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ATTORNEYS i
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August 12, 2010

Submitted Via Federal Rulemaking Portal: http:/www.regulations.gov

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

Room N-5653

U.S. Department of Labor

200 Constitution Avenue, NW.

Washington, DC 20210

Attn: RIN 1210-AB42

Re 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

Ladies and Gentlemen:

We are submitting these comments on behalf of a client which is a mid-size employer and
comprehensive health plan sponsor in response to 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 (the “Regulations”), which were published in the Federal
Register on June 17, 2010.! The Regulations provide guidance under the Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, the
“Acts”). As with other guidance under these Acts, the Regulations were published jointly by the
Department of the Treasury, the Department of Labor and the Department of Health and Human
Services (the “Departments”).

The purpose of this letter is to comment on the impact under these Regulations of certain
structural changes involving group health plans, both insured and self-insured. In particular, the
Departments specifically invited comments regarding the impact under the Regulations of changes
to plan structure (such as switching from an insured plan to a self-insured product). As explained
more fully below, we believe that such a modification to the funding mechanism, and in particular,
switching from an insured plan to a self-insured product, so long as not coupled with any changes

75 Fed. Reg. 34,538 et seq.
2 75 Fed, Reg. 34,544.

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Office of Health Plan Standard:
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ATTORNEYS SHAW. Employee Benefits Security Administration
August 12, 2010

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to the plan’s benefits, costs or annual limits that would otherwise result in a loss of grandfathering
status (“Coverage Changes”), should not itself cause the loss of grandfathered status.

Changes to Plan Funding Mechanism

A stated purpose of the Acts is to allow those who would like to keep their coverage in
effect at the time of the Acts’ enactment to do so. In fact, the Departments expressly acknowledge
this purpose in the preamble to the Regulations.

These interim final regulations are necessary in order to provide rules that
plan sponsors and issuers can use to determine which changes they can make
to the terms of the plan or health insurance coverage while retaining their
grandfathered status, thus exempting them from certain provisions of the
Affordable Care Act and fulfilling a goal of the legislation, which is to allow
those that like their healthcare to keep it. These interim final regulations are
designed to allow individuals who wish to maintain their current health
insurance plan to do so,....° (emphasis added)

Changing from an insured arrangement to a self-insured arrangement, or vice versa, so long
as not coupled with other Coverage Changes, should not result in loss of grandfathered status. In
fact, all plans should be permitted to change policies, insurers and funding mechanisms without the
loss of grandfathered status. Locking employers into staying with a particular insurer or funding
mechanism in order to maintain grandfathered status is inconsistent with “fulfilling a goal of the
legislation, which is to allow those that like their healthcare to keep it”.

Further, the flexibility to modify a plan’s funding mechanism is necessary to react to
changes in the market, as well as to an employer’s employee population, among other things.
Employers should not risk losing a plan’s grandfathered status when reacting to such market or
employee population movements so long as the modifications to the funding mechanism are not
accompanied by other Coverage Changes. Such changes often result in plan improvements, and to
prohibit such changes would impede on existing market forces and would inappropriately
discourage competition among insurers and third party administrators (“TPAs”).

As drafted, the Regulations create a situation in which plans must choose between paying
increased premiums without considering alternative arrangements, or losing grandfathered plan
status. It eliminates the downward pressure on costs that results from the ability of businesses to
consider converting to self-insured or switching insurers or TPAs.

This last point is significant. Modifications to a plan’s funding mechanism may result in
substantial cost savings to an employer which savings can enable the employer to continue to

3 75 Fed. Reg. 34,546.

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arrorners SHAW. LLP Employee Benefits Security Administration
August 12, 2010

Page 3

maintain the same coverage and benefits for its employees and covered dependents, and indeed to
continue to maintain the plan itself. We are all aware of the many reports recently of insurers
increasing their health insurance premiums in excess of 30%, Insurance costs have continued to
spiral. Our client has considered converting an insured plan to a self-insured plan, which has been
projected to result in cost savings of approximately $1 million annually without any change in
coverage or benefits for its employees, even after the additional cost of engaging a TPA. Given that
their proposed plan restructuring will not involve any Coverage Changes, they should be permitted
to do so without jeopardizing their grandfathered status under the Regulations.

Accordingly, we believe that changes to a plan’s funding mechanism (e.g., changing from an
insured arrangement to a self-insured arrangement, or vice versa, or changing insurers or TPAs), so
long as not accompanied by other Coverage Changes that would themselves result in loss of

grandfathered status, should not cause the loss of grandfathered status, and we request that final
tules be issued to reflect such intent.

Sincerely,

SEYFARTH SHAW LLP

Richard G. Schwartz
RGS/km

Enclosure

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