THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK

42 West 44th Street, New York, NY 10036-6689 www.nycbar.org

August 13, 2010

By first-class mail and e-mail [http://www.regulations.gov]

Internal Revenue Service

CC:PA:LPD:PR (REG-118412-10)

Room 5205; P.O. Box 7604

Ben Franklin Station

Washington, DC 20044

Re: Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered 

Plan under the Patient Protection and Affordable Care Act; Interim Final Rule and 

Proposed Rule

Ladies and Gentlemen:

The Committee on Employee Benefits and Executive Compensation of the New York City Bar 

Association (the “Committee”) is composed of attorneys with diverse perspectives on employee 

benefit issues, including members of law firms and counsel to corporations. We commend the 

Department of Treasury, Department of Labor and Department of Health and Human Services 

(collectively, the “Departments”) for expeditiously issuing the interim final rule referenced 

above1 (the “Grandfathering Rules”) following enactment of the Patient Protection and 

 

1

75 FR 34538 (June 17, 2010).

COMMITTEE ON EMPLOYEE BENEFITS &

EXECUTIVE COMPENSATION

MATTHEW L. EILENBERG

CHAIR

875 THIRD AVENUE

17TH FLOOR

NEW YORK, NY 10022-6225

Phone: (212) 251-5718

Fax: (212) 644-7432

matthew.eilenberg@towerswatson.com

DAVID GALLAI

SECRETARY

30 ROCKEFELLER PLAZA

32ND FLOOR

NEW YORK, NY 10112-0127

Phone: (212) 408-1033

Fax: (212) 541-5369

dgallai@chadbourne.com
Internal Revenue Service

August 13, 2010

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THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK

42 West 44th Street, New York, NY 10036-6689 www.nycbar.org

Affordable Care Act (the “PPAC”),2 as amended by the Health Care and Education 

Reconciliation Act3 (collectively with the PPAC, the “Act”). 

The purpose of our letter4 is to seek clarification regarding the ability of self-insured plans to be 

classified as grandfathered plans and to respond to the Departments’ request for comments on the 

changes to a plan’s benefits, costs, or annual limits that would cause a group health plan or 

health insurance coverage to cease to be a grandfathered plan (the “Status Changes”).5 We also 

address whether certain of the additional types of changes outlined in the preamble to the 

Grandfathering Rules should cause a loss in grandfather status. In this letter, references to a 

“plan” are limited to references to a group health plan. 

We note that the Departments anticipate that few large employer plans will retain their 

grandfather status by the time the health insurance exchanges are established in 2014.6 We are, 

of course, not in a position to predict how many employers that sponsor group health plans (the 

“Plan Sponsors”) will want to preserve the grandfathered status of their plans. We do note that 

the Congress believed it was important to include a grandfather exception in the Act for the 

purpose of allowing employees who so elect to continue to maintain the health coverage in place 

under their employers' plans at the time the Act was adopted into law. With this principle in 

mind, we believe that the Departments should structure the Grandfathering Rules in a flexible 

manner so as to make it possible for employers to maintain the grandfather status for their plans 

without the risk of inadvertent or unintended loss of this status. Most importantly, we believe the 

Departments should not use the Grandfathering Rules as a way of narrowing the grandfathering 

exception or subverting the clear intent of the Act to allow plans to avoid certain provisions of 

the Act by being grandfathered. 

Our comments are based on the premise that the Grandfathering Rules should be revised and 

clarified to ensure that grandfather status is not forfeited due to arbitrary distinctions imposed by 

the Grandfathering Rules. As noted above, the Grandfathering Rules should be written in a way 

that minimizes the chance that a plan will lose its grandfather status because of inadvertent errors 

or unintended consequences resulting from a good-faith attempt by employers to preserve 

grandfather status. Our comments also ask the Departments to reconsider certain of the Status 

Changes to make them less restrictive so as to allow Plan Sponsors more flexibility to respond to 

changing circumstances affecting the design and implementation of their plans.

 

2

Pub. L. No. 111-148.

3

Pub. L. No. 111-152.

