Bulletin No. 2020–32

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–32

August 3, 2020

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

EMPLOYEE PLANS

Announcement 2020-8, page 244.

Notice 2020-57, page 240.

Announcement 2020-8 amends Revenue Procedure 202035 to show correct information.

1. In Section 2.1.1, Online Fillable Forms, under the heading

Specifications. Delete Form 1099-NEC from the first paragraph.

2. In Section 4.5.3, Perforations, under the heading Miscellaneous Instructions for Copies B, C, D, E, 1, and 2. Indicate that instructions for perforation can be found in Section

2.1.9.

Announcement 2020-9, page 244.

The Office of Professional Responsibility (OPR) announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled

retirement plan agents, and appraisers. These individuals are

subject to the regulations governing practice before the Internal Revenue Service (IRS), which are set out in Title 31, Code

of Federal Regulations, Part 10, and which are published in

pamphlet form as Treasury Department Circular No. 230.

The regulations prescribe the duties and restrictions relating

to such practice and prescribe the disciplinary sanctions for

violating the regulations.

T.D. 9903, page 235.

The guidance contains final regulations relating to the imposition of certain user fees on tax return preparers. Pursuant to

the guidelines in OMB Circular A-25, the IRS has recalculated

its cost of providing PTINs and has determined that the full

cost of administering the PTIN program going forward has

been reduced. Therefore, the final regulations reduce the

amount of the user fee to obtain or renew a PTIN from $33 to

$21, plus $14.95 payable directly to a third-party contractor.

Finding Lists begin on page ii.

This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for July

2020 used under § 417(e)(3)(D), the 24-month average segment rates applicable for July 2020, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)

(iv).

REG-130081-19, page 246.

These proposed rules would amend the 2015 regulations

under Treas. Reg. § 54.9815-1251 to provide additional flexibility for grandfathered group health plans and issuers of

grandfathered group health plans to make certain changes

without losing their grandfathered status under the regulations.

EXEMPT ORGANIZATIONS

Notice 2020-56, page 239.

This notice amplifies the relief provided in Notice 2020-23,

202-18 IRB 742, for hospital organizations that are required

to meet the community health needs assessment (CHNA)

requirements under section 501(r)(3) of the Code. Notice

2020-23 postponed until July 15, 2020, the deadline for performing any CHNA requirement that is due to be completed

on or after April 1, 2020, and before July 15, 2020. This

notice provides a further postponement, until December 31,

2020, of the deadline for performing any CHNA requirement

due to be completed on or after April 1, 2020, and before

December 31, 2020. However, the due date for any CHNA

requirement originally due to be completed after December

31, 2020, is not extended by this notice.

INCOME TAX

Rev. Proc. 2020-36, page 243.

This Revenue Procedure updates the applicable percentage

table in § 36B(b)(3)(A)(i) (Applicable Percentage Table) for calendar year 2021, which is used to calculate an individual’s

premium tax credit. The revenue procedure also updates the

required contribution percentage in § 36B(c)(2)(C)(i)(II) for

plan years beginning after calendar year 2020 (Section 36B

Required Contribution Percentage). This percentage is used

to determine whether an individual is eligible for affordable

employer-sponsored minimum essential coverage under §

36B.

Rev. Rul. 2020-15, page 233.

Federal rates; adjusted federal rates; adjusted federal longterm rate, the long-term exempt rate, and the blended annual

rate. For purposes of sections 382, 1274, 1288, 7872 and

other sections of the Code, tables set forth the rates for

August 2020.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

August 3, 2020 

Bulletin No. 2020–32

Part I

Section 1274.—

Determination of Issue

Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 467, 468, 482, 483,

1288, 7520, 7872.)

Rev. Rul. 2020-15

This revenue ruling provides various

prescribed rates for federal income tax

AFR

110% AFR

120% AFR

130% AFR

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

AFR

110% AFR

120% AFR

130% AFR

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

Bulletin No. 2020–32

purposes for August 2020 (the current

month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal long-term rate and the long-term

tax-exempt rate described in section

382(f). Table 4 contains the appropri-

ate percentages for determining the

low-income housing credit described in

section 42(b)(1) for buildings placed in

service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service

after July 30, 2008, shall not be less

than 9%. Finally, Table 5 contains the

federal rate for determining the present

value of an annuity, an interest for life

or for a term of years, or a remainder or

a reversionary interest for purposes of

section 7520.

REV. RUL. 2020-15 TABLE 1

Applicable Federal Rates (AFR) for August 2020

Period for Compounding

Annual

Semiannual

Quarterly

Short-term

0.17%

0.17%

0.17%

0.19%

0.19%

0.19%

0.20%

0.20%

0.20%

0.22%

0.22%

0.22%

Mid-term

0.41%

0.41%

0.41%

0.45%

0.45%

0.45%

0.49%

0.49%

0.49%

0.53%

0.53%

0.53%

0.62%

0.62%

0.62%

0.72%

0.72%

0.72%

Long-term

1.12%

1.12%

1.12%

1.23%

1.23%

1.23%

1.34%

1.34%

1.34%

1.47%

1.46%

1.46%

Annual

0.13%

0.31%

0.85%

REV. RUL. 2020-15 TABLE 2

Adjusted AFR for August 2020

Period for Compounding

Semiannual

0.13%

0.31%

0.85%

233

Quarterly

0.13%

0.31%

0.85%

Monthly

0.17%

0.19%

0.20%

0.22%

0.41%

0.45%

0.49%

0.53%

0.62%

0.72%

1.12%

1.23%

1.34%

1.46%

Monthly

0.13%

0.31%

0.85%

August 3, 2020

REV. RUL. 2020-15 TABLE 3

Rates Under Section 382 for August 2020

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of

the adjusted federal long-term rates for the current month and the prior two months.)

.85%

.89%

REV. RUL. 2020-15 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for August 2020

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July

30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

7.17%

Appropriate percentage for the 30% present value low-income housing credit

3.07%

REV. RUL. 2020-15 TABLE 5

Rate Under Section 7520 for August 2020

Applicable federal rate for determining the present value of an annuity, an interest for life or

a term of years, or a remainder or reversionary interest

Section 42.—Low-Income

Housing Credit

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

Section 382.—Limitation

on Net Operating Loss

Carryforwards and

Certain Built-In Losses

Following Ownership

Change

The adjusted applicable federal long-term rate

is set forth for the month of August 2020. See Rev.

Rul. 2020-15, page 233.

Section 467.—Certain

Payments for the Use of

Property or Services

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

Section 468.—Special

Rules for Mining and Solid

Waste Reclamation and

Closing Costs

The applicable federal short-term rates are set

forth for the month of August 2020. See Rev. Rul.

2020-15, page 233.

Section 482.—Allocation

of Income and Deductions

Among Taxpayers

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

.4%

Section 483.—Interest on

Certain Deferred Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

Section 1288.—Treatment

of Original Issue Discount

on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of August 2020. See Rev. Rul.

2020-15, page 233.

Section 7872.—Treatment

of Loans With BelowMarket Interest Rates

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2020. See Rev. Rul. 2020-15, page 233.

August 3, 2020

234

Bulletin No. 2020–32

26 CFR 300.13

T.D. 9903

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 300

Preparer Tax Identification

(PTIN) User Fee Update

Number

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: These final regulations

amend existing regulations relating to

the imposition of certain user fees on

tax return preparers. The final regulations reduce the amount of the user fee

to apply for or renew a preparer tax identification number (PTIN) and affect individuals who apply for or renew a PTIN.

The Independent Offices Appropriations

Act of 1952 authorizes the charging of

user fees.

DATES: Effective date: These regulations

are effective August 17, 2020.

Applicability Date: For the date of applicability, see §300.13(d).

FOR FURTHER INFORMATION CONTACT: Michael Franklin at (202) 3176844 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to 26 CFR part 300 regarding user fees.

On April 16, 2020, a notice of proposed

rulemaking (REG-117138-17) proposing

to amend the regulations relating to imposing a user fee to apply for or renew a

PTIN was published in the Federal Register (85 FR 21126). The notice proposed

decreasing the amount of the user fee to

apply for or renew a PTIN from $33, plus

$17 payable to a third-party contractor, to

$21, plus $14.95 payable to a third-party

Bulletin No. 2020–32

contractor. The notice contains a detailed

explanation regarding the amendments to

these regulations.

Eighteen comments responding to

the notice and two requests for a public

hearing were received. A public hearing

on the notice was held on May 26, 2020.

Two commenters testified at the public

hearing. After consideration of the written

comments and testimony, the Department

of the Treasury (Treasury Department)

and the IRS have decided to adopt without

modification the regulations proposed by

the notice.

Summary of Comments

The eighteen comments submitted

in response to the notice of proposed

rulemaking are available at www.regulations.gov or upon request.

Some of the comments that were submitted did not seek modification or clarification of the user fee as set forth in the

proposed regulations. Two made no reference to the proposed regulations and their

content was unrelated to a PTIN user fee.

Another comment supported a fee but

encouraged the IRS to take enforcement

actions against return preparers who do

not comply with PTIN requirements. The

summary of comments below addresses

those comments that seek modification or

clarification of the user fee as set forth in

the proposed regulations.

A. Charging a User Fee and the Amount

of the User Fee

Some commenters objected to the IRS

imposing a user fee at all or in the amount

charged by the IRS. Some supported the

imposition of a fee, while others stated

that the user fee was too high or too low.

The IRS also received comments that requested lower user fees for certain classes

of return preparers. Two comments stated

that individuals with credentials should

pay a reduced fee for obtaining or renewing a PTIN and two comments stated that

low-volume return preparers should pay

a reduced fee or no fee for obtaining or

renewing a PTIN. Similarly, some commenters requested the renewal fee be

lower than the amount of the initial application fee or that the IRS adopt a longer

renewal period. One commenter suggest-

235

ed that certain return preparers with existing PTINs should not be charged for PTIN

renewal.

The United States Court of Appeals

for the District of Columbia Circuit has

ruled that the IRS is authorized to charge

a PTIN user fee because providing a

PTIN (and the “associated functions”) is

a service that provides a specific benefit to

identifiable recipients. Montrois v. United

States, 916 F.3d 1056 (D.C. Cir. 2019).

Under Office of Management and Budget (OMB) Circular A-25, 58 FR 38142

(July 15, 1993) (OMB Circular A-25),

Federal agencies that provide services that

confer benefits on identifiable recipients

are to establish user fees that recover for

the government the full cost of providing

the service. An agency that seeks to impose a user fee for government-provided

services must calculate the full cost of

providing those services. Under OMB

Circular A-25, a user fee should be set

at an amount that recovers the full cost

of providing a service, unless the OMB

grants an exception. The full cost of providing a service includes both the direct

and indirect costs of providing the service.

