—=EBMS

Employee Benefit Management Services, Inc.

d. Change in Plan Structure

Employers will change the structure of their group health plan, such as adding a health
reimbursement arrangement option to provide additional benefits and incentivize employees to
participate in wellness activities. If for example, an employee participates in the employer-
sponsored wellness program, the employee receives employer contributions to the health
reimbursement arrangement. Those contributions can be used to reduce the deductible, or pay
coinsurance or copayment amounts. We suggest that as long as the combined effect of the new
health reimbursement arrangement option and any increases in deductible or copayments do not
exceed the “safe harbor” under Subsection (g)(1) for permitted changes, this change in plan
structure should not cause a cessation of grandfathered status as to the group health plan nor
should the health reimbursement arrangement be considered as anything other than a benefit
enhancement to the group health plan.

Comments on Specific Standards for Benefits, Cost-Sharing, and Employer Contributions

The Departments also invited comments on the specific standards for benefits, cost sharing, and
employer contributions. We submit the following. From the discussion in the preamble, it
appears that the Departments determined the best approach to be a one-time increase of 15%
added to the cost of medical inflation as calculated from March 23", 2010. As stated in the
preamble, the rationale was that this method best reflected the employers’ need to make
adjustments in the near term for market reform as they would apply to grandfathered plans, and
only small incremental changes over the next few years would be necessary for the later reforms.
While our employer clients appreciate the Departments’ understanding that there will be
additional costs, we believe that the costs and burdens of the new benefit mandates and reporting
requirements to these employers will significantly exceed the Departments’ estimates of time and
cost of implementation. For group health plans with a plan year of September 1%, those plans will
be subject to the earlier market reforms with the plan year beginning September 1, 2011. These
employers will make adjustments to their benefit structure for the earlier reform measures on
September 1%, 2011 and will continue for the later measures of market reform up through the
plan year beginning September 1“, 2014. Regulations are still anticipated on several major
initiatives of market reform, including the external review requirements for Section 2719.
Already published interim final regulations have yet to be implemented, leaving employers with
significant uncertainty as to the full cost and effect of these regulations, particularly with the
unexpectedly onerous regulations on internal and external claims review procedures, the
additional reporting requirements, and the annual fee of $1 per plan participant. For an
approximate six year period, a one-time adjustment of 15% plus the medical inflation as
calculated from March 23TM, 2010 on copayments and deductibles and a one-time 5% adjustment
to the contribution rate of the employer is the only “tool” that employers have to manage their
costs and evaluate whether to retain or relinquish the grandfathered status of their plans. This is
inadequate, given the magnitude of the market reforms, the length of time necessary for the
Departments to publish guidance, and the fact that the Act did not contain equivalent reforms on
the actual costs of care billed by the provider community.

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—FEBMS

Employee Benefit Management Services, Inc.

a. Administrative Vendors

Group health plans commonly make changes to their administrative vendors, including but not
limited to preferred provider networks or claims negotiation services, reinsurance carriers,
pharmacy benefit managers, claims administrators, disease management vendors, utilization
review vendors, accounting and legal consultants, and brokers, in order to control costs and
better manage utilization of the benefit dollars. As long as the change of any one or more
administrative vendors does not result in one or more of the changes listed under in subsection
(g)(1) that would cause a cessation of grandfathered status, a group health plan should be
permitted to make changes to its administrative vendors as needed without a resulting loss of
grandfathered status.

b. Changes in Prescription Drug Programs

In addition to changing pharmacy benefit managers, group health plans will commonly change
the pharmacy benefits to allow for a mail-order option where the plan may not have previously
offered this option, or convert a tiered co-payment structure for brand name, generic, and certain
specialty drugs to a deductible and coinsurance structure, or implement a drug formulary with a
new co-payment structure. Group health plans implement these changes to increase access to
more affordable drugs for their plan members, particularly those plan members with chronic
conditions requiring long term maintenance medications, such as diabetes, high cholesterol, or
cardiovascular disease. For example, converting a tiered co-payment structure to deductible and
coinsurance or implementing a mail order option with a different copayment structure can
actually decrease the costs for those plan members on high cost long term maintenance
medications. As long as the plan administrator makes a reasonable determination of actuarial
equivalency between the prescription drug benefits before and after the change and the plan does
not eliminate all or substantially all benefits to treat a certain condition pursuant to Subsection
(g)(1)(i), the plan should be permitted to change the terms of its pharmacy benefits as described
in this paragraph without a cessation of grandfathered status due to any of the events described in
Subsection (g)(1)(ii)-(iv).

c. Converting from an Insured Product to a Self-Insured Product

Group health plans will also commonly change plan structure to increase benefits for plan
members. For example, an employer may convert its employer-sponsored plan from an insured
product to a self-insured product, to gain the flexibility to offer benefits designed to meet the
particular needs of its own employees. As long as the change in plan structure does not
significantly change the benefits to a level that would cause a cessation of grandfathered status as
defined under Subsection (g)(1), this change in plan structure should not cause a cessation of
grandfathered status of the employer-sponsored plan and the now self-insured plan of the
employer should have grandfathered status.