4 This letter was prepared by a subcommittee of the Committee on Employee Benefits and Executive 

Compensation of the New York City Bar Association chaired by Kenneth J. Laverriere. The other members of the 

subcommittee were David Gallai and Sarah Richards and Vipin Varghese (at the time a Student Member of the 

Committee). Mr. Laverriere’s colleague Sharon Lippett assisted in the drafting and revision of the letter. 

5 These changes are set forth in Treas. Reg. § 54.9815-1251T(g).

6

See http://healthreform.gov/about/grandfathering.html.
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Further, given that a stated purpose of the Act is to allow individuals to keep the coverage they 

had at the time the Act was adopted into law,7 we urge the Departments to clarify an apparent 

ambiguity in the Act (discussed in more detail below) and unambiguously state in the 

Grandfathering Rules that self-insured plans may be grandfathered plans. 

Each of the comments discussed below is being made with the intent of furthering one major 

purpose of the Act, which is to make it more likely for employees who so choose to continue the 

coverage in effect under their employers' plans at the time of the Act’s adoption without losing 

grandfather status.

A. Self-Insured Plans as Grandfathered Plans.

We request that the Departments use the Grandfathering Rules as an opportunity to clarify an 

ambiguity in the Act by adding a statement in the Grandfathering Rules indicating that 

self-insured plans are eligible to be grandfathered plans. The ambiguity arises because 

self-insured medical plans may not fit within the definition of an eligible employer-sponsored 

plan, which suggests that an eligible employer-sponsored plan must be an insured plan.8 To be 

an eligible employer-sponsored plan, a plan must, among other things, be either a governmental 

plan (not applicable to private employers) or “any other plan or coverage offered in the small or 

large group market within a state.”9 The Act defines “small and large group market” as the 

health insurance market under which individuals obtain health insurance coverage...through a 

group health plan maintained by a large employer...or by a small employer.”10 The term “health 

insurance coverage” is defined in a somewhat ambiguous manner, but could be read as being

limited to insured arrangements.11 Further, the Act provides that a grandfathered plan may 

qualify as an eligible employer-sponsored plan, but only if it is a grandfathered plan “offered in a 

 

7

Press Release, The White House, Office of the Press Secretary, Remarks by the President in Town Hall on 

Health Care, Grand Junction, Colorado (Aug. 15, 2009) (available at 

www.whitehouse.gov/the_press_office/Remarks-By-The-President-In-Town-Hall-On-Health-Care-Grand-JunctionColorado).

8

See PPAC § 1501(b) (adding new I.R.C. § 5000A(f)) (defining an “eligible employer-sponsored plan” as a 

group health plan or group health insurance coverage offered by an employer to the employee which is (A) a 

governmental plan...or (B) any other plan or coverage offered in the small or large group market within a State).

9

PPAC § 1501(b) (adding new I.R.C. § 5000A(f)). 

10 PPAC § 1304(a)(3). 

11 See PPAC § 1301(b)(2) (referencing the Public Health Service Act, 42 U.S.C. 300gg et seq. (the “PHSA”) 

§ 2791(b)). Under the PHSA, “health insurance coverage” is defined as “benefits consisting of medical care...under 

any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance 

organization contract offered by a health insurance issuer.” A “health insurance issuer” does not include a 

self-insured group health plan. It is unclear if the phrase “offered by a health insurance issuer” modifies the entire 

definition (in which case a self-insured plan is not offered in a small or large group market) or if the phrase only 

modifies the reference to a health maintenance organization. If the latter, then a self-insured plan would offer 

benefits consisting of medical care under a medical service policy and would offer coverage in a small or large 

group market.
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August 13, 2010

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group market.”12 The net result of these provisions is that self-insured group health plans may 

not fit within the definition of plans that the Act deems eligible for grandfathering.

This seems like an unintended result that could be addressed through a clarification in the 

Grandfathering Rules of the ambiguity in the Act. Failure to qualify as an eligible 

employer-sponsored plan could subject a self-insured plan to the excise tax provisions imposed 

on employers by the employer-mandate provisions of the Act.13 Given the importance of this 

issue to sponsors of self-insured plans, we urge the Departments to clarify the status of 

self-insured plans as eligible employer-sponsored plans. 