As required by OMB Circular A-25,

the IRS conducted a biennial review of

the PTIN user fee and determined that

the full cost to the IRS to administer the

PTIN program going forward was reduced

to $21 per application or renewal. These

costs include all costs related to administering the PTIN program, including costs

relating to PTIN misuse and maintaining

the integrity of the PTIN program. A description of the categories of activities included in the PTIN user fee and specific

examples of the activities included within those categories is discussed below in

section E. Costing Methodology. The user

fee to apply for or renew a PTIN does not

recover costs associated with other programs.

The IRS does not incur lower costs to

provide PTINs to credentialed preparers

or low-volume preparers than it incurs

to provide PTINs to uncredentialed preparers or high-volume preparers. Similarly, the costs to the IRS to renew a

PTIN are the same as the costs to issue

a new PTIN. Accordingly, the amount of

the user fee should be the same regardless of the return preparer’s status and

regardless of whether the application is

August 3, 2020

an original or a renewal. The Treasury

Department and the IRS have determined

that the annual renewal of a PTIN is the

most effective renewal period. An annual

renewal period ensures the IRS has upto-date identifying information about

each return preparer, which benefits return preparers, their clients, and the IRS

in ensuring the timely communication of

important information. Further, the annual renewal period allows the IRS to better

administer the PTIN program, effectively

identify and contact return preparers, and

prevent the unauthorized use of PTINs,

thereby benefiting return preparers and

protecting taxpayers.

B. Use of a Third-Party Contractor

Several commenters objected to paying

a separate fee to the third-party contractor,

and some objected to the amount of the

fee paid to the third-party contractor.

The third-party contractor was chosen

through a competitive bidding process,

and the amount of the third-party contractor’s fee is reviewed and approved

by the IRS. The third-party contractor’s

costs include more than the discrete costs

of generating a number and are separate

from the costs to the IRS for administering the PTIN application and renewal

program. The two portions of the fee pay

for different aspects of administering the

PTIN program, each of which is essential to providing PTINs to tax return preparers. As discussed in the preamble to

the proposed regulations, the third-party

contractor performs a number of valuable functions, including processing

applications to obtain or renew a PTIN

and operating a call center. The IRS has

determined that it is appropriate to use a

third-party contractor to perform these

functions.

C. Re-instituting User Fee During Steele

Litigation

Three commenters objected to re-instituting the PTIN user fee during the pendency of the Steele v. United States litigation in the United States District Court for

the District of Columbia.

In Steele v. United States, 260 F. Supp.

3d 52 (D.D.C. 2017), the United States

District Court for the District of Colum-

August 3, 2020

bia concluded that the Treasury Department and the IRS lacked the statutory

authority to charge a PTIN user fee and

enjoined the IRS from charging a PTIN

user fee. On March 1, 2019, the United

States Court of Appeals for the District

of Columbia Circuit reversed the district

court’s decision and lifted the injunction

against charging the PTIN user fee. See

Montrois v. United States, 916 F.3d 1056

(D.C. Cir. 2019) (holding that a PTIN

provides tax return preparers a specific

benefit by allowing them to provide an

identifying number that is not a social

security number on returns they prepare

and stating that the permissible amount

of the fee would be the same regardless

of whether the specific benefit was instead the ability to prepare tax returns

for compensation). In accordance with

the opinion of the United States Court

of Appeals for the District of Columbia

Circuit, the IRS is authorized to charge

a PTIN user fee for the service of providing return preparers a PTIN. Despite

the ongoing litigation with respect to the

amount of the user fee, the IRS is authorized to resume charging a fee because

the district court’s injunction was vacated. After the injunction was lifted, and

in accordance with the biennial review

requirement in OMB Circular A-25, the

IRS has re-determined costs that the government continues to incur for providing

PTINs and administering the PTIN program and re-calculated the amount of the

user fee. OMB Circular A-25 states that

user fees should be collected in advance

of or simultaneously with the provision

of a service. The PTIN user fee is collected when return preparers apply for or

renew their PTINs during the application

season, which begins annually in October.

D. COVID-19 Pandemic

Two commenters objected to re-instituting the fee during the COVID-19

pandemic. The demand and need for tax

return preparation services should continue despite the pandemic. As return preparers continue to prepare returns, they

must continue to use current PTINs to do

so, and the government continues to incur

costs for providing PTINs and administering the PTIN program, which should be

236

recovered by charging a fee. In the absence of charging a fee to return preparers,

taxpayers would bear the costs the IRS

incurs of providing PTINs and associated

functions.

E. Costing Methodology

One commenter made a number of

other objections broadly relating to the

IRS’s costing methodology detailed in

the proposed regulations. The same commenter and one other commenter questioned the direct costs incurred by the

IRS in administering the PTIN program.

The IRS properly follows generally accepted accounting principles (GAAP) in

calculating the full cost of administering

the PTIN program in accordance with

Statement of Federal Financial Accounting Standards (SFFAS) No. 4, which establishes internal costing standards to

accurately measure and manage the full

cost of Federal programs. The preamble

to the proposed regulations provides the

methodology by which the IRS determined the full cost of the PTIN program.

It details the use of cost centers, which

are the lowest organizational unit in the

IRS’s cost-accounting system, the implementation of various cost-measurement

techniques to estimate the direct costs

attributable to the PTIN program, and

overhead allocation.

As described in the preamble to the

proposed regulations, the IRS uses various

cost-measurement techniques to estimate

the direct costs attributable to the program.

These techniques include using various

timekeeping systems to measure the time

required to accomplish activities, or using

information provided by subject-matter

experts on the time devoted to a program.

To determine the labor and benefits cost

incurred to administer the PTIN program,

the IRS estimated the number of full-time

employees required to conduct activities

related to the PTIN program. The number

of full-time employees is based on both

current employment numbers and future

hiring estimates. Other direct costs associated with administering the PTIN program

include contract costs and travel, training,

supplies, printing, and other miscellaneous costs.

The preamble to the proposed regulations also describes the staffing and other

Bulletin No. 2020–32

costs incurred in administering the PTIN

program. Staffing costs are incurred by

the Return Preparer Office (RPO) in the

IRS and relate to conducting certain suitability checks, foreign preparer processing, handling compliance and complaint

activities, information technology and

contract-related support, communications, budgeting and finance, and program oversight and support. Examples

of the specific activities that are included

within those categories include, but are

not limited to, the following activities.

Suitability checks include work involving specially designated nationals,1 incarcerated return preparers, enjoined

return preparers, and professional designation checks on certain individuals.

Foreign preparer processing includes

the IRS processing of PTIN applications

for foreign persons who are not eligible

to obtain a social security number and

have a permanent non-U.S. address.

Compliance and complaint activities

include work involving compromised

and misused PTINs and identity theft

related PTINs, expired PTINs, legacy

PTINs, ghost return preparers (returns

prepared without a PTIN), processing

complaints, and penalty referrals. Information technology and contract-related support activities include contract

oversight, background investigations

and training for contractor personnel,

contractor performance reviews, records

management, peak season planning and

implementation, off-season system enhancements, program metrics reporting and data extracts, managing system

changes, addressing system defects and

data anomalies, system training materials, cloud service provider hosting, customer contact center hosting, system capacity monitoring and performance, IT

coordination and remote server platform

issues for e-authentication, registration

system and database refinements, enterprise life cycle documentation, site visits

and contractor assessments, specialized

IT security training, identity theft protection, and work related to the PTIN

call center. Communications activities

include correspondence with return preparers, including renewal notifications,

1

development of system generated messaging, website messaging, FOIA posting of PTIN holder list, and stakeholder

communications. Budget and finance

activities include user fee review and

cost modeling, payment tracking and

accountability, requisitions and obligations of funds, operational budgeting and

funding based on actual and projected

PTIN user fee receipts, third-party contacts related to PTIN matters (requests

from Congress, Treasury Inspector General for Tax Administration, and Government Accountability Office), developing

and updating Internal Revenue Manual

content, and certain human resources activities. Program oversight and support

includes oversight and support in the

RPO over these PTIN functions.

OMB Circular A-25 does not require

the IRS to account for and describe activities unrelated to providing PTINs and

administering the PTIN program that are

not included in the costs recovered in the

PTIN user fee. The IRS has accounted

for all activities properly included in the

PTIN user fee.

The preamble to the proposed regulations also describes how the IRS calculated the overhead rate and overhead costs.

Overhead is an indirect cost of operating

an organization that is not specifically

identifiable with an activity. Overhead includes costs of resources that are jointly

or commonly consumed by one or more

organizational unit’s activities but are not

specifically identifiable to a single activity.

Accordingly, the proposed regulations

are adopted without change.

Special Analyses

The OMB’s Office of Information and

Regulatory Analysis has determined that

these regulations are significant and subject to review under section 6(b) of Executive Order 12866.

Pursuant to the Regulatory Flexibility

Act (5 U.S.C. chapter 6), it is hereby certified that these final regulations will not

have a significant economic impact on a

substantial number of small entities. The

final regulations affect all individuals

who prepare or assist in preparing all or

substantially all of a tax return or claim

for refund for compensation. Only individuals, not businesses, can have a PTIN.

Thus, the economic impact of these regulations on any small entity generally

will be a result of an individual tax return

preparer who is required to have a PTIN

owning a small business or a small business otherwise employing an individual

tax return preparer who is required to

have a PTIN. The Treasury Department

and the IRS estimate that approximately

800,000 individuals will apply annually

for an initial or renewal PTIN. Although

the final regulations will likely affect a

substantial number of small entities, the

economic impact on those entities is not

significant. The final regulations will establish a $21 fee per application or renewal (plus $14.95 payable to the contractor), which is a reduction from the

previously established fee of $33 (plus

$17 payable to the contractor) per application or renewal and will not have a significant economic impact on a small entity. Accordingly, the Secretary certifies

that the rule will not have a significant

economic impact on a substantial number

of small entities.

Pursuant to section 7805(f), the notice

of proposed rulemaking was submitted to

the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small

business (85 FR 21126). No comments on

the notice were received from the Chief

Counsel for the Office of Advocacy of the

Small Business Administration.

Drafting Information

The principal author of these regulations is Michael A. Franklin, Office of the

Associate Chief Counsel (Procedure and

Administration). Other personnel from the

Treasury Department and the IRS participated in the development of the regulations.

List of Subjects in 26 CFR Part 300

Reporting and recordkeeping requirements, User fees.

https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx

Bulletin No. 2020–32

237

August 3, 2020

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 300 is

amended as follows:

PART 300 – USER FEES

Paragraph 1. The authority citation for

part 300 continues to read as follows:

Authority: 31 U.S.C. 9701.

