The Honorable R. Alexander Acosta
U.S. Department of Labor
200 Constitution Ave, NW
Washington, DC 20210
The Honorable Alex M. Azar II
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201
The Honorable Seema Verma
Centers for Medicare & Medicaid Services
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201
The Honorable Steven T. Mnuchin
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
RE: Request for Information on Grandfathered Health Plans [CMS-9923-NC]
Dear Messrs. Acosta, Azar, and Mnuchin and Ms. Verma:
The ERISA Industry Committee (ERIC) is pleased to submit these comments in response to a recently-issued request for information (RFI) on grandfathered health plans. The RFI was released by the Departments of Labor, Health and Human Services and the Treasury (collectively, the Departments) on February 25, 2019 (84 Fed. Reg. 5969).
ERIC’s Interest in the RFI
ERIC is the only national trade association that advocates exclusively on behalf of large employers on health, retirement, and compensation public policies at the federal, state, and local levels. ERIC supports the ability of its large employer members to tailor retirement, health, and compensation benefits to meet the unique needs of their workforce, providing benefits to millions of workers, retirees, and their families across the country.
ERIC’s member companies offer comprehensive group health benefits to their employees in compliance with the myriad federal requirements placed upon group health plans subject to the Employee Retirement Income Security Act (ERISA), and other federal laws including the Affordable Care Act (ACA) and Medicare. As such, ERIC members are keenly interested in the ongoing promulgation and enforcement of rules relating to these laws, in order to maximize compliance, minimize unnecessary costs and burdens, and ensure optimal health outcomes for the millions of beneficiaries ERIC companies insure.
Section 1251 of the ACA provides that certain group health plans and health insurance coverage in existence on March 23, 2010 (hereafter, grandfathered plans) are subject to some, but not all, of the ACA requirements. Under section 1251, only the following ACA requirements apply to grandfathered plans:
- the ACA rules requiring coverage for children until age 26;
- the ACA rules prohibiting pre-existing condition exclusions;
- the ACA rules prohibiting lifetime and annual dollar limits for essential health benefits;
- the ACA rules prohibiting rescissions; the ACA rules restricting the duration of waiting periods; and
- the ACA rules requiring distribution of the Summary of Benefits and Coverage.
Thus, section 1251 operates to insulate grandfathered plans from the following ACA requirements:
- the ACA rules requiring coverage for preventive services with no cost sharing;
- the ACA rules requiring patient protections related to provider choice and emergency treatment;
- the ACA rules enhancing internal claims procedures and requiring external review;
- the ACA rules prohibiting insured group health plans from discriminating in favor of highly-compensated individuals;
- the ACA rules prohibiting out-of-pocket limits for essential health benefits from exceeding specified maximums;
- the ACA rules requiring coverage of routine expenses for qualified individuals participating in certain clinical trials; and
- the ACA rules prohibiting discrimination against providers acting within the scope of their license.
But section 1251 is extraordinarily vague – it does not include substantive rules explaining how grandfathered plan status is maintained, it does not describe how or when grandfathered plan status is lost, and it does not address whether or how grandfathered plan status may be reinstated once lost. Following the enactment of the ACA, the Departments issued guidance embellishing section 1251, first in a series of frequently asked questions (FAQs) and later in the form of final regulations. Taken together, this guidance is a minefield of restrictive and inflexible rules that significantly constrain the ability of plan sponsors to maintain grandfathered plans. According to the Departments’ guidance, plan design changes must comply with various parameters across six plan design categories (including benefits, cost-sharing mechanisms and/or contribution rates). Failure to comply with even one of the Departments’ parameters may cause a plan to relinquish (i.e., lose) grandfathered plan status. The magnitude of the change is irrelevant – even de minimis changes may trigger a loss of grandfathered plan status. Furthermore, the loss of grandfathered plan status occurs immediately after such a change and, once lost, grandfathered plan status cannot be regained.
I. Too Little; Too Late
As you might imagine, nearly all group health plans maintained by ERIC members were in existence on March 23, 2010. Logically, our members assumed they might be able to maintain grandfathered plan status for some period of time. Doing so would provide temporary or permanent relief from certain ACA requirements, most notably the requirements that plans cover every “A” or “B”-rated preventive service with no cost-sharing, and observe maximum out-of-pocket limits for essential health benefits. At the time, the Departments had not issued comprehensive guidance on many ACA requirements, and grandfathered plan status was perceived as an avenue by which ERIC members’ large, self-insured health plans could maintain a degree of flexibility and control.
