August 16, 2010

Office of Health Plan Standards and Compliance Assistance

Employee Benefits Security Administration

Room N-5653

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington D.C. 20210

Attention: RIN 1210-AB42

Office of Consumer Information and Insurance Oversight 

Department of Health and Human Services

Attention: OCIIO-9991-IFC

P.O. Box 8016

Baltimore, MD 21244-1850

Attention: File Code OCCIIO-9991-IFC

Internal Revenue Service

Room 5205

P.O. Box 7604

Ben Franklin Station

Washington D.C. 20044

Attention: REG-118412-10

Re: Grandfathered Health Plan Interim Final Rule

Submitted via eRulemaking Portal: www.regulations.gov

Dear Sir or Madam:

I am writing on behalf of America’s Health Insurance Plans (AHIP) to offer comments in

response to the Interim Final Rules (IFR) for Group Health Plans and Health Insurance 

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

Affordable Care Act published in the Federal Register on June 17, 2010.1 The IFR implements 

Section 1251 of the Patient Protection and Affordable Care Act2(the “Affordable Care Act”),

which was signed into law on March 23, 2010.

 

1

75 Fed. Reg. 34538.

2

Pub. L. No. 111-148, as amended by Pub. L. No. 111-152.
August 16, 2010 

Page 2

AHIP is the national association representing approximately 1,300 health insurance plans that 

provide coverage to more than 200 million Americans. Our members offer a broad range of 

health insurance products in the commercial marketplace and have demonstrated a strong 

commitment to participation in public programs. AHIP members remain committed to the 

successful implementation of the Affordable Care Act (ACA) and to working collaboratively 

with other stakeholders to make the process as seamless as possible for consumers. We 

appreciate the opportunity to comment on this regulatory proposal. 

The ACA created a special category of coverage – called grandfathered health plans – to reduce 

disruption in the market and allow individuals, families, and employers to keep their current 

coverage. To be eligible for grandfathered status, the consumer or employer must have been 

enrolled in the coverage on or before the date of enactment of the ACA (March 23, 2010). 

As noted in the IFR, “the statute balances its objective of preserving the ability to maintain 

existing coverage with the goals of expanding access to and improving the quality of health 

coverage. The statute does not, however, address at what point changes [to grandfathered 

coverage]...are significant enough to cause the plan or health insurance coverage to cease to be a 

grandfathered health plan, leaving that question to be addressed by regulatory guidance.”3 The 

Departments of the Treasury, Labor, and Health and Human Services (Departments) jointly 

issued interim final rules in June 2010 providing guidance on how to maintain the grandfathered 

status of existing coverage.

AHIP members appreciate the allowance, noted in the IFR, for early and voluntary 

implementation efforts to come into compliance with the reforms established under the 

Affordable Care Act without impacting the grandfathered status of coverage. In addition, the 

guidance to states regarding the continued exemption for products that are classified as HIPAA 

“excepted benefits” is very helpful and will assist stakeholders as we work collaboratively to 

implement the new federal requirements. 

For the reasons that follow, we encourage the Departments to reconsider the current guidance 

regarding permissible cost-sharing changes to provide individuals, families, and employers with 

additional flexibility to preserve their grandfathered plans as affordable coverage options. We 

believe this will be critical to help smooth the transition to the 2014 reformed environment –

especially since consumers and employers are unable to make an informed-choice about 

maintaining their grandfathered coverage until the remaining reform components (e.g., the 

essential benefit package) are defined. Our members also suggest several areas for further 

technical clarification to lessen the potential for regulatory uncertainty and to minimize 

 

3

75 Fed. Reg. 34538, at 34540 - 34541.
August 16, 2010 

Page 3

disruption for consumers with existing coverage. We welcome the opportunity to further discuss 

our concerns and recommendations. 

I. Suggestions to Further Safeguard the Stability of Existing Coverage for Consumers

A. Align Benchmarks with Rising Medical Costs and Current Market Trends 

We are concerned about the impact of the permissible cost-sharing changes 

established under the IFR for existing coverage. The estimates provided by the 

Departments demonstrate that the IFR’s restrictions on changes to grandfathered 

plans effectively make the benefits associated with this ACA provision temporary, 

which does not appear to be the intent of this provision. The graph below highlights 

the data from the IFR – estimating that more than half of all employers, and twothirds of all small employers, will relinquish their grandfathered coverage by the end 

of 2013.

Mid-Range Estimates of Cumulative Percent of Employer 

Plans Relinquishing Grandfathered Status4

0%

10%

20%

30%

40%

50%

60%

70%

2011 2012 2013

Small Employers Large Employers

All Employers

The Departments also estimate that the percentage of individual market policies 

losing grandfathered status in a given year will likely exceed the 40 to 67 percent 

range. As such, the structure of the grandfathered IFR could cause disruptions for 

employers who are struggling to provide coverage to their workers and for individuals 

and families who wish to keep their existing coverage.