BILLINGS SALTLAKECITY PORTLAND DENVER
P.O. Box 21367 _ Billings, MT 59104-1367 406-245-3575


—FEBMS

Employee Benefit Management Services, Inc.

EBMS suggests a more effective tool for employers to manage their costs while the industry
implements the market reforms is an annual allowance for cost-sharing increases to copayments,
deductibles, and the coinsurance levels indexed to medical inflation over the course of the entire
transition period from the effective date of the Act through at least, the plan renewal occurring
on or after January 1, 2014. The annual allowance would be a percentage adjustment plus
medical inflation as of the 12 month period immediately preceding the adjustments. ~

In order to restrict annual increases in the deductible to a reasonable level, we suggest limiting
increases in the deductible to the lesser of the percentage adjustment plus medical inflation or the
limits of Section 1302(c)(2). For example, if an employer has a deductible for self-only coverage
of $1,500, the employer can make annual adjustments of the percentage adjustment plus medical
inflation until the Section 1302(c)(2) limit of $2,000 for self-only coverage has been reached.

Employers should be permitted to make minimal annual increases to coinsurance levels, if they
are permitted to decrease their contribution rate. To limit the financial impact to the employees,
permitted adjustments could be limited to a 5% annual adjustment to the coinsurance levels
and/or the employer’s contribution rates. Minimal increases in coinsurance levels can more
effectively manage costs and utilization of medical services, and can be partially offset through
wellness activities/incentives provided employees meet certain goals.

The definition of “medical inflation” under 1251(g)(3) is unnecessarily complicated. We’d
suggest that definition be simplified to the unadjusted percent change to the month that is the
most recently published month from the same month one year earlier. For example, the
unadjusted percent change to June 2010 from June 2009 for medical care is 3.5%. So in this
instance, the permitted adjustment can simply be the sum of 3.5% plus 15%, or 18.5%. Most
employers will evaluate adjustments to benefits, cost-sharing, and premiums on the previous
year’s claims experience, so the more analogous index would be a percentage that represents the
change for the 12 month period immediately prior to the date the employer makes a
determination on necessary adjustments to benefit structure, premiums, and the like.

On behalf of its employer clients, EBMS appreciates the opportunity to submit comments to the
Departments.

Sincgrely,

‘erri Hogan, JD, MBA.
Employee Benefit Management Services, Inc.

BILLINGS SALTLAKECITY PORTLAND DENVER
P.O. Box 21367 _ Billings, MT 59104-1367 406-245-3575


—EBMS

Employee Benefit Management Services, Inc.

August 13, 2010

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 Ave NW

Washington, DC 20210

Department of Health and Human Services

Office of Consumer Information and Insurance Oversight
Attn: OCIIO-9991-IFC

PO Box 8016

Baltimore, MD 21244-1850

Internal Revenue Service
Room 5205

Attn: REG-118412-10
PO Box 7604

Ben Franklin Station
Washington, DC 20004

RE: Comments on Interim Final Rule and Proposed Rule: Group Health Plans and
Health Insurance Coverage Relating to Status as a Grandfathered Health Plan
Under the Patient Protection and Affordable Care Act.

To Whom It May Concern:

Employee Benefit Management Services, Inc. (EBMS) is the Third Party Administrator for self-
funded employee welfare benefit plans. EBMS appreciates the opportunity to comment on the
Interim Final Rule and Proposed Rule jointly issued by the Departments for group health plans
relating to their status as a grandfathered health plan under the Patient Protection and Affordable
Care Act (“Act”) and submits the following comments on behalf of our employer clients.

Threshold Issues Of Application To Self-Funded MEWA’s.

Title 1 of the Act includes Sections 1001 through 1563. Section 1301(b)(1)(A) of the Act
defines a “health plan” for the purposes of Title 1 of the Act as health insurance coverage and
group health plans. Section 1301(b)(1)(B), however, states that a health plan does not include a
group health plan or MEWA to the extent such plans are not subject to State insurance regulation
under ERISA § 514. Section 1301(b)(3) defines a “group health plan” by adopting the Public

BILLINGS SALTLAKECITY PORTLAND DENVER
P.O. Box 21367 _ Billings, MT 59104-1367 406-245-3575


—=EBMS

Employee Benefit Management Services, Inc.