Unfortunately, these assumptions proved to be false. Despite the oft-cited promise that “if you like your health care plan you can keep it,” the Departments’ guidance made it extraordinarily difficult to maintain grandfathered plan status. The elimination of benefits to treat a particular condition could trigger a loss of grandfathered plan status – despite the fact that medical science may support the decision to eliminate such benefits. Increasing a percentage cost-sharing requirement – even by one percentage point – could trigger a loss of grandfathered plan status. Modifying employer contribution rates by more than 5 percentage points – even if business necessity demanded it – could trigger a loss of grandfathered plan status.
These restrictions made the annual cycle of plan design changes a nightmare for plan sponsors. Could a plan add a new exclusion, or would doing so “eliminate” the treatment of a particular condition? Could a plan convert a copayment cost-sharing requirement into a percentage cost-sharing requirement, or would doing so violate the rules prohibiting excessive “increases” in copayments? Could a plan add new features to its prescription drug benefits, such as step therapy protocols, formularies, and/or specialty drug requirements? Could a prescription drug formulary be changed as new drugs received FDA approval and/or as brand drugs came off patent? There was no way to answer these questions with certainty, nor was there an administrative mechanism under which plan sponsors could solicit the Departments’ opinion.
Moreover, the unyielding nature of the Departments’ guidance accelerated marketplace changes in the service industry. Third-party administrators initially offered dual administrative platforms – one platform for grandfathered plans and one platform for non-grandfathered plans. But as time went by, and more and more plans lost or relinquished grandfathered plan status, it made less and less economic sense for third-party administrators to maintain dual platforms. If a third-party administrator can’t, or won’t, support a separate administrative platform for grandfathered plans, then it is virtually impossible for a plan sponsor to continue to maintain that plan.
For these reasons, nearly all ERIC member companies have chosen not to maintain grandfathered plan status for some or all of their health plans. The explanation is simple – the Departments’ rules for maintaining grandfathered plans prevented plan sponsors from making even routine plan design decisions involving benefits, cost-sharing, and contributions. Employers were effectively tasked with the choice of maintaining their 2010 plan designs (free of certain ACA requirements) versus implementing new plan designs (subject to those ACA requirements) with greater promise to control costs and tailor benefits for changing workforces. Not surprisingly, flexibility won.
We surveyed our members to determine if they had specific comments on the RFI. What we heard back was a collective shrug of the shoulders. One member spoke for many when she said that the Departments’ RFI was “a bit too little, and a bit too late.”
II. Specific Responses on Maintaining or Relinquishing Grandfathered Status
ERIC asked member companies for feedback on the questions in the RFI. Overall, the primary sentiment was as above – unless the Departments are considering allowing plans to turn back the clock and re-establish grandfathered status in some fashion, and with significant new flexibility – then the toothpaste is already out of the tube, and unlikely to be squeezed back in.
That being said, there are some major employer plan sponsors that still maintain a significant population of members in grandfathered plans. They cited several changes as being helpful to the continuation of these plans. For instance, relaxing the thresholds for allowable changes in copayments, coinsurance, etc., which we believe have no basis in the statute, would be helpful. Some member companies noted that grandfathered status was important to avoid complicated requirements related to clinical trials, changes to in-network and out-of-network deductibles, and the overly burdensome and prescriptive nature of the preventive services mandate.
The mostly commonly cited reason for initially relinquishing grandfathered status was, unsurprisingly, the limits of changes to copays or employer contributions. As the Administration is aware, plan sponsors have no choice but to adapt in preparation for the coming “Cadillac” excise tax on high-cost employer-sponsored health insurance, and changes to copays or employer contributions are one of the only ways to do so. This remains especially true if the health care cost curve continues to exceed inflation. Member companies did not have feedback on the Departments’ guidance or disclosure requirements, other than – the year is 2019, and all disclosures and notices to plan beneficiaries ought to default into electronic form, rather than “snail mail.”
III. Other Sources of Data
The group health plans sponsored by ERIC members are large, self-insured plans. In the insurance marketplace, these plans would constitute large groups. Even though grandfathered plans are not common among our members, we understand anecdotally that grandfathered plans are still common in some small group insurance markets. We do not have empirical information about the prevalence of grandfathered plans in these markets, but we suggest that further data could be obtained either from the National Association of Insurance Commissioners or from the trade associations representing the insurance industry.
ERIC appreciates the opportunity to provide feedback at this time. If you have questions concerning our comments, or if we can be of further assistance, please contact us at (202) 789-1400.
Senior Vice President, Health Policy