B. Comments on Status Changes.

1. Conform Increases in Co-Insurance to Decreases in Employer Contributions. We urge 

the Departments to conform the trigger for a loss of grandfather status due to an increase in 

co-insurance to the trigger for a loss of grandfather status due to a decrease in the employer 

contribution rate. As currently proposed, the Grandfathering Rules provide that any increase in 

the level of co-insurance will cause a plan to lose grandfather status, but that a decrease in the 

contribution rate based on the cost of coverage will not result in the loss of grandfather status, 

unless the decrease exceeds the threshold in the applicable Status Change.14 We note that the 

Departments provided relief for increases in fixed-amount cost-sharing requirements by 

permitting increases up to a maximum percentage increase. 

As the Departments are aware, the economic components of a plan (co-insurance, co-payments, 

out-of-pocket maximums, premium contribution rates and covered benefits) are interrelated, and 

Plan Sponsors look at the totality of these components each year when considering design 

changes. For some Plan Sponsors, an increase in co-insurance may be tied to a decrease in 

employer contributions (or vice versa). Therefore, we suggest that a threshold comparable to 

that available for decreases in employer contributions apply to increases in co-insurance. 

We also urge the Departments to add to the Grandfathering Rules an overall measure of 

projected plan cost for participants that would allow for the preservation of grandfathered status 

as long as the overall projected cost for the plan did not increase at a rate that was greater than 

the growth of overall participant cost for the plan permitted under the Grandfathering Rules. 

2. Modify the Status Changes Relating to Annual Limits to Provide Flexibility to Plan 

Sponsors Without Causing a Loss of Grandfather Status. We ask the Departments to consider 

modifying the Grandfathering Rules applicable to plans that, on March 23, 2010 (the date on 

which the Act was enacted), imposed a lifetime limit or annual limit on the dollar value of 

 

12 See PPAC § 1501(b) (adding new I.R.C. § 5000A(f)). 

13 PPAC § 1513(a) (adding new I.R.C. § 4980H(a)), as amended by the Health Care and Education 

Reconciliation Act § 1003. 

14 This threshold is more than five percentage points below the contribution rate on March 23, 2010. Treas. 

Reg. § 54.9815-1251T(g)(v)(A).
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THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK

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benefits so that Plan Sponsors have the flexibility to make certain changes that will not result in 

the loss of the plan’s grandfather status. Under the Grandfathering Rules, a plan that on 

March 23, 2010 imposed a lifetime limit on the dollar value of all benefits, but no annual limit, 

will cease to be a grandfathered plan if it adopts an annual limit that is less than the lifetime 

limit.15 Similarly, a plan that decreases the amount of its annual limit in effect on March 23, 

2010 will cease to be a grandfathered plan.16 

We suggest the following two revisions to the Grandfathering Rules: 

a. A plan should not lose its grandfather status if such plan adds an annual 

limit at a dollar value that satisfies a minimum requirement specified by the Departments, 

which is lower than the dollar value of the lifetime limit.17

b. Insignificant decreases in the annual limit in effect on March 23, 2010 

should not cause a loss of grandfather status. For example, a decrease of up to five 

percent could be considered insignificant. 

3. Clarification of the Maximum Percentage Increase. We believe that the rules for 

determining the maximum percentage increase applicable to increases in fixed-amount 

cost-sharing requirements should be clarified.18 If a plan’s fixed-amount cost-sharing 

requirement experiences a maximum percentage increase during a single calendar year equal to 

medical inflation,19 plus 15 percentage points, the Grandfathering Rules provide that such 

increase will not result in the plan’s loss of grandfather status. But if the actual percentage 

increase during a calendar year is less than medical inflation plus 15 percentage points, it is not 

clear whether, during a subsequent year, an increase in the plan’s fixed-amount cost-sharing 

requirement equal to the difference between the maximum percentage increase and the actual 

percentage increase during the prior year for the plan will cause the plan to lose its grandfather 

status. We urge the Departments to provide further guidance on this question.

