820 First Street, NE, Suite 510 Washington, DC 20002 

202-408-1080 Fax: 202-408-1056 center@cbpp.org www.cbpp.org Robert Greenstein 

Executive Director

T. Scott Bunton 

Deputy Director

Board of Directors

David de Ferranti, Chair 

Results for Development 

Institute 

Henry J. Aaron 

Brookings Institution

Kenneth Apfel 

University of Maryland

Jano Cabrera 

Burson-Marsteller 

Henry A. Coleman 

Rutgers University

Marian Wright Edelman 

Children’s Defense Fund

Beatrix A. Hamburg, M.D. 

Cornell Medical College

Antonia Hernández 

California Community 

Foundation

Frank Mankiewicz 

Hill and Knowlton 

Lynn McNair 

Salzburg Global Seminar 

Richard P. Nathan 

Nelson A. Rockefeller 

Institute of Government

Marion Pines 

Johns Hopkins University

Robert D. Reischauer 

Urban Institute

Paul Rudd 

Adaptive Analytics

Susan Sechler 

William & Flora Hewlett 

Foundation

William Julius Wilson 

Harvard University

_______________________ 

Emeritus 

Barbara Blum 

Columbia University 

James O. Gibson 

Center for the Study of Social 

Policy 

August 10, 2010 

Office of Consumer Information and Insurance Oversight 

Department of Health and Human Services 

Attention: OCIIO-9991-IFC 

P.O. Box 8016 

Baltimore, Maryland 21244-1850 

Office of Health Plan Standards and Compliance Assistance 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue NW 

Washington, DC 20210 

Attention: RIN1210-AB42 

Internal Revenue Service 

P.O. Box 7604 Ben Franklin Station 

Washington, DC 20044 

Attention: REG-118412-10 

RE: File Code OCIIO-9991-IFC/RIN 1210-AB42/REG-118412-10. 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 

Dear Sir or Madam: 

The Center on Budget and Policy Priorities is a nonpartisan research and policy 

organization based in Washington, DC. Founded in 1981, the Center conducts research 

and analysis to inform public debates and policymakers about a range of budget, tax and 

programmatic issues affecting individuals and families with low or moderate incomes. 

We appreciate the opportunity to comment on the rules for maintaining status as a 

grandfathered health plan. 

Overall, we strongly support the rules. We agree that they strike an appropriate balance 

between allowing many plans that existed as of enactment of the Affordable Care Act to 

continue without disruption, while also ensuring that when plans change significantly — 

particularly in ways that impact consumers’ costs and coverage — they must conform to 

the requirements of the Affordable Care Act just like any other new plan. We are 

pleased that the rules allow a plan to retain grandfathered status only so long as it does 

not make substantial changes to benefits, cost-sharing charges, annual benefit limits, and 

employer contribution levels. The rules still leave employers and insurers with significant 

flexibility with regard to the coverage that they offer, including allowing them to retain 

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grandfathered status if they increase cost-sharing charges in order to keep up with medical inflation. 

In a few areas, discussed below, we believe the rules should be modified to provide additional 

clarification when plan changes should cause a plan to no longer have grandfathered status. 

Rules Should Specify What Changes to Plan Structure, Networks, and Formularies Cause a 

Plan to No Longer Have Grandfathered Status 

The rules invite comments on whether changes to plan structure, provider networks and 

prescription drug formularies warrant a plan no longer having grandfathered status. In our view, 

certain changes in each of these areas would have a significant impact on enrollees’ costs and 

coverage that should cause a plan to no longer have grandfathered status. Therefore, each of these 

areas should be subject to allowable thresholds for change, similar to the rules established for 

changes to benefits and cost-sharing charges. 

Plan Structure: In our view, changes to plan structure, such as a switch from a PPO to an HMO or 

vice versa, are significant enough to warrant a loss of grandfathered status because they substantially 

alter access to providers. The rule also invites comment on whether a plan that switches from being 

fully insured to self-insured should be able to remain grandfathered. We do not think so. There is a 

serious risk that small firms, if permitted to do so, will increasingly move to self-insured status in 

order to avoid state regulation and certain requirements of the Affordable Care Act, such as the 

essential health benefits requirements. This is a change that could have a significant impact on 

consumers. Some small firms that would not otherwise risk being self-insured could switch but end 

up unable to pay the medical expenses of their workers, should they turn out to be unexpectedly 

high. And switching to self-insured status could increase the risk of adverse selection against more 

regulated fully-insured plans in the small-group market both inside and outside the exchange. In 

addition, self-insured plans are exempt from state regulations and oversight that help protect 

consumers. Becoming newly self-insured should lead a plan to no longer have grandfathered status. 

