on Section 733 would render the
delayed effective date meaningless.

Of course, the Departments could deem the words “health insurance coverage” in Section
1251(d) to really mean “group health insurance coverage” as defined in Section 733(b)(4). That
construction would support the Preamble’s current interpretation of Section 1251(d). But if the
Departments have the freedom to make that construction, they can also construe “health insurance
coverage” to mean “group health plan.” That interpretation would be consistent with past practice
and federal labor policy.

It is quite common for collective bargaining agreements to contain “maintenance of benefits”
provisions, where increases in health care costs can trigger mid-contract contribution increases. In
many cases the employer contribution is capped, which means that additional cost increases are paid
for through employee wage reductions. If the Departments continue with their current interpretation
of Section 1251(d), these wage reductions will undoubtedly occur.

It is virtually certain that Congress did not desire such an outcome, and intended Section
1251(d) to apply to all Taft-Hartley plans. The regulations should acknowledge this intent.

“Section 733(b)(4) defines the term “group health insurance coverage” to mean a group
health plan that provides benefits through health insurance coverage, but that is not the term that
appears in Section 1251(d).