4. Clarification of Disclosure and Documentation Requirements. We appreciate the need 

for the Departments to be able to track changes to grandfathered plans. However, we request 

 

15 Treas. Reg. § 54.9815-1251T(g)(vi)(B). 

16 Treas. Reg. § 54.9815-1251T(g)(vi)(C). 

17 We recognize that such minimum would have to satisfy the annual limit minimum specified by the 

Departments in the recently issued final rule and proposed rule for lifetime and annual limits. 75 Fed. Reg. 37188 

(June 28, 2010). 

18 Treas. Reg. § 549815-1251T(g)(iii). This Status Change acknowledges that an increase in fixed-amount 

cost-sharing requirements may be necessary to keep up with the rising cost of medical items and services. 

Recognizing that medical inflation may not reflect the actual costs incurred by the Plan Sponsor, the Status Change 

allows for an additional increase in fixed-amount cost-sharing requirements of 15 percentage points over medical 

inflation from the date of enactment.

19 Medical inflation means the increase since March 2010 in the medical care component of the CPI-U. 

Treas. Reg. § 54.9815-1251T(g)(3)(i). 
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THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK

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clarification with respect to the Departments’ proposed disclosure and documentation 

requirements.

a. Disclosure. To ensure that Plan Sponsors can comply with the 

requirements for written disclosure regarding a plan’s grandfather status,20 we believe 

that the Departments should provide guidance addressing: 

i. the specific plan materials that must include the disclosure. The 

Grandfathering Rules provide “any plan materials provided to a participant or 

beneficiary” must include a statement regarding the grandfather status of the plan. 

We assume that this requirement applies to a plan’s summary plan description 

(“SPD”) and any summary of material modifications to the SPD. But application 

to other documents is unclear. Therefore, we request that the Departments 

identify those plan materials that must include this disclosure. 

ii. the extent to which the model language can be revised while still 

satisfying the disclosure requirement.21 The Grandfathering Rules state that plan 

materials must include “a statement . . . that the plan believes it is a grandfathered 

health plan within the meaning of . . . the Act and must provide contact 

information for questions and complaints.” The model language appears to 

include more than is required by the text of the regulation. Therefore, guidance 

on this point would be helpful. 

iii. the consequences for failure to provide (A) any disclosure or 

(B) disclosure that the Departments determine satisfies the requirement. We do 

not believe that consequences for either type of failure should be loss of 

grandfather status because plan participants would not be harmed by such failure.

iv. confirmation that electronic delivery of this disclosure in 

accordance with DOL Regulation §2520.104b-1(c) and Treasury Regulation 

§1.401(a)-21 is permitted.

b. Documentation. The Grandfathering Rules should be more specific as to 

the types of records that a Plan Sponsor must maintain to satisfy the requirement to 

maintain “records documenting the terms of the plan” or coverage as in effect on 

March 23, 2010, and “any other documents necessary to verify, explain or clarify its 

status as a grandfathered plan.”22 If documentation beyond the plan document, SPD, 

summaries of material modifications and applicable insurance contract or administrative 

service agreement is necessary, we suggest that the Grandfathering Rules explicitly 

enumerate the required documents. 

 

20 See Treas. Reg. § 54.9815-1251T(a)(2).

21 See Treas. Reg. § 54.9815-1251T(a)(2)(ii).

22 Treas. Reg. § 54.9815-1251T(a)(3)(i).
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5. Anti-Abuse Rules. We believe that the rules for mergers and acquisitions should be 

expanded to include a transition period for plans that cease to be grandfathered plans if such a 

transaction occurs and the affected employees become participants in a new plan. We propose 

that the Departments adopt rules similar to those found in IRC Section 410(b)(6)(C), which 

provides for special rules in the event of certain dispositions or acquisitions. In accordance with 

these rules, we believe that the Grandfathering Rules should provide a transition period to a new 

group health plan comprised of the employees affected by the transaction, during which 

grandfathered status continues to apply. This transition period would begin on the date of the 

change in health coverage and end on the last day of the first plan year beginning after the date 

of such change. The transition period could be subject to the condition that participant costs and 

coverage remain substantially the same during the transition period. This approach would 

provide Plan Sponsors with the time necessary to efficiently and effectively implement the 

non-grandfathered status.