The rule also invites comments on whether a plan that switches from a health reimbursement 

arrangement (HRA) to major medical coverage should be grandfathered. On this question, we 

believe it is important to consider whether an employer is offering an HRA on its own or paired 

with a health insurance plan. If an employer is offering major medical coverage for the first time, 

after providing only an HRA (and no related health insurance plan) to workers, the health plan 

should be viewed as an entirely new plan to the enrollees who did not have any major medical 

coverage offered previously, and thus it should not be considered grandfathered. If the employer 

has been offering a health plan paired with an HRA, and seeks to modify the health plan, then the 

same requirements for maintaining grandfathered status (pertaining to benefits and cost-sharing) 

should apply in determining whether the health plan can continue to be grandfathered. 

Provider Network: Some changes to a plan’s network of health care providers are reasonable — a 

physician might decide to leave a plan’s network or a plan may negotiate better rates with a new set 

of physician groups in the same area. Such circumstances should not warrant a loss of 

grandfathered status. But certain substantial changes in this area would likely have such a significant, 

adverse impact on plan enrollees that the plan should not remain grandfathered. Such examples 

would include a plan dropping a significant portion of providers in a given geographic area from its 

network (including the primary hospital in the area serving a significant portion of all hospital 

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inpatient days in the area) or an insurer substantially scaling back the number of in-network 

providers in a particular specialty or subspecialty. The rules for maintaining grandfathered status 

should set an acceptable threshold for changes in provider network that ensures sufficient access for 

consumers. 

Drug Formulary: A health plan’s decisions about what drugs are covered and what cost-sharing 

amounts beneficiaries must pay for drugs represent another important area for the grandfathering 

rules to address. It would be reasonable for plans to remain grandfathered if they remove particular 

drugs from a formulary that are found to be dangerous or ineffective. Similarly, insurers and 

employers should have flexibility to maintain a plan’s grandfathered status if a drug is added or 

removed from a preferred formulary (or moved to a different formulary tier with different costsharing) due to the latest clinical evidence or as part of negotiations for lower drug prices that are 

expected to benefit plan enrollees. But some formulary changes that would likely negatively impact 

beneficiaries should trigger a loss of grandfathered status. For example, if an insurance plan adds a 

new tier with higher cost-sharing charges or otherwise restructures its formulary in ways that impose 

substantially higher costs than plan enrollees had been paying, grandfathered status should end. 

This would include cases when a plan creates a new tier for “specialty” drugs, which typically 

requires enrollees to pay a cost-sharing percentage rather than the copayments commonly charged in 

other tiers. Also, if a plan moves all or most of a class of drugs, or drugs used to treat or control a 

particular illness, into a formulary tier that requires enrollees to pay higher cost-sharing, 

grandfathering status should end. 

Rules Should Clarify that Changes to Annual Benefit-Specific Limits Prevent Plans from 

Maintaining Grandfathered Status 

The rules outline several changes related to annual and lifetime dollar limits on benefits that would 

trigger a loss of grandfathered status. The rules refer to “overall” annual and lifetime benefit limits 

that apply to total medical costs covered by the plan, but the rules are unclear about how changes to 

limits imposed on specific benefits would affect a plan’s grandfathered status. 

For example, the rules state that a plan would lose grandfathered status if it imposes an “overall 

annual limit on the dollar value of benefits” when the plan did not have an “overall annual or 

lifetime limit on the dollar value of all benefits” on or before March 23, 2010. We believe the rules 

should clarify that this would also prevent a plan that lacked an annual or lifetime limit on the value 

of all benefits as of March 23, 2010 from maintaining grandfathered status if, for example, it 

imposes a new annual dollar limit on a particular benefit, such as prescription drug coverage. In 

addition, we think that any plan that imposes a new dollar-value limit on a specific benefit — 

regardless of whether the plan had annual or lifetime limits in place prior to enactment of the 

Affordable Care Act — should be prohibited from maintaining grandfathered status. A plan would 

also lose grandfathered status if it previously imposed an annual dollar limit on a benefit like 

prescription drugs but then subsequently lowers that limit. This issue is particularly important 

because grandfathered individual-market plans (in contrast to other grandfathered plans) are not 

subject to the Affordable Care Act’s restrictions on applying annual dollar-value limits to essential 

health benefits. Such limits could constitute a significant change in coverage for enrollees, and plans 

that impose them should not be permitted to maintain grandfathered status. 

 

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Changes in Availability and Cost of Out-of-Network Coverage Should Prevent a Plan from 

Maintaining Grandfathered Status 

The rule does not clearly specify whether the rules related to cost-sharing changes apply equally to 

both in-network and out-of-network benefits. We believe they should be applied equally because 

the availability and cost of out-of-network benefits are a key element of coverage for many enrollees, 

and significant changes in this area should warrant a plan no longer having grandfathered status. If a 

plan such as a PPO or point-of-service HMO provided out-of-network coverage as of enactment of 

the Affordable Care Act, enrollees should be able to have the same coverage if their plans are to 

remain grandfathered plans. 

Conclusion 

 

Thank you for the opportunity to comment. If you have any questions, please do not hesitate to 

contact Edwin Park (park@cbpp.org) or Sarah Lueck (lueck@cbpp.org). 

Sincerely, 

Edwin Park Sarah Lueck 

Co-Director of Health Policy Health Policy Analyst