Par. 2. Section 300.12 is amended by

revising paragraphs (b) and (d) to read as

follows:

August 3, 2020

§300.13 Fee for obtaining a preparer

tax identification number.

*****

(b) Fee. The fee to apply for or renew

a preparer tax identification number is

$21 per year and is in addition to the fee

charged by the contractor.

*****

(d) Applicability date. This section applies to applications for or renewal of a

preparer tax identification number filed on

or after August 17, 2020.

238

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

Approved: July 2, 2020.

David J. Kautter,

Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on July

15, 2020, 4:15 p.m., and published in the issue of the

Federal Register for July 17, 2020, 85 F.R. 43433)

Bulletin No. 2020–32

Part III

Additional Relief with

Respect to Deadlines

under Section 501(r)(3)

Applicable to Hospital

Organizations Affected by

the Ongoing Coronavirus

Disease 2019 Pandemic

Notice 2020-56

SECTION 1. PURPOSE

In response to the ongoing Coronavirus

Disease 2019 (COVID-19) pandemic, this

notice amplifies the relief provided in Notice 2020-23, 2020-18 IRB 742, for hospital organizations that are required to meet

the community health needs assessment

(CHNA) requirements under section 501(r)

(3) of the Code. Notice 2020-23 postponed

until July 15, 2020, the deadline for performing any CHNA requirement that is

due to be completed on or after April 1,

2020, and before July 15, 2020. This notice provides a further postponement, until December 31, 2020, of the deadline for

performing any CHNA requirement due to

be completed on or after April 1, 2020, and

before December 31, 2020.

SECTION 2. BACKGROUND

A. CHNA Requirements for Hospital

Organizations

Section 501(r)(1) states that an organization described in section 501(r)(2) (a

hospital organization) will not be treated

as described in section 501(c)(3) unless

the organization meets the requirements

described in section 501(r)(3) through

501(r)(6). Section 501(r)(2) specifies that

a hospital organization must meet the section 501(r) requirements, including the

requirements of section 501(r)(3), separately with respect to each hospital facility

it operates.

Section 501(r)(3) requires a hospital

organization to conduct a CHNA at least

once every three years and adopt an implementation strategy to meet the community health needs identified through

Bulletin No. 2020–32

the CHNA (collectively, CHNA requirements). The CHNA must take into account

input from persons who represent the

broad interests of the community served

by the hospital facility, including those

with special knowledge of or expertise in

public health. In addition, the CHNA must

be made widely available to the public.

The CHNA must be conducted by the

end of the third taxable year (or in either of

the two taxable years immediately preceding such taxable year). The implementation

strategy must be adopted on or before the

15th day of the fifth month after the end of

the taxable year in which the hospital facility completes the final step for the CHNA.

Section 4959 imposes a $50,000 excise

tax on a hospital organization that fails to

meet either or both of the section 501(r)(3)

CHNA requirements with respect to any

hospital facility for any taxable year.

B. COVID-19 Disaster Relief – Prior

Postponement of Certain Deadlines

and Other Requirements Pursuant to

Section 7508A

On March 13, 2020, the President of

the United States issued an emergency

declaration under the Robert T. Stafford

Disaster Relief and Emergency Assistance

Act, 42 U.S.C. 5121 et seq., in response

to the ongoing COVID-19 pandemic

(Emergency Declaration). The Emergency Declaration instructed the Secretary of

the Treasury “to provide relief from tax

deadlines to Americans who have been

adversely affected by the COVID-19

emergency, as appropriate, pursuant to 26

U.S.C. 7508A(a).”

Section 7508A provides the Secretary

of the Treasury or his delegate (Secretary)

with the authority to postpone the time

for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by

a federally declared disaster as defined in

section 165(i)(5)(A). Pursuant to section

7508A(a), a period of up to one year may

be disregarded in determining whether the

performance of certain acts is timely under the internal revenue laws.

On April 9, 2020, the Department of

the Treasury and the Internal Revenue

Service issued Notice 2020-23, which

239

provides relief under section 7508A(a)

of the Code for certain persons that the

Secretary determined to be affected by

the COVID-19 emergency. Notice 202023 provides, among other things, that the

term Affected Taxpayer includes any person who performs a time-sensitive action

listed in Rev. Proc. 2018-58, 2018-50 IRB

990, due to be performed (originally or

pursuant to a valid extension) on or after

April 1, 2020, and before July 15, 2020.

The time-sensitive actions listed in Rev.

Proc. 2018-58 include the requirement under section 501(r)(3) to conduct a CHNA

in the taxable year or in either of the two

taxable years immediately preceding the

taxable year and to adopt an implementation strategy to meet the community health

needs identified through the CHNA. See

Rev. Proc. 2018-58, section 10, 2018–50

IRB at 1005. Accordingly, Notice 2020-23

postponed until July 15, 2020, the deadline for any CHNA due to be conducted

and for any implementation strategy due

to be adopted on or after April 1, 2020,

and before July 15, 2020.

SECTION 3. GRANT of RELIEF

Any hospital organization that is required to meet either of the CHNA requirements under section 501(r)(3) of the

Code on or after April 1, 2020, and before

December 31, 2020 (Specified Time-Sensitive Action), is determined to be affected

by the COVID-19 emergency for purposes of the relief described in this section 3

(Affected Taxpayer).

For an Affected Taxpayer, the due date

for any CHNA due to be conducted and

for any implementation strategy due to be

adopted on or after April 1, 2020, and before December 31, 2020, is postponed to

December 31, 2020. Even though the due

date for a CHNA to be conducted on or after April 1, 2020, and before December 31,

2020, is postponed to December 31, 2020,

by this notice, for purposes of applying

§ 1.501(r)‑3(c)(5) of the Income Tax Regulations to determine the deadline for adoption of the implementation strategy, the

hospital facility is not considered to have

completed the final step for the CHNA in

a later taxable year. Thus, for example, if

an Affected Taxpayer was required to con-

August 3, 2020

duct a CHNA by April 30, 2020 (the end of

the third taxable year) and was required to

adopt an implementation strategy by September 15, 2020, the Affected Taxpayer

now has an extension until December 31,

2020, to complete both steps.

corresponding spot segment rates used

under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the

Internal Revenue Code. In addition, this

notice provides guidance as to the interest

rate on 30-year Treasury securities under

§ 417(e)(3)(A)(ii)(II) as in effect for plan

years beginning before 2008 and the 30year Treasury weighted average rate under

§ 431(c)(6)(E)(ii)(I).

SECTION 4. EFFECT ON OTHER

DOCUMENTS

Notice 2020-23 is amplified.

YIELD CURVE AND SEGMENT

RATES

SECTION 5. DRAFTING

INFORMATION

Section 430 specifies the minimum

funding requirements that apply to single-employer plans (except for CSEC

plans under § 414(y)) pursuant to § 412.

Section 430(h)(2) specifies the interest rates that must be used to determine

a plan’s target normal cost and funding

target. Under this provision, present value is generally determined using three

24-month average interest rates (“segment

rates”), each of which applies to cash

flows during specified periods. To the extent provided under § 430(h)(2)(C)(iv),

these segment rates are adjusted by the applicable percentage of the 25-year average

segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins.1

However, an election may be made under

§ 430(h)(2)(D)(ii) to use the monthly yield

curve in place of the segment rates.

Notice 2007-81, 2007-44 I.R.B. 899,

provides guidelines for determining the

The principal author of this notice is

Ingrid M. Vatamanu of the Office of the

Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further information

regarding this notice contact Ingrid M.

Vatamanu on (202) 317-4541 (not a tollfree number).

Update for Weighted

Average Interest Rates,

Yield Curves, and Segment

Rates

Notice 2020-57

This notice provides guidance on the

corporate bond monthly yield curve, the

Applicable Month

24-MONTH AVERAGE CORPORATE

BOND SEGMENT RATES

The three 24-month average corporate bond segment rates applicable for

July 2020 without adjustment for the 25year average segment rate limits are as

follows:

24-Month Average Segment Rates Without 25-Year Average Adjustment

First Segment

Second Segment

July 2020

2.44

Based on § 430(h)(2)(C)(iv), the

24-month averages applicable for July

For Plan Years

Beginning In

monthly corporate bond yield curve, and

the 24-month average corporate bond

segment rates used to compute the target normal cost and the funding target.

Consistent with the methodology specified in Notice 2007-81, the monthly

corporate bond yield curve derived from

June 2020 data is in Table 2020-6 at the

end of this notice. The spot first, second,

and third segment rates for the month of

June 2020 are, respectively, 0.74, 2.57,

and 3.32.

The 24-month average segment rates

determined under § 430(h)(2)(C)(i)

through (iii) must be adjusted pursuant to

§ 430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages of the corresponding 25-year average

segment rates. For plan years beginning

before 2021, the applicable minimum percentage is 90% and the applicable maximum percentage is 110%. The 25-year

average segment rates for plan years beginning in 2019 and 2020 were published

in Notice 2018-73, 2018-40 I.R.B. 526,

and Notice 2019-51, 2019-41 I.R.B. 866,

respectively.

3.54

2020, adjusted to be within the applicable

minimum and maximum percentages of

Third Segment

4.04

the corresponding 25-year average segment rates, are as follows:

Adjusted 24-Month Average Segment Rates

Applicable

First

Second

Month

Segment

Segment

Third

Segment

2019

July 2020

3.74

5.35

6.11

2020

July 2020

3.64

5.21

5.94

Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount

of the full funding limitation under § 433(c)(7)(C)).

1

August 3, 2020

240

Bulletin No. 2020–32

30-YEAR TREASURY SECURITIES

INTEREST RATES

Section 431 specifies the minimum

funding requirements that apply to multiemployer plans pursuant to § 412. Section

431(c)(6)(B) specifies a minimum amount

for the full-funding limitation described in

§ 431(c)(6)(A), based on the plan’s current

liability. Section 431(c)(6)(E)(ii)(I) pro-

vides that the interest rate used to calculate

current liability for this purpose must be

no more than 5 percent above and no more

than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period

ending on the last day before the beginning

of the plan year. Notice 88-73, 1988-2 C.B.

383, provides guidelines for determining

the weighted average interest rate. The rate

of interest on 30-year Treasury securities

for June 2020 is 1.49 percent. The Service

determined this rate as the average of the

daily determinations of yield on the 30year Treasury bond maturing in May 2050.