Our members are also concerned that the selected benchmark – the medical 

component of the Consumer Price Index (Medical CPI) – simply measures the 

 

4

75 Fed. Reg. 34553.
August 16, 2010 

Page 4

inflationary component of prices charged for a defined group of services. It does not

include other major factors that drive increases in health care spending, such as 

increased utilization, the needs of an aging population, and the development of new 

medical technologies and prescription drugs. As a result of these other factors, the 

cost of providing health benefits increases significantly above Medical CPI. 

Finally, we note that the proposed benchmark represents a significant departure from 

market trends regarding voluntary employer changes to a plan’s cost-sharing features 

to maintain affordability of coverage in response to rising medical costs. Data from 

the Kaiser Family Foundation demonstrate that the percentage change in average 

deductible levels have, over time, increased at rates much higher than allowed under 

the IFR (a cumulative 15 percentage points plus Medical CPI). In addition, 

coinsurance obligations have been on the rise, at a much slower pace, under employer 

plans over the course of the last five years. Consumers in the individual market 

similarly adjust plan cost-sharing features to keep their premiums stable.

The following tables examine the application of the permissible cost-sharing changes 

to the data from the Kaiser Family Foundation for average deductible and coinsurance 

(for hospital admissions) changes to employer Preferred Provider Organization (PPO) 

plans from 2004 – 2008.

Average Deductible Changes – Employer PPO Plans5

Small Employer

Average Deductible

Estimated Allowable 

Change under IFR

Percent Difference –

Average vs. Estimate

2004 $420 - -

2005 $469 $482 3%

2006 $673 $517 -23%

2007 $667 $532 -20%

2008 $917 $553 -40%

Large Employer

Average Deductible 

Estimated Allowable 

Change under IFR

Percent Difference –

Average vs. Estimate

2004 $232 - -

2005 $254 $264 4%

2006 $375 $286 -24%

2007 $382 $294 -23%

2008 $413 $305 -26%

 

5 Kaiser Family Foundation Employer Health Benefits Annual Survey (2004 – 2008), as available on the 

 internet, accessed on August 12, 2010, at http://ehbs.kff.org/ 
August 16, 2010 

Page 5

Average Coinsurance Changes for Hospital Admissions – Employer PPO Plans6

All Employers

Average Coinsurance 

Estimated Allowable 

Change under IFR

Percent Difference –

Average vs. Estimate

2004 16% - -

2005 16% None 0%

2006 17% None -1%

2007 17% None -1%

2008 17% None -1%

Recommendation: We therefore request reconsideration of the selected 

benchmark and accompanying standards for permissible cost-sharing changes 

to allow consumers to preserve their existing grandfathered plan as an 

affordable coverage option. 

B. Allow Changes to Prescription Drug Formularies and Provider Networks 

The availability of new prescriptions drugs, newly available generics, advances in 

medical knowledge and research regarding drug therapies, and opportunities for 

improving patient safety necessarily requires regular changes to prescription drug 

formularies. Modifications should be allowed, without impacting the grandfathered 

status of coverage, to ensure the provision of high-quality, low-cost prescription drug 

coverage.

Similarly, the maintenance of provider networks should be allowed without 

relinquishing the grandfathered status of coverage. Changes are made to networks on 

a regular basis to expand the network to include additional providers, improve 

quality, and address other changes (e.g., provider’s relocation outside the service area, 

change in practice, or retirement). Individuals and families benefit from the 

establishment of provider networks that promote quality and patient safety, along 

with access to a broad selection of health care professionals at a contractuallydiscounted reimbursement rate.

Recommendation: We suggest the Departments clarify that such changes made 

to prescription drug formularies and provider networks continue to be allowed, 

without impacting the grandfathered status of coverage, to ensure the provision 

of high-quality, low-cost coverage.

 

6

Ibid. 
August 16, 2010 

Page 6

II. Additional Technical Comments for Consideration

A. Clarify the Scope of the Grandfathered Plan ACA Requirements 

Our members greatly appreciate the discussion in the preamble of the IFR regarding 

the scope of the new federal requirements – the application of the ACA market 

reforms to comprehensive, major medical insurance only and not to products that are 

classified as “excepted benefits” under subsection 2791(c) of the Public Health 

Service Act. 

Recommendation: We ask that the same recognition also be incorporated in the 

text of the grandfathered health plan regulations. 

B. Protect Grandfathered Status of Coverage for Administrative Changes 

The IFR includes a specific invitation for comments from the Departments on 

whether certain changes should result in the loss of grandfathered status of coverage. 

This included changes in a provider network and prescription drug formulary – we 

refer to our above comments and suggestion that these types of changes should not 

impact grandfathered status – as well as changes to plan structure (such as switching 

from an insured to self-funded financing arrangement).

