NFIB, Chamber Say Grandfathering Rule Is Not Supported By Reform Law

Posted: August 17, 2010

Key employer groups say HHS went beyond its statutory authority in issuing rules setting criteria for revoking a plan’s grandfathered status under the health reform law. Both the National Federation of Independent Business and the U.S. Chamber of Commerce suggested the rules may lack legal standing, and NFIB also said the department based its criteria on “sweeping and invidious generalizations” about policyholders.

Employers, and NFIB in particular, have been critical of the interim final rule on grandfathering since it was released in June. But in comments on the regulation, which were submitted to HHS on Monday, they also raised questions about the regulation’s legitimacy, saying it was not directly called for under the health reform law and casting it as something of a power grab by the executive branch. NFIB and the Commerce noted in their respective comments that the section of the law dealing with grandfathered plans does not mention the loss of grandfathered status.

The reform statute “certainly does not appear to give anyone the authority to take statutory status as a grandfathered health plan away after the fact,” NFIB said in its comments. HHS acknowledged as much in the interim final rule, stating in the regulation’s preamble that “the statute does not, however, address at what point changes to a group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010 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.”

NFIB strongly protested HHS’ framing of the grandfathering issue as a “question,” arguing that the statute clearly did not intend for grandfathered plans to lose their exemption from certain reform provisions. The small-business group also strongly criticized HHS’ statements that the rule balances the competing goals of preserving consumers’ ability to keep their plans and improving the quality of health coverage. Citing language in which HHS said inertia and status quo bias can prevent consumers from making economically sound decisions, NFIB charged that the regulation does not aim to preserve consumers’ choices, but rather to limit them.

“The Department’s analysis depends on a very unflattering generalization about consumers’ motivation, ability and confidence to make their own choices wisely,” the comments state. “NFIB does not share the pessimistic view reflected in the broad stereotype of the American consumer on which the Departments chose to rely. Moreover, NFIB does not believe that sweeping and invidious generalizations of this type should have any role to play in formulating regulations under the Act.”

HHS released the interim final rule in conjunction with the Treasury and Labor departments. HHS did not respond to a request for comment about NFIB’s submission.

The Chamber made a similar argument about HHS and the reform statute. Katie Mahoney, the Chamber’s director for health care regulations, said businesses “certainly believe the regulations exceed the statutory language,” pointing specifically to the fact that the law itself does not mention the loss of grandfathered status. And the Chamber’s comments note that the House reform bill included stronger limits on grandfathering, adding that Congress has historically specified when it intends for a grandfathering provision to expire.

Employer groups also took issue with the specific limits HHS has proposed on changes to grandfathered plans. They say the constraints are inconsistent with a policy that’s actually designed to let people keep the plans they have, and some industry stakeholders have suggested that the rule was written to help push employer plans into the post-reform marketplace.

Also, the Chamber and NFIB both echoed concerns that the insurance industry has raised about the formula for determining acceptable increases in cost-sharing. The regulation limits increases in fixed cost-sharing other than co-pays to the rate of medical inflation plus 15 percentage points. It caps co-pay increases at the greater of medical inflation plus 15 percentage points or $5, adjusted for medical inflation. But the Chamber said the medical inflation rate does not capture important cost drivers such as utilization.

Similarly, the Chamber said the interim final rule would wrongly apply a “snapshot” approach to cost-sharing increases by measuring them against costs at the time of enactment — March 23, 2010. “Changes in cost-sharing must be evaluated on a multi-year basis, looking at average annual percentage changes over a number of years, to take into account the manner in which plans have typically changed over time,” the Chamber argued.

Broadly, business groups are concerned that the regulations are too restrictive and would cause a large number of plans to give up their grandfathered status. HHS estimated in the interim final rule that as many as 69 percent of U.S. employees are covered by a plan that could lose its exemption under the new rules, but consumer advocates say many complaints about that number miss the point of the regulation: The goal is to ensure that people who like what they have can keep it, advocates argue, so plans that change significantly aren’t entitled to the same protection. — Sam Baker ( 

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