For plan years beginning in July 2020, the

weighted average of the rates of interest on

30-year Treasury securities and the permissible range of rates used to calculate current

liability are as follows:

For Plan Years

Beginning In

Treasury Weighted Average Rates

30-Year Treasury

Weighted Average

Permissible Range

90% to 105%

July 2020

2.55

2.30 to 2.68

under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month

average. Notice 2007-81 provides guidelines for determining the minimum pres-

ent value segment rates. Pursuant to that

notice, the minimum present value segment rates determined for June 2020 are

as follows:

MINIMUM PRESENT VALUE

SEGMENT RATES

In general, the applicable interest rates

Month

Minimum Present Value Segment Rates

First Segment

Second Segment

June 2020

DRAFTING INFORMATION

The principal author of this notice is

Tom Morgan of the Office of the Asso-

Bulletin No. 2020–32

0.74

2.57

ciate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). However, other personnel from

the IRS participated in the development

241

Third Segment

3.32

of this guidance. For further information

regarding this notice, contact Mr. Morgan

at 202-317-6700 or Paul Stern at 202-3178702 (not toll-free numbers).

August 3, 2020

Table 2020-6

Monthly Yield Curve for June 2020

Derived from June 2020 Data

Maturity

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

Yield

0.36

0.49

0.60

0.69

0.74

0.79

0.83

0.89

0.97

1.06

1.17

1.30

1.43

1.58

1.72

1.86

2.00

2.13

2.25

2.36

2.47

2.57

2.65

2.73

2.80

2.86

2.91

2.96

3.00

3.03

3.06

3.08

3.10

3.12

3.14

3.15

3.16

3.17

3.18

3.18

August 3, 2020

Maturity

20.5

21.0

21.5

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

35.5

36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

Yield

3.19

3.20

3.20

3.21

3.21

3.22

3.22

3.22

3.23

3.23

3.24

3.24

3.24

3.25

3.25

3.26

3.26

3.27

3.27

3.27

3.28

3.28

3.29

3.29

3.29

3.30

3.30

3.30

3.31

3.31

3.31

3.31

3.32

3.32

3.32

3.33

3.33

3.33

3.33

3.34

Maturity

40.5

41.0

41.5

42.0

42.5

43.0

43.5

44.0

44.5

45.0

45.5

46.0

46.5

47.0

47.5

48.0

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

56.0

56.5

57.0

57.5

58.0

58.5

59.0

59.5

60.0

Yield

3.34

3.34

3.34

3.34

3.35

3.35

3.35

3.35

3.35

3.36

3.36

3.36

3.36

3.36

3.36

3.37

3.37

3.37

3.37

3.37

3.37

3.37

3.38

3.38

3.38

3.38

3.38

3.38

3.38

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.39

3.40

3.40

242

Maturity

60.5

61.0

61.5

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

68.5

69.0

69.5

70.0

70.5

71.0

71.5

72.0

72.5

73.0

73.5

74.0

74.5

75.0

75.5

76.0

76.5

77.0

77.5

78.0

78.5

79.0

79.5

80.0

Yield

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.40

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.41

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.42

3.43

3.43

3.43

3.43

Maturity

80.5

81.0

81.5

82.0

82.5

83.0

83.5

84.0

84.5

85.0

85.5

86.0

86.5

87.0

87.5

88.0

88.5

89.0

89.5

90.0

90.5

91.0

91.5

92.0

92.5

93.0

93.5

94.0

94.5

95.0

95.5

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

100.0

Yield

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.43

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.44

3.45

Bulletin No. 2020–32

26 CFR 601.105: Examination of returns and claims

for refund, credit, or abatement; determination of

correct tax liability.

(Also §§ 36B, 1.36B-2, 1.36B-3.)

Rev. Proc. 2020-36

SECTION 1. PURPOSE

This revenue procedure provides indexing adjustments for certain provisions

under § 36B of the Internal Revenue

Code. In particular, it updates the applicable percentage table in § 36B(b)(3)(A)

(i) (Applicable Percentage Table) for calendar year 2021. This table is used to calculate an individual’s premium tax credit. The revenue procedure also updates

the required contribution percentage in

§ 36B(c)(2)(C)(i)(II) for plan years be-

ginning after calendar year 2020 (Section

36B Required Contribution Percentage).

This percentage is used to determine

whether an individual is eligible for affordable employer-sponsored minimum

essential coverage under § 36B. The revenue procedure uses the methodology described in Section 4 of Rev. Proc. 201437, 2014-2 C.B. 363, and the Department

of Health and Human Services (HHS)

Notice of Benefit and Payment Parameters for 2020, 84 Fed. Reg. 17454 (April

25, 2019) (2020 Benefit and Payment

Notice), to index the Applicable Percentage Table and the Section 36B Required

Contribution Percentage.

In addition to the adjustments described

in Rev. Proc. 2014-37 for adjusting the

Applicable Percentage Table, § 36B(b)(3)

(A)(ii)(II) provides that, except as provid-

Household income percentage of Federal poverty line:

Less than 133%

At least 133% but less than 150%

At least 150% but less than 200%

At least 200% but less than 250%

At least 250% but less than 300%

At least 300% but not more than 400%

.02 Section 36B Required Contribution

Percentage for 2021. For plan years beginning in calendar year 2021, the required

contribution percentage for purposes of

§ 36B(c)(2)(C)(i)(II) and § 1.36B-2(c)(3)

(v)(C) is 9.83%.

SECTION 2. ADJUSTED ITEMS

.01 Applicable Percentage Table for

2021. For taxable years beginning in calendar year 2021, the Applicable Percentage Table for purposes of § 36B(b)(3)(A)

(i) and § 1.36B-3(g) is:

Initial percentage

2.07%

3.10%

4.14%

6.52%

8.33%

9.83%

SECTION 3. EFFECT ON OTHER

DOCUMENTS

Rev. Proc. 2014-37 is supplemented.

SECTION 4. EFFECTIVE DATE

This revenue procedure is effective for

taxable years and plan years beginning after December 31, 2020.

Bulletin No. 2020–32

ed in § 36B(b)(3)(A)(ii)(III), an additional adjustment must be made for calendar

years after 2018 to reflect the rates of premium growth relative to the growth in the

consumer price index. The Department of

the Treasury (Treasury Department) and

the Internal Revenue Service (IRS) have

determined that the failsafe exception described in § 36B(b)(3)(A)(ii)(III) applies

for calendar year 2021 and no additional

adjustment under § 36B(b)(3)(A)(ii)(II) is

required for calendar year 2021.

243

Final percentage

2.07%

4.14%

6.52%

8.33%

9.83%

9.83%

SECTION 5. DRAFTING

INFORMATION

The principal author of this revenue

procedure is Bill Ruane of the Office of

Associate Chief Counsel (Income Tax and

Accounting). For further information regarding this revenue procedure, contact

Mr. Ruane at (202) 317-4718 (not a tollfree number).

August 3, 2020

Part IV

Announcement 2020-8

Correction to Revenue

Procedure 2020-35, IRB

2015-29

SUMMARY: This document contains corrections to Revenue Procedure 2020-35,

published in Internal Revenue Bulletin

2020-29 on Monday, July 13, 2020. The

purpose of this revenue procedure is to

set forth the 2020 requirements for using

official Internal Revenue Service (IRS)

forms to file information returns with the

IRS, preparing acceptable substitutes of

the official IRS forms to file information

returns with the IRS, and using official or

acceptable substitute forms to furnish information to recipients.

Need for Correction

As published, the revenue procedure

contains the following errors that are in

need of correction.

1. In Section 2.1.1, Online Fillable

Forms, under the heading Specifications. The error consists in including

in the first paragraph Form 1099NEC. Form 1099-NEC should be deleted from the paragraph.

2. In Section 4.5.3, Perforations, under

the heading Miscellaneous Instructions for Copies B, C, D, E, 1, and

2. The error consists in indicating that

instructions for perforation can be

found in Section 2.1.8. The instructions for perforation can be found in

Section 2.1.9.

Announcement of

Disciplinary Sanctions

From the Office of

Professional Responsibility

Announcement 2020-9

The Office of Professional Responsibility (OPR) announces recent disci-

August 3, 2020

plinary sanctions involving attorneys, certified public accountants, enrolled agents,

enrolled actuaries, enrolled retirement

plan agents, appraisers, and unenrolled/

unlicensed return preparers (individuals

who are not enrolled to practice and are

not licensed as attorneys or certified public accountants). Licensed or enrolled

practitioners are subject to the regulations

governing practice before the Internal

Revenue Service (IRS), which are set out

in Title 31, Code of Federal Regulations,

Subtitle A, Part 10, and which are released

as Treasury Department Circular No.

230. The regulations prescribe the duties

and restrictions relating to such practice

and prescribe the disciplinary sanctions

for violating the regulations. Unenrolled/

unlicensed return preparers are subject to

Revenue Procedure 81-38 and superseding guidance in Revenue Procedure 201442, which govern a preparer’s eligibility

to represent taxpayers before the IRS in

examinations of tax returns the preparer

both prepared for the taxpayer and signed

as the preparer. Additionally, unenrolled/

unlicensed return preparers who voluntarily participate in the Annual Filing Season Program under Revenue Procedure

2014-42 agree to be subject to the duties

and restrictions in Circular 230, including

the restrictions on incompetent or disreputable conduct.

The disciplinary sanctions to be imposed for violation of the applicable standards are:

Disbarred from practice before the

IRS—An individual who is disbarred

is not eligible to practice before the IRS

as defined at 31 C.F.R. § 10.2(a)(4) for a

minimum period of five (5) years.

Suspended from practice before the

IRS—An individual who is suspended is

not eligible to practice before the IRS as

defined at 31 C.F.R. § 10.2(a)(4) during

the term of the suspension.

Censured in practice before the

IRS—Censure is a public reprimand. Unlike disbarment or suspension, censure

does not affect an individual’s eligibility

to practice before the IRS, but OPR may

subject the individual’s future practice

rights to conditions designed to promote

high standards of conduct.

244

Monetary penalty—A monetary penalty may be imposed on an individual who

engages in conduct subject to sanction,

or on an employer, firm, or entity if the

individual was acting on its behalf and it

knew, or reasonably should have known,

of the individual’s conduct.

Disqualification of appraiser—An

appraiser who is disqualified is barred

from presenting evidence or testimony in

any administrative proceeding before the

Department of the Treasury or the IRS.

Ineligible for limited practice—An

unenrolled/unlicensed return preparer

who fails to comply with the requirements

in Revenue Procedure 81-38 or to comply

with Circular 230 as required by Revenue

Procedure 2014-42 may be determined ineligible to engage in limited practice as a

representative of any taxpayer.