As noted in the IFR, the ACA was intended to allow individual consumers and 

employers the flexibility to preserve their existing coverage. We suggest that 

administrative changes made to a plan that do not otherwise impact the underlying 

benefits should not impact the grandfathered status of the coverage. Specifically, we 

encourage the Departments to allow changes to: (1) the contractual structure of the 

plan (e.g., movement from a medical policy with a dental rider to a medical policy 

with a separate dental policy), (2) to the selection and utilization of third-party 

vendors (e.g., wellness, behavioral health organizations, pharmacy benefit managers, 

and rental network vendors); and (3) the financing arrangement for coverage (e.g., 

movement from self-funded to fully-insured coverage and vice versa).

Recommendation: To promote flexibility for consumers and continued 

innovation in the market, we suggest that the above noted types of 

administrative changes should not result in the loss of grandfathered status, so 

long as the modifications do not impact the underlying benefits or otherwise exceed 

the permissible thresholds established under the IFR. 
August 16, 2010 

Page 7

C. Issue Further Clarification to Minimize Disruption for Consumers with Existing 

Coverage

The Departments can further minimize the potential for disruption to existing 

coverage by minimizing the litigation and enforcement risks associated with the 

complex grandfathered health plan regulations. This can be accomplished through 

issuance of further clarification. We encourage consideration of all of the following 

topics as areas to provide more regulatory certainty:

only require prospective (not retrospective) changes to grandfathered plans when 

a plan sponsor or health insurance issuer, acting in good faith, is challenged on its 

modification to the coverage or benefit structure of the grandfathered plan;

clarify that only those changes specifically proscribed by the IFR would cause a 

loss of grandfathered status;

confirm that changes made by a plan sponsor or health insurance issuer in 

response to federal or state guidance (e.g., the guidance issued by the U.S. 

Department of Labor on implementation of the mental health parity rule) will not 

impact the grandfathered status of coverage; 

provide parity in the treatment of annual limit requirements under the 

grandfathered IFR with the ACA restrictions on annual limits with a clarification 

that the IFR guidelines on “changes in annual limits” do not apply to such limits 

for non-essential benefits7;

acknowledge that changes made to rewards or other incentives used in connection 

with bona fide wellness programs will not cause the loss of grandfathered status; 

and

clarify that the transitional rules established under the IFR8protect existing 

contractual rights in the individual market (e.g., premium affordability features 

that allows consumers to increase cost-sharing in order to maintain stable 

premiums) and allow the consumer to exercise those rights without impacting the 

grandfathered status of the plan.

 

7 The “changes in annual limit” requirements are established under 54 CFR §54.9815-1251T(g)(1)(vi), 29 

 CFR §2590.175-1251(g)(1)(vi), and 45 CFR §147.140(g)(1)(vi).

8 The transitional rules are established under 54 CFR §54.9815-1251T(g)(2)(ii), 29 CFR §2590.175-

 1251(g)(2)(ii), and 45 CFR §147.140(g)(2)(ii).
August 16, 2010 

Page 8

Recommendation: To preserve the availability of existing insurance and 

promote additional choices of affordable coverage options for individuals, 

families, and employers, we request the issuance of further clarification to 

address the above items to enhance the current guidance and provide more 

regulatory certainty for the implementation process. 

D. Promote the Uniform and Consistent Application of the Grandfathered Plan 

Provisions

Finally, we suggest that the Departments consider issuing additional guidance to 

promote the uniform and consistent application of the grandfathered plan provisions. 

The uniform application of these provisions can help ensure that all consumers 

receive the same level of protections with respect to the right to preserve existing 

coverage options, regardless of the consumer’s residence. Guidance from the 

Departments also can help alleviate the administrative burdens and associated costs 

with multiple, potentially overlapping and conflicting, state-specific requirements.

Recommendation: We suggest issuance of guidance on the following topics: (1) 

plan sponsors and health insurance issuers are permitted to provide coverage 

with different benefits under a single policy form so long as the differences are 

directly attributable to the grandfathered status of coverage; and (2) the date for 

determining the grandfathered status of coverage purchased through an 

association or trust is the date that the individual consumer or employer secured 

coverage (not when the association or trust health arrangement or insurance is 

established). 

In addition, we also support our employer-consumers in asking the Departments 

to reconsider the scope of the safe-harbor provided to collective-bargaining 

arrangements (CBA) to provide parity in the treatment of self-funded and fullyinsured plans by allowing CBAs ratified before March 23, 2010, to qualify as 

grandfathered coverage until the CBA terminates.

AHIP members support granting employers, individual consumers, and families stronger 

protections to maintain their existing plan and provide greater stability of coverage. We 

therefore encourage the Departments to consider the above suggestions for clarifying the ACA

grandfathered health plan protections. 
August 16, 2010 

Page 9

Our members remain committed to our continued collaboration and dialogue with other 

stakeholders and interested parties throughout the implementation process. We welcome the 

opportunity to meet with you to discuss our concerns and recommendations in more detail. 

Thank you for the opportunity to comment on this regulatory proposal.

Sincerely,

Jeffery L. Gabardi 

Senior Vice President, State Affairs