C. Comments on Additional Changes Suggested by the Departments.

1. Change in Plan Structure. We believe that changes to a plan’s structure, such as changes 

in the funding mechanism, should not cause forfeiture of grandfather status as long as the 

structural changes do not result in a Status Change. Accordingly, a change from insured to 

self-insured should not cause a plan to lose its grandfather status, as long as such change does not 

result in a Status Change. Plan Sponsors need the flexibility to alter a plan’s structure, due to 

changes in the participant population, changes in the economic climate and changes to the Plan 

Sponsor. Plan Sponsors should not be penalized for structural changes in response to participant, 

economic or other factors, as long as these changes do not result in benefit reductions or cost 

increases that would otherwise result in a loss of grandfather status under the current 

Grandfathering Rules.

Similarly, we believe that a change in structure from a self-insured plan to an insured plan or a 

change in the insurance issuer (the “Insurer Changes”) should not cause a loss of grandfather 

status, even if the insurers have a different credit rating or are organized in different states.23 

While the Insurer Changes may result in a different provider network or different service levels, 

such changes should not result in the loss of grandfather status. Moreover, we believe that the 

Departments should not discourage Plan Sponsors from making the Insurer Changes, as they 

potentially improve coverage and service levels, by encouraging competition among issuers 

without increasing costs or reducing benefits. 

For these reasons, we respectfully submit that the Grandfathering Rules should provide that the 

structural changes described in this Section C.1 will not result in the loss of grandfather status, as 

long as such changes do not otherwise result in a Status Change. Drafting the Grandfathering 

 

23 Currently, Treas. Reg. § 54.9815-1251T(a)(1)(ii) provides that if an employer enters a new policy, 

certificate, or contract of insurance after March 23, 2010, or fails to renew a policy certificate or contract of 

insurance, then the plan will cease to be a grandfathered plan. 
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Rules to cause a plan to lose its grandfather status solely on account of such a structural change 

appears as to us as an arbitrary provision with no reasonable rationale. 

2. Change in Plan Structure. A change to the provider network available to plan 

participants should not cause a plan to lose its grandfather status, because such change might be 

for economic reasons to permit the plan to avoid, or to mitigate, increases in co-payments or 

deductibles. Alternatively, in an insured plan, the change may be initiated by the insurer and, 

therefore, beyond the control of the Plan Sponsor. For these reasons, we believe that changes to 

a plan’s provider network that are not accompanied by a Status Change should not result in the 

loss of a plan’s grandfather status. 

3. Changes to Prescription Drug Formulary. Similarly, changes to the prescription drug 

formulary used by a plan should not result in the loss of grandfather status, because such changes 

may be initiated by the insurer or prescription drug provider and, therefore, are beyond the 

control of the Plan Sponsor. Alternatively, such changes may be in response to scientific 

findings or the availability of a generic drug. 

D. Exception for Extraordinary Circumstances.

Finally, we believe that Grandfathering Rules should include an exception for extraordinary 

events that are beyond the control of the Plan Sponsor. Alternatively, the Grandfathering Rules 

should provide a transition period before the loss of grandfather status becomes effective for 

plans that incur an extraordinary event. In today’s economic environment, extraordinary events 

meriting this type of treatment are not beyond the realm of possibility. For example, if a Plan 

Sponsor is forced to change the plan’s insurance carrier due to the insolvency of the current 

insurance carrier, we do not believe that such plan should lose its grandfather status, even if such 

change results in other changes that would be a Status Change (such as an increase in 

cost-sharing or co-insurance), subject to an anti-abuse rule as necessary. At a minimum, we 

suggest that the plan be given a transition period before the loss of grandfather status becomes 

effective.

* * * * *
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Members of the Committee would be pleased to answer any questions you might have regarding 

our comments and to meet with the Departments if that would assist your efforts.

Respectfully submitted, 

Matthew L. Eilenberg 

Cc: Kenneth J. Laverriere, Esq.

David Gallai, Esq.

Sarah C. Richards, Esq.

Mr. Vipin Varghese

Alan Rothstein, Esq.

Sharon Lippett, Esq.