Under the regulations, individuals subject to Circular 230 may not assist, or accept assistance from, individuals who are

suspended or disbarred with respect to

matters constituting practice (i.e., representation) before the IRS, and they may

not aid or abet suspended or disbarred individuals to practice before the IRS.

Disciplinary sanctions are described in

these terms:

Disbarred by decision, Suspended by

decision, Censured by decision, Monetary penalty imposed by decision, and

Disqualified after hearing—An administrative law judge (ALJ) issued a decision

imposing one of these sanctions after the

ALJ either (1) granted the government’s

summary judgment motion or (2) conducted an evidentiary hearing upon OPR’s

complaint alleging violation of the regulations. After 30 days from the issuance

of the decision, in the absence of an appeal, the ALJ’s decision becomes the final

agency decision.

Disbarred by default decision, Suspended by default decision, Censured

by default decision, Monetary penalty

imposed by default decision, and Disqualified by default decision—An ALJ,

after finding that no answer to OPR’s

complaint was filed, granted OPR’s motion for a default judgment and issued

a decision imposing one of these sanctions.

Bulletin No. 2020–32

Disbarment by decision on appeal,

Suspended by decision on appeal, Censured by decision on appeal, Monetary

penalty imposed by decision on appeal,

and Disqualified by decision on appeal—The decision of the ALJ was appealed to the agency appeal authority, acting as the delegate of the Secretary of the

Treasury, and the appeal authority issued a

decision imposing one of these sanctions.

Disbarred by consent, Suspended by

consent, Censured by consent, Monetary penalty imposed by consent, and

Disqualified by consent—In lieu of a

disciplinary proceeding being instituted or

continued, an individual offered a consent

to one of these sanctions and OPR accepted the offer. Typically, an offer of consent

will provide for: suspension for an indefinite term; conditions that the individual

must observe during the suspension; and

the individual’s opportunity, after a stated number of months, to file with OPR a

petition for reinstatement affirming compliance with the terms of the consent and

affirming current fitness and eligibility

to practice (i.e., an active professional license or active enrollment status, with no

intervening violations of the regulations).

Suspended indefinitely by decision in

expedited proceeding, Suspended indefinitely by default decision in expedited

proceeding, Suspended by consent in

expedited proceeding—OPR instituted

an expedited proceeding for suspension

City & State

(based on certain limited grounds, including loss of a professional license for

cause, and criminal convictions).

Determined ineligible for limited

practice—There has been a final determination that an unenrolled/unlicensed

return preparer is not eligible for limited

representation of any taxpayer because the

preparer violated standards of conduct or

failed to comply with any of the requirements to act as a representative.

A practitioner who has been disbarred

or suspended under 31 C.F.R. § 10.60, or

suspended under § 10.82, or a disqualified

appraiser may petition for reinstatement

before the IRS after the expiration of 5

years following such disbarment, suspension, or disqualification (or immediately

following the expiration of the suspension

or disqualification period if shorter than 5

years). Reinstatement will not be granted

unless the IRS is satisfied that the petitioner is not likely to engage thereafter in

conduct contrary to Circular 230, and that

granting such reinstatement would not be

contrary to the public interest.

Reinstatement decisions are published

at the individual’s request, and described

in these terms:

Reinstated to practice before the

IRS—The individual’s petition for reinstatement has been granted. The

agent, and eligible to practice before the

IRS, or in the case of an appraiser, the individual is no longer disqualified.

Reinstated to engage in limited

practice before the IRS—The individual’s petition for reinstatement has been

granted. The individual is an unenrolled/

unlicensed return preparer and eligible to

engage in limited practice before the IRS,

subject to requirements the IRS has prescribed for limited practice by tax return

preparers.

OPR has authority to disclose the

grounds for disciplinary sanctions in these

situations: (1) an ALJ or the Secretary’s

delegate on appeal has issued a final decision; (2) the individual has settled a disciplinary case by signing OPR’s “consent

to sanction” agreement admitting to one

or more violations of the regulations and

consenting to the disclosure of the admitted violations (for example, failure to file

Federal income tax returns, lack of due

diligence, conflict of interest, etc.); (3)

OPR has issued a decision in an expedited

proceeding for indefinite suspension; or

(4) OPR has made a final determination

(including any decision on appeal) that an

unenrolled/unlicensed return preparer is

ineligible to represent any taxpayer before

the IRS.

Announcements of disciplinary sanctions appear in the Internal Revenue Bulletin at the earliest practicable date. The

sanctions announced below are alphabetized first by state and second by the last

names of the sanctioned individuals.

Name

Professional

Designation

Disciplinary Sanction

Effective Date(s)

Koplas,

Michael R.

CPA

Suspended by

consent for admitted

violations of

31 C.F.R.

§§ 10.51(a)(6) and (a)(17)

Indefinite from

April 20, 2020

Fraser, Carlyle

CPA

Florida

Stuart

New Jersey

Morris Plains

Bulletin No. 2020–32

Reinstated to practice before

the IRS, effective

March 23, 2020

245

August 3, 2020

City & State

Name

Professional

Designation

Disciplinary Sanction

Effective Date(s)

Vaughn,

James A.

CPA

Vance, Dean

CPA

Disbarred by Consent

under 31 C.F.R.

§ 10.51(a)(6)

Indefinite from

August 27, 2018

Molony,

John W.

CPA

Disbarred by ALJ

Indefinite from

May 24, 2020

Neal, Jon C.

CPA

New Mexico

Albuquerque

Reinstated to practice before

the IRS, effective

April 15, 2020

Pennsylvania

Lower Gwynedd

South Carolina

Charleston

Wisconsin

Hales Corners

Notice of Proposed

Rulemaking

Grandfathered Group

Health Plans and

Grandfathered Group

Health Insurance Coverage

REG-130081-19

AGENCY: Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, Department

of Labor; Centers for Medicare & Medicaid Services, Department of Health and

Human Services.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document is a notice

of proposed rulemaking regarding grandfathered group health plans and grandfathered group health insurance coverage

that would, if finalized, amend current

rules to provide greater flexibility for certain grandfathered health plans to make

changes to certain types of cost-sharing

August 3, 2020

Reinstated to practice before

the IRS, effective

April 27, 2020

requirements without causing a loss of

grandfather status.

DATES: To be assured consideration,

comments must be received at one of the

addresses provided below, no later than 5

p.m. on August 14, 2020.

ADDRESSES: Written comments may be

submitted to the addresses specified below. Any comment that is submitted will

be shared among the Departments. Please

do not submit duplicates.

All comments will be made available

to the public. Warning: Do not include

any personally identifiable information

(such as name, address, or other contact

information) or confidential business information that you do not want publicly

disclosed. All comments are posted on

the internet exactly as received and can

be retrieved by most internet search engines. No deletions, modifications, or redactions will be made to the comments

received, as they are public records.

Comments may be submitted anonymously.

In commenting, refer to file code RIN

1210-AB89. Because of staff and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission.

246

Comments, including mass comment

submissions, must be submitted in one of

the following three ways (please choose

only one of the ways listed):

1. Electronically. You may submit

electronic comments on this regulation to

http://www.regulations.gov. Follow the

“Submit a comment” instructions.

2. By regular mail. You may mail written comments to the following address

ONLY:

Office of Health Plan Standards and

Compliance Assistance

Employee Benefits Security Administration

US Department of Labor

Attention: RIN 1210-AB89

200 Constitution Avenue NW, Room

N-5653

Washington, DC 20210

Please allow sufficient time for mailed

comments to be received before the close

of the comment period.

3. By express or overnight mail. You

may send written comments to the following address ONLY:

Office of Health Plan Standards and

Compliance Assistance

Employee Benefits Security Administration

US Department of Labor

Bulletin No. 2020–32

Attention: RIN 1210-AB89

200 Constitution Avenue NW, Room

N-5653

Washington, DC 20210

For information on viewing public

comments, see the beginning of the “SUPPLEMENTARY INFORMATION” section.

FOR FURTHER INFORMATION

CONTACT:

William Fischer, Internal Revenue Service, Department of the Treasury, at (202)

317-5500.

David Sydlik or Frank Kolb, Employee

Benefits Security Administration, Department of Labor, at (202) 693-8335.

Cam Clemmons, Centers for Medicare & Medicaid Services, Department

of Health and Human Services, at (301)

492-4400.

Customer Service Information:

Individuals interested in obtaining information from the Department of Labor

(DOL) concerning employment-based

health coverage laws may call the EBSA

Toll-Free Hotline at 1-866-444-EBSA

(3272) or visit the DOL’s web site (www.

dol.gov/ebsa). In addition, information

from the Department of Health and Human

Services (HHS) on private health insurance

coverage and on non-federal governmental group health plans can be found on the

Centers for Medicare & Medicaid Services

(CMS) web site (www.cms.gov/cciio), and

information on health care reform can be

found at www.HealthCare.gov.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All

comments received before the close of the

comment period are available for viewing

by the public, including any personally

identifiable or confidential business information that is included in a comment.

Comments received before the close of the

comment period are posted on the following website as soon as possible after they

have been received: http://www.regulations.gov. Follow the search instructions

on that website to view public comments.

I. Background

A. Purpose

On January 20, 2017, the President issued Executive Order 13765, “Minimizing the Economic Burden of the Patient

Protection and Affordable Care Act Pending Repeal” (82 FR 8351) “to minimize

the unwarranted economic and regulatory burdens of the [Patient Protection and

Affordable Care Act (Pub. L. 111-148)

and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152)

(collectively, PPACA), as amended].” To

meet these objectives, the President directed that the executive departments and

agencies with authorities and responsibilities under PPACA, “to the maximum extent permitted by law . . . shall exercise all

authority and discretion available to them

to waive, defer, grant exemptions from, or

delay the implementation of any provision

or requirement of [PPACA] that would

impose a fiscal burden on any State or a

cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare

providers, health insurers, patients, recipients of healthcare services, purchasers of

health insurance, or makers of medical devices, products, or medications.”

The Departments of Health and Human

Services (HHS), Labor, and the Treasury

(collectively, the Departments) share interpretive jurisdiction over section 1251

of PPACA, which generally provides that

certain group health plans and health insurance coverage existing as of March 23,

2010, the date of enactment of PPACA

(referred to collectively in the statute as

grandfathered health plans), are subject to

only certain provisions of PPACA. Consistent with the objectives of Executive

Order 13765, on February 25, 2019, the

Departments issued a request for information regarding grandfathered group health

plans and grandfathered group health insurance coverage (2019 RFI).1 The purpose of the 2019 RFI was to gather input

from the public in order to better understand the challenges that group health

plans and group health insurance issuers

face in avoiding a loss of grandfather sta-

tus, and to determine whether there are

opportunities for the Departments to assist

such plans and issuers, consistent with the

law, in preserving the grandfather status

of group health plans and group health

insurance coverage in ways that would

benefit plan participants and beneficiaries,

employers, employee organizations, and

other stakeholders.