Health Service Act § 2791(a), which section would include a MEWA within the definition of a
“group health plan.” The intent of these provisions is unclear.

a. What is the distinction between a “group health plan” and a “health plan”? Can a plan be
a “group health plan” subject to the Act but not be a “health plan” under the 1301(b)

language? -

b. Ifaplan can be a “group health plan” without being a “health plan” under the ERISA
exemption rule, what is the significance of the distinction?

c. Because a MEWA is subject to regulation by the states to the extent not inconsistent with
applicable provisions of ERISA, how does the exclusionary language of 1301(b)(1)(B)
apply to a MEWA? Is the exclusionary language intended to remove a self-insured
MEWA from consideration as a “qualified health plan”, with the understanding that only
a “qualified health plan may be sold on an Exchange?

Multiple Employer Welfare Associations

First, for the purposes of determining whether a plan is “grandfathered” such that many of the
Act’s provisions do not apply, are the rules, as applied to a self-funded multiple employer
welfare arrangements (MEWA), determined at the plan level or at the adopting employer level?

Section 1251(a)(1) of the Act states that nothing in the Act requires an individual terminate
coverage under an existing plan. Section 1251(a)(2) addresses the issue from the plan’s
perspective and states Subtitle A (which includes the lifetime and annual limits and other
important provisions) and Subtitle C (which includes the preexisting condition prohibition and
other provisions) shall not apply to a plan or coverage offered by a group health plan in which an
individual was enrolled as of the effective date of the Act.

This grandfathered status benefit is extended to family members enrolling after the effective date
(§1251(b)) and to new employees joining a group health plan after the effective date (§1251(c)).

Section 1251(d) addresses plans maintained under a collective bargaining agreement and extends
grandfathered status to any plan certified prior to the effective date until all collective bargaining
agreements relating to the plan terminate.

The regulations at 26 CFR §54.9815-1251T(a)(1)(i), 29 CFR §2590.715-1251(a)(1)(i), and 45
CFR §147.140 (a)(1)() further clarify that the rules of these sections are to apply separately to
each benefit package made available under a group health plan or health insurance coverage.
Subsection (a)(1)(ii) specifies that if an employer or employee organization enters into a new
policy, certificate, or contract of insurance after March 23, 2010 (because for example, any
previous policy, certificate or contract of insurance is not being renewed), then that policy,
certificate, or contract of insurance is not a grandfathered plan. The regulations also provide
special rules for collectively bargained plans. However, there is no reference in either the statute
or the regulations to a multiple employer welfare arrangement or other forms of multiple

BILLINGS SALT LAKE CITY PORTLAND DENVER
P.O. Box 21367 _ Billings, MT 59104-1367 406-245-3575


—=EBMS

Employee Benefit Management Services, Inc.

employer trusts. By definition in Section 3(40) of ERISA, 29 USC §1002(1), a MEWA is a
welfare benefit plan established for the purpose of providing benefits to the employees of two or
more employers, or to their beneficiaries which suggests the determination is made at the
employer plan level. An employer, as defined in Section 3(5) of ERISA, includes any person
acting directly as an employer or indirectly in the interest of an employer, in relation to an
employee benefit plan; and includes a group or association of employers acting for an employer
in such capacity.

For purposes of evaluating each benefit package made available under a plan sponsored by a
MEWA trust to determine grandfathered plan status, is the “employer” considered to be each
participating employer within the MEWA trust, or is the “employer” considered to be the
MEWA trust itself?

If the “employer” is the participating employer and not the MEWA trust, and the MEWA trust
covers employers 1 through 100 as of March 23, 2010, but after March 23, 2010, new employer
101 adopts the plan. Is the MEWA grandfathered as to:

a. employers (and employees/families) 1 through 100, but not 101;
b. employers (and employees/families) 1 through 101; or

c. none of the employers?

In the alternative, if the “employer” is the MEWA trust itself, is each benefit option offered by
the MEWA trust for participating employers to be separately evaluated and a determination
made as to the grandfathered status of each benefit option? For example, if the MEWA covers
100 employers and one existing employer makes a change in the benefit structure greater than
allowed by the grandfather rules does:

a. the group health plan adopted by employer 1 lose its grandfathered status, but the
plans of employers 2 through 100 retain grandfather status;

b. do all employers 1 through 100 lose the grandfathered status; or

c. do all employers maintain their grandfathered status?

Comments on Plan Changes Causing a Cessation of Grandfathered Status

The Departments invited comments on other changes that may cause cessation of a group health
plan’s grandfathered status. We submit the following suggestions for changes that group health
plans should be permitted to make without a cessation of grandfathered status.

BILLINGS SALTLAKE CITY PORTLAND DENVER
P.O. Box 21367 _ Billings, MT 59104-1367 406-245-3575