Based on feedback received from

stakeholders who submitted comments

in response to the 2019 RFI, the Departments are issuing this notice of proposed

rulemaking that would, if finalized, amend

current rules to provide greater flexibility for certain grandfathered health plans

to make changes to certain types of

cost-sharing requirements without causing

a loss of grandfather status. In the Departments’ view, these proposed amendments

are appropriate because they would enable

these plans to continue offering affordable

coverage while also enhancing their ability to respond to rising healthcare costs.

In some cases, the proposed amendments

would also ensure that the plans are able

to comply with minimum cost-sharing

requirements for high deductible health

plans (HDHPs) so enrolled individuals are

eligible to contribute to health savings accounts (HSAs).

These proposed rules would only address the requirements for grandfathered

group health plans and grandfathered

group health insurance coverage, and

would not apply to or otherwise change

the current requirements applicable to

grandfathered individual health insurance coverage. With respect to individual

health insurance coverage, it is the Departments’ understanding that the number of individuals with grandfathered

individual health insurance coverage has

declined each year since PPACA was

enacted. As one commenter noted, this

decline in enrollment in grandfathered

individual health insurance coverage will

continue due to the natural churn that

occurs, because most consumers stay in

the individual market for less than five

years.2 Compared to the number of individuals in grandfathered group health

plans and group health insurance cover-

84 FR 5969 (Feb. 25, 2019).

The cause of this churn varies. For example, beginning a new job that offers group health insurance coverage may result in the natural transition from the individual market to the group

market. Eligibility for Medicaid or Medicare can also result in a consumer leaving the individual market.

1

2

Bulletin No. 2020–32

247

August 3, 2020

age, only a small number of individuals

are enrolled in grandfathered individual

health insurance coverage.3 The Departments are therefore of the view that any

amendments to requirements for grandfathered individual health insurance coverage would be of limited utility.

B. Grandfathered Group Health Plans

and Grandfathered Group Health

Insurance Coverage

Section 1251 of PPACA provides that

grandfathered health plans are subject to

certain, but not all, provisions of PPACA

for as long as they maintain their status as

grandfathered health plans.4 For example,

grandfathered health plans are subject neither to the requirement to cover certain

preventive services without cost sharing

under section 2713 of the Public Health

Service Act (PHS Act), enacted by section

1001 of PPACA, nor to the annual limitation on cost sharing set forth under section

1302(c) of PPACA and section 2707(b) of

the PHS Act, enacted by section 1201 of

PPACA. If a plan were to lose its grandfather status, it would be required to comply

with both provisions, in addition to several other requirements.

On June 17, 2010, the Departments issued interim final rules with request for

comments implementing section 1251

of PPACA.5 On November 17, 2010, the

Departments issued an amendment to

the interim final rules with request for

comments to permit certain changes in

policies, certificates, or contracts of insurance without a loss of grandfather status.6 Also, over the course of 2010 and

2011, the Departments released Affordable Care Act Implementation Frequently

Asked Questions (FAQs) Parts I, II, IV,

V, and VI to answer questions related to

maintaining a plan’s status as a grandfathered health plan.7 After consideration

of the comments and feedback received

from stakeholders, the Departments issued regulations on November 18, 2015,

which finalized the interim final rules

without substantial change and incorporated the clarifications that the Departments had previously provided in other

guidance (2015 final rules).8

In general, under the 2015 final rules,

a group health plan or group health insurance coverage is considered grandfathered

if it has continuously provided coverage

for someone (not necessarily the same

person, but at all times at least one person)

since March 23, 2010, and if the plan (or

its sponsor) or issuer has not taken certain

actions.

Under the 2015 final rules, certain

changes to a group health plan or coverage do not result in a loss of grandfather

status. For example, new employees and

their families may enroll in a group health

plan or group health insurance coverage

without causing a loss of grandfather status. Further, the addition of a new contributing employer or a new group of employees of an existing contributing employer

to a grandfathered multiemployer health

plan will not affect the plan’s grandfather

status. Also, grandfather status is determined separately for each benefit package

under a group health plan or coverage;

thus, if any benefit package under the plan

or coverage loses its grandfather status, it

will not affect the grandfather status of the

other benefit packages.

The 2015 final rules specify when

changes to the terms of a plan or coverage

cause the plan or coverage to cease to be

a grandfathered health plan. Specifically,

the regulations outline certain changes to

benefits, cost-sharing requirements, and

contribution rates that will cause a plan

or coverage to relinquish its grandfather

status. There are six types of changes

(measured from March 23, 2010) that

will cause a group health plan or health

insurance coverage to cease to be grandfathered:

1. The elimination of all or substantially

all benefits to diagnose or treat a particular condition;

2. Any increase in a percentage

cost-sharing requirement (such as coinsurance);

3. Any increase in a fixed-amount

cost-sharing requirement (other than

a copayment) (such as a deductible

or out-of-pocket maximum) that exceeds certain thresholds;

4. Any increase in a fixed-amount copayment that exceeds certain thresholds;

5. A decrease in contribution rate by an

employer or employee organization

toward the cost of coverage by more

than five percentage points below the

contribution rate for the coverage period that includes March 23, 2010; or

6. The imposition of annual limits on the

dollar value of all benefits for group

health plans and insurance coverage

that did not impose such a limit prior

to March 23, 2010.

The 2015 final rules provide different

thresholds for the increases to different

types of cost-sharing requirements that

will cause a loss of grandfather status.

The nominal dollar amount of a coinsurance obligation automatically rises when

HHS estimates that less than seven percent of enrollees in grandfathered plans have individual market coverage. This estimate is based on analysis of enrollment data issuers submitted in

the HHS Health Insurance and Oversight System (HIOS) and the CMS External Data Gathering Environment (EDGE) for the 2018 plan year, as well as Kaiser Family Foundation estimates

regarding the percentage of enrollees with employer-sponsored coverage that are covered by a grandfathered health plan.

4

For a list of the market reform provisions applicable to grandfathered health plans under title XXVII of the PHS Act that PPACA added or amended and were incorporated into the Employee

Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code), visit https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/grandfathered-health-plans-provisions-summary-chart.pdf.

5

75 FR 34538 (June 17, 2010).

6

75 FR 70114 (Nov. 17, 2010).

7

See Affordable Care Act Implementation FAQs Part I, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-i.pdf and https://www.

cms.gov/​CCIIO/​Resources/​Fact-Sheets-and-FAQs/​aca_​implementation_​faqs.html; Affordable Care Act Implementation FAQs Part II, available at https://www.dol.gov/sites/default/files/

ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-ii.pdf and https://www.cms.gov/​CCIIO/​Resources/​Fact-Sheets-and-FAQs/​aca_​implementation_​faqs2.html; Affordable Care

Act Implementation FAQs Part IV, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-iv.pdf and https://www.cms.gov/​CCIIO/​

Resources/​Fact-Sheets-and-FAQs/​aca_​implementation_​faqs4.html; Affordable Care Act Implementation FAQs Part V, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/

our-activities/resource-center/faqs/aca-part-v.pdf and https://www.cms.gov/​CCIIO/​Resources/​Fact-Sheets-and-FAQs/​aca_​implementation_​faqs5.html; and Affordable Care Act Implementation FAQs Part VI, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-vi.pdf and https://www.cms.gov/​CCIIO/​Resources/​FactSheets-and-FAQs/​aca_​implementation_​faqs6.html.

8

80 FR 72192 (Nov. 18, 2015), codified at 26 CFR 54.9815-1251, 29 CFR 2590.715-1251, and 45 CFR 147.140.

3

August 3, 2020

248

Bulletin No. 2020–32

the cost of the healthcare benefit subject

to the coinsurance obligation increases, so

changes to the level of coinsurance (such

as modifying a requirement that the patient pay 20 percent to a requirement that

the patient pay 30 percent of inpatient

surgery costs) could significantly alter the

financial obligation of consumers and a

plan or health insurance coverage. On the

other hand, fixed-amount cost-sharing requirements (such as copayments and deductibles) do not automatically rise when

healthcare costs increase. This means that

changes to fixed-amount cost-sharing requirements (for example, modifying a

$35 copayment to a $40 copayment for

outpatient doctor visits) may be reasonable to keep pace with the rising cost of

medical items and services. Accordingly,

under the 2015 final rules, any increase

in a percentage cost-sharing requirement

(such as coinsurance) causes a plan or

health insurance coverage to cease to be a

grandfathered health plan. With respect to

fixed-amount cost-sharing requirements,

however, there are two standards for permitted increases, one for fixed-amount

cost-sharing requirements other than copayments (for example, deductibles and

out-of-pocket maximums) and another for

copayments.

With respect to fixed-amount cost-sharing requirements other than copayments, a

plan or coverage ceases to be a grandfathered health plan if there is an increase,

since March 23, 2010, that is greater than

the maximum percentage increase. For

fixed-amount copayments, a plan or coverage ceases to be a grandfathered health

plan if there is an increase, since March

23, 2010, in the copayment that exceeds

the greater of (1) the maximum percentage increase or (2) five dollars increased

by medical inflation. The 2015 final

rules define the maximum percentage increase as medical inflation (from March

23, 2010) plus 15 percentage points. For

this purpose, medical inflation is defined

by reference to the overall medical care

component of the Consumer Price Index

for All Urban Consumers, unadjusted

(CPI-U), published by the Department of

Labor using the 1982–1984 base of 100.

For any change that causes a loss of

grandfather status under the 2015 final

rules, the plan or coverage will cease to

be a grandfathered plan when the change

becomes effective, regardless of when the

change is adopted.

In addition, the 2015 final rules require that a grandfathered plan or coverage include a statement in any summary

of benefits provided under the plan that it

believes the plan or coverage is a grandfathered health plan, as well as provide contact information for questions and complaints. Failure to provide this disclosure

results in a loss of grandfather status. The

2015 final rules further provide that, once

grandfather status is relinquished, there is

no opportunity to regain it.

C. 2019 Request for Information

It is the Departments’ understanding

that the number of grandfathered group

health plans and group health insurance

policies has declined each year since the

enactment of PPACA, but many employers continue to maintain grandfathered

group health plans and coverage. The fact

that a significant number of grandfathered

group health plans and coverage remain

indicates that some employers and issuers

have found value in preserving grandfather status. Accordingly, on February 25,

2019, the Departments published in the

Federal Register the 2019 RFI9 to gather

input from the public in order to better understand the challenges that group health

plans and group health insurance issuers

face in avoiding a loss of grandfather status and to determine whether there are

opportunities for the Departments to assist

such plans and issuers, consistent with the

law, in preserving the grandfather status

of group health plans and group health

insurance coverage in ways that would

benefit plan participants and beneficiaries,

employers, employee organizations, and

other stakeholders.

Comments submitted in response to the

2019 RFI provided information regarding

grandfathered health plans that has informed these proposed rules. Commenters shared data regarding the prevalence

of grandfathered group health plans and

grandfathered group health insurance coverage, insights regarding the impact that

grandfathered plans have had in terms of

delivering benefits to participants and beneficiaries at a lower cost than non-grandfathered plans, and suggestions for potential amendments to the Departments’

2015 final rules that would provide more

flexibility for a plan or coverage to retain

grandfather status.

Several commenters directed the Departments’ attention to a Kaiser Family

Foundation survey, which indicates that

one out of every five firms that offered

health benefits in 2018 offered at least

one grandfathered health plan, and 16

percent of covered workers were enrolled

in a grandfathered group health plan that

year.10 One commenter indicated the incidence of grandfathered plan status differs

by various types of plan sponsors. Another

commenter cited survey data released in

2018 by the International Foundation of

Employee Benefit Plans, which indicated

that 57 percent of multiemployer plans are

grandfathered, compared to 20 percent of

private-sector plans and 30 percent of public sector plans. However, a professional

association with members who work with

employer groups on health plan design

and administration commented that their

members have found far fewer grandfathered plans than survey results suggest

are in existence and suggested that very

large employers with self-funded plans

may have a disproportionate share of

grandfathered plans, as well as that some

employers that have “grandmothered”

plans or that previously had grandfathered

plans may unintentionally be reporting

84 FR 5969 (Feb. 25, 2019), available at https://www.federalregister.gov/documents/2019/02/25/2019-03170/request-for-information-regarding-grandfathered-group-health-plans-andgrandfathered-group-health.

10

On September 25, 2019, the Kaiser Family Foundation issued its 2019 report, which showed little change since 2018 with respect to grandfathered plans. According to survey data, 22

percent of offering firms report having at least one grandfathered plan in 2019, and 13 percent of covered workers were enrolled in a grandfathered health plan in 2019. See 2019 Employer

Health Benefits Survey, Kaiser Family Foundation, available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/. See also 2018 Employer Health Benefits Survey, Kaiser Family Foundation, available at https://www.kff.org/report-section/2018-employer-healthbenefits-survey-section-13-grandfathered-healthplans/.

9

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249

August 3, 2020

incorrectly in surveys that they still have

grandfathered plans.11

Some commenters stated that grandfathered health plans are less comprehensive and provide fewer consumer

protections than non-grandfathered plans;

thus, these commenters opined that the

Departments should not amend the 2015

final rules to provide any greater flexibility for a plan or coverage to maintain

grandfather status. Other commenters

noted, however, that grandfathered plans

often have lower premiums and cost-sharing requirements than non-grandfathered

plans. One commenter gave examples

of premium increases ranging from 10

percent to 40 percent that grandfathered

plan participants would experience if they

transitioned to non-grandfathered group

health plans. Several commenters also argued that grandfathered health plans do in

fact offer comprehensive benefits and in

some cases are even more generous than

certain non-grandfathered plans that are

subject to all the requirements of PPACA.

Some commenters also stated that they

have found that their grandfathered plans

offer more robust provider networks than

other coverage options that are available

to them or that they want to ensure that

they are able to keep receiving care from

current in-network providers.

Commenters who supported allowing

greater flexibility for grandfathered health

plans offered a range of suggestions on

how the 2015 final rules should be amended. For example, several commenters requested additional flexibility regarding

plan or coverage changes that would constitute an elimination of substantially all

benefits to diagnose or treat a condition,

arguing that it is often difficult to discern

what constitutes a benefit reduction given that the regulations apply a “facts and

circumstances” standard. Some commenters requested flexibility to make certain

changes so long as the grandfathered plan

or coverage’s actuarial value is not af-

fected. Some commenters also stated that

the 2015 final rules should be amended

to permit decreases in contribution rates

by employers and employee organizations by more than five percentage points

to account for employers experiencing a

business change or economic downturn

and the difficulty issuers face in gathering

necessary information from employers to

know that their contribution rates have not

decreased.

Commenters also suggested amendments relating to the permitted changes

in cost-sharing requirements for grandfathered health plans. These commenters

generally argued that the 2015 final rules

were too restrictive. Several commenters

stated that relying on the medical care

component of the CPI-U for purposes of

those rules to account for inflation adjustments to the maximum percentage increase

was misguided, and the methodology used

to calculate the “premium adjustment percentage” (as defined in 45 CFR 156.130)

would be more appropriate because it is

tied to the increase in premiums for health

insurance and, therefore, better reflects

the increase in costs for health coverage.

These commenters also noted that relying

on the premium adjustment percentage

would be consistent with the methodology

used to adjust the annual limitation on cost

sharing under section 1302(c) of PPACA

and section 2707(b) of the PHS Act that

applies to non-grandfathered plans. Additionally, one commenter articulated a concern that the 2015 final rules eventually

may preclude some grandfathered group

health plans or issuers of grandfathered

group health insurance coverage from being able to make changes to cost-sharing

requirements that are necessary for a plan

to maintain its status as an HDHP within

the meaning of section 223 of the Internal Revenue Code (Code), which would

effectively mean that individuals covered

by those plans would no longer be eligible

to contribute to an HSA.

D. The Premium Adjustment Percentage

Section 1302(c)(4) of PPACA directs

the Secretary of HHS to determine an annual premium adjustment percentage, a

measure of premium growth that is used

to set the rate of increase for three parameters detailed in PPACA: (1) the maximum annual limitation on cost sharing

(defined at 45 CFR 156.130(a)); (2) the

required contribution percentage used to

determine eligibility for certain exemptions under Code section 5000A (defined

at 45 CFR 155.605(d)(2)); and (3) the

employer shared responsibility payment

amounts under Code section 4980H(a)

and (b) (see Code section 4980H(c)(5)).

Section 1302(c)(4) of PPACA and 45 CFR

156.130(e) provide that the premium adjustment percentage is the percentage (if

any) by which the average per capita premium for health insurance coverage for

the preceding calendar year exceeds such

average per capita premium for health insurance for 2013, and 45 CFR 156.130(e)

provides that this percentage will be published in the annual HHS notice of benefit

and payment parameters.

To calculate the premium adjustment

percentage for a benefit year, HHS calculates the percentage by which the average

per capita premium for health insurance

coverage for the preceding calendar year

exceeds the average per capita premium

for health insurance for 2013, and rounds

the resulting percentage to 10 significant

digits. The resulting premium index reflects cumulative, historic growth in premiums from 2013 through the preceding

year. HHS calculates the premium adjustment percentage using as a premium

growth measure the most recently available, at the time of proposal in the annual

HHS notice of benefit and payment parameters proposed rule, National Health

Expenditure Accounts (NHEA) projection of per enrollee premiums for private

health insurance, excluding Medigap and

“Grandmothered” plans, also known as transitional plans, are certain non-grandfathered health insurance coverage in the small group and individual market that meet certain conditions.

On November 14, 2013, CMS issued a letter to the State Insurance Commissioners outlining a policy under which, if permitted by the state, non-grandfathered small group and individual

market health plans that were in effect on October 1, 2013, would send a notice to all individuals and small businesses that received or would otherwise receive a cancellation or termination

notice with respect to the coverage, and the coverage would not be treated as being out of compliance with certain specified market reforms. CMS has extended this non-enforcement policy

each year, with the most recent extension in effect until policy years beginning on or before October 1, 2021, provided that all such coverage comes into compliance by January 1, 2022. See

Insurance Standards Bulletin Series – INFORMATION – Extension of Limited Non-Enforcement Policy through 2021 (January 31, 2020), available at https://www.cms.gov/files/document/

extension-limited-non-enforcement-policy-through-calendar-year-2021.pdf.

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property and casualty insurance, for 2013

and the preceding calendar year.12

E. High Deductible Health Plans and

HSA-compatibility

Section 223 of the Code permits eligible individuals to establish and contribute

to HSAs. HSAs are tax-favored accounts

established for the purpose of providing

tax benefits to pay for qualified medical expenses on behalf of the account

beneficiary, his or her spouse, and any

dependents claimed. Among the requirements for an individual to qualify as an

eligible individual under section 223(c)

(1) of the Code (and thus to be eligible

to make tax-favored contributions to an

HSA) is the requirement that the individual be covered under an HDHP. An HDHP

is a health plan that satisfies certain requirements with respect to minimum deductibles and maximum out-of-pocket

expenses, which increase annually with

cost-of-living adjustments. Generally, except for preventive care, an HDHP may

not provide benefits for any year until the

deductible for that year is met. Pursuant to

section 223(g) of the Code, the minimum

deductible for an HDHP is adjusted annually for cost-of-living based on changes in

the CPI-U.

II. Overview of Proposed Rules

A. Introduction

This notice of proposed rulemaking

would, if finalized, amend the 2015 final rules to provide greater flexibility

for grandfathered group health plans and

issuers of grandfathered group health insurance coverage to make certain changes without causing a loss of grandfather

status. However, there is no authority

for non-grandfathered plans to become

grandfathered, and therefore these proposed rules would not provide any oppor-

tunity for a plan or coverage that has lost

its grandfather status under the 2015 final

rules to regain that status.

In issuing these proposed rules, the Departments considered comments submitted in response to the 2019 RFI regarding

ways that the 2015 final rules should be

amended. Many suggestions outlined in

the comments are not being proposed here

because, in the Departments’ view, they

would allow for such significant changes

that the modified plan or coverage could

not reasonably be described as being the

same plan or coverage that was offered on

March 23, 2010, for purposes of grandfather status. However, the commenters’

arguments that there are better means of

accounting for inflation in the standard

for the maximum percentage increase

that should be permitted to fixed-amount

cost-sharing requirements were persuasive. The Departments also agree that,

as one commenter highlighted, there is

an opportunity to clarify that changes to

fixed-amount cost-sharing requirements

that are necessary for a plan to maintain its

status as an HDHP should not cause a loss

of grandfather status. Given that the 2015

final rules permit increases that are meant

to account for inflation in healthcare costs

over time, the Departments are of the view

that these suggestions are reasonably narrow and consistent with the intent of the

2015 final rules to permit adjustments in

response to inflation without causing a

loss of grandfather status.

Accordingly, these proposed rules

would amend the 2015 final rules in two

ways. First, these proposed rules include

a new paragraph (g)(3) which would specify that grandfathered group health plans

and grandfathered group health insurance coverage that are HDHPs may make

changes to fixed-amount cost-sharing requirements that would otherwise cause a

loss of grandfather status without causing

a loss of grandfather status, but only to

the extent those changes are necessary to

comply with the requirements for HDHPs

under section 223(c)(2) of the Code. Second, these proposed rules include a revised definition of “maximum percentage

increase” in redesignated paragraph (g)

(4), which provides an alternative method

of determining that amount based on the

premium adjustment percentage. This alternative method would be available only

for grandfathered group health plans and

grandfathered group health insurance coverage with changes that are effective on or

after the effective date of a final rule.

The Departments request comments on

all aspects of these proposed rules. In the

preamble discussion that follows, the Departments also solicit comments on specific issues related to the proposed rules

where stakeholder feedback would be particularly useful in evaluating whether and

how to issue final rules.

B. Special Rule for Certain

Grandfathered HDHPs

As explained above, paragraph (g)

(1) of the 2015 final rules identifies certain types of changes that will cause a

plan or coverage to cease to be a grandfathered health plan, including increases

in cost-sharing requirements that exceed

certain thresholds. However, cost-sharing

requirements for a grandfathered group

health plan or group health insurance coverage that is an HDHP must satisfy the

minimum annual deductible requirement

and maximum out-of-pocket expenses

requirement under section 223(c)(2)(A)

of the Code. These amounts are updated

annually to reflect a cost-of-living adjustment and are published each year by the

Internal Revenue Service.

The annual cost-of-living adjustment

to the required minimum deductible for an

HDHP has not yet exceeded the maximum

percentage increase that would cause an

HDHP to lose grandfather status.13 Nevertheless, the Departments are of the view

85 FR 29164, 29228 (May 14, 2020). The series used in the determinations of the adjustment percentages can be found in Table 17 on the CMS web site, which can be accessed by clicking

the “NHE Projections 2018-2027 – Tables” link located in the Downloads section at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. A detailed description of the NHE projection methodology is available at https://www.cms.gov/Research-Statistics-Data-and-Systems/

Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology.pdf.

13

For calendar year 2020, a “high deductible health plan” is defined under Code § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or

$2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for which do not exceed $6,900 for self-only coverage

or $13,800 for family coverage. Rev. Proc. 2019-25. For calendar year 2021, a “high deductible health plan” is defined under Code § 223(c)(2)(A) as a health plan with an annual deductible

that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for

which do not exceed $7,000 for self-only coverage or $14,000 for family coverage. Rev. Proc. 2020-32.

12

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August 3, 2020

that there is value in providing assurance

to grandfathered plans that if a grandfathered group health plan or group health

insurance coverage that is an HDHP increases its fixed-amount cost-sharing

requirements to meet a future adjusted

minimum annual deductible requirement

under section 223(c)(2)(A) of the Code

that is greater than the increase that would

be permitted under paragraph (g)(1), such

an increase would not cause the plan or

coverage to relinquish its grandfather

status. Otherwise, if such a conflict were

to occur, the sponsor of the plan would

have to decide whether to preserve the

plan’s grandfather status or its status as

an HDHP. This would mean participants

and beneficiaries would experience either

substantial changes to their coverage (and

likely premium increases) or a loss of eligibility to contribute to an HSA.

To address this potential conflict, these

proposed rules include a new paragraph

(g)(3), which provides that, with respect

to a grandfathered group health plan or

group health insurance coverage that

is an HDHP, increases to fixed-amount

cost-sharing requirements that otherwise

would cause a loss of grandfather status

would not cause the plan or coverage to

relinquish its grandfather status, but only

to the extent the increases are necessary to

maintain its status as an HDHP under section 223(c)(2)(A) of the Code.14 Thus, increases with respect to such a plan or coverage that would otherwise cause a loss

of grandfather status and that exceed the

amount necessary to satisfy the minimum

annual deductible requirement under section 223(c)(2)(A) of the Code would still

cause a loss of grandfather status. These

proposed rules would also add a new example 11 under paragraph (g)(5) to illustrate how this special rule would apply.

C. Definition of Maximum Percentage

Increase

The Departments agree with stakeholders who submitted comments on the

2019 RFI stating that the premium adjust-

ment percentage (as defined at 45 CFR

156.130(e) and published for each year

by HHS in the annual notice of benefit

and payment parameters) may be a more

appropriate measurement of changes in

healthcare costs over time than medical

inflation, as defined in the 2015 final rules.

Under the 2015 final rules, medical

inflation means the increase since March

2010 in the overall medical care component of the CPI-U published by the Department of Labor using the 1982-1984

base of 100. The medical care component

of the CPI-U is a measure of the average

change over time in the prices paid by urban consumers for medical care. Although

the Departments continue to believe this

is an appropriate measure for medical inflation in this context, the Departments

recognize that the medical care component of CPI-U reflects not only changes

in price for private insurance, but also for

self-pay patients and Medicare, neither

of which are reflected in the underlying

costs for grandfathered group health plans

and grandfathered group health insurance

coverage. In contrast, the premium adjustment percentage reflects the cumulative, historic growth from 2013 through

the preceding calendar year in premiums

for only private health insurance, excluding Medigap and property and casualty

insurance. Therefore, the Departments

agree with comments that the premium

adjustment percentage better reflects the

increase in underlying costs for grandfathered group health plans and grandfathered group health insurance coverage.

The Departments acknowledge that the

premium adjustment percentage does not

capture premium growth from 2010 to

2013, and that it reflects increases in premiums in the individual market, which

have increased more rapidly than premiums for group health plans and group

health insurance. However, the Departments believe the premium adjustment

percentage is the best existing measure

to reflect the increase in underlying costs

for grandfathered group health plans and

grandfathered group health insurance

coverage. Additionally, the Departments

believe using a measure with which plans

and issuers are already familiar would

increase administrative simplicity. Nevertheless, the Departments seek comment

on alternative measures that more accurately represent the increase in underlying

costs for grandfathered group health plans

and grandfathered group health insurance

coverage.

These proposed rules include an

amended definition of the maximum percentage increase that provides an alternative standard that relies on the premium

adjustment percentage, rather than medical inflation (which continues to be defined, for purposes of these rules, as the

overall medical care component of the

Consumer Price Index for All Urban Consumers, unadjusted), to account for changes in healthcare costs over time. This alternative standard would not supplant the

current standard; rather, it would be available to the extent it yields a greater result

than the current standard, and it would apply only with respect to increases in fixedamount cost-sharing requirements that are

made effective on or after the effective

date of the final rule. With respect to increases for group health plans and group

health insurance coverage made effective

on or after March 23, 2010, and before the

effective date of the final rule, the maximum percentage increase would still be

defined as medical inflation expressed as

a percentage, plus 15 percentage points.15

Thus, under these proposed rules, increases to fixed-amount cost-sharing requirements for grandfathered group health

plans and grandfathered group health insurance coverage that are made effective

on or after the effective date of the final

rule, would cause the plan or coverage to

cease to be a grandfathered health plan,

if the total percentage increase in the

cost-sharing requirement measured from

March 23, 2010 exceeds the greater of (1)

medical inflation, expressed as a percentage, plus 15 percentage points; or (2) the

portion of the premium adjustment percentage, as defined in 45 CFR 156.130(e),

Paragraph (g)(3) of the 2015 final rules would be renumbered as paragraph (g)(4), and subsequent paragraphs would be renumbered accordingly. Additionally, the proposed rules include

conforming amendments to other paragraphs in the proposed rules to update all cross-references to those subparagraphs.

15

The amendments included in these proposed rules would apply only with respect to grandfathered group health plans and grandfathered group health insurance coverage. Because HHS regulations at 45 CFR 147.140 apply to both grandfathered individual and group health coverage, the amended definition of the maximum percentage increase in the HHS proposed regulations

would also add a separate provision for individual health insurance coverage to show that the applicable definition remains unchanged.

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that reflects the relative change between

2013 and the calendar year prior to the

effective date of the increase (that is, the

premium adjustment percentage minus

1), expressed as a percentage, plus 15

percentage points. These proposed rules

would also add a new example 5 under

paragraph (g)(5) to demonstrate how this

alternative measure for determining the

maximum percentage increase might apply in practice. Similar to other examples

in paragraph (g)(5), the new example 5 includes hypothetical numbers with respect

to both the overall medical care component of the CPI-U and the premium adjustment percentage that do not relate to

any specific time period and are used for

illustrative purposes only. These proposed

rules would also renumber examples 5-9

in paragraph (g)(5) to allow the inclusion

of new example 5 and to revise examples

3-6 to clarify that these examples involve

plan changes that become effective before

the effective date of the final rule. These

proposed revisions would ensure that the

examples accurately reflect the other provisions of the rule.

Stakeholders reviewing these proposed

rules should look to official publications

from the Bureau of Labor Statistics and

HHS to identify the relevant overall medical care component of the CPI-U amount

or premium adjustment percentage with

respect to a change being considered by a

grandfathered health plan.

III. Effective Date

The amendments to the 2015 final

rules that are included in these proposed

rules would apply to grandfathered group

health plans and grandfathered group

health insurance coverage beginning 30

days after the publication of any final

rules. The Departments solicit comment

on this proposed effective date.

IV. Economic Impact Analysis and

Paperwork Burden

A. Summary/Statement of Need

Section 1251 of PPACA provides that

certain group health plans and health insurance coverage existing on March 23,

16

2010, are not subject to certain provisions

of PPACA as long as they maintain grandfather status. On February 25, 2019, the

Departments published an RFI to gather information on grandfathered group

health plans and grandfathered group

health insurance coverage. Comments received from stakeholders in response to

the 2019 RFI suggest that issuers and plan

sponsors, as well as participants and beneficiaries, continue to value the option to

continue grandfathered group health plan

and grandfathered group health insurance

coverage. The Departments are of the view

that these proposed rules would be appropriate to provide certain grandfathered

health plans greater flexibility to make

changes to certain types of cost-sharing

requirements without causing a loss of

grandfather status. These changes would

allow certain grandfathered group health

plans and grandfathered group health insurance coverage to continue to be exempt

from certain provisions of PPACA and allow those plans’ participants and beneficiaries to maintain their current coverage.

In drafting these proposed rules, the Departments attempted to balance a number

of competing interests. For example, the

Departments sought to balance providing

greater flexibility to grandfathered group

health plans and grandfathered group

health insurance coverage that would enable these plans and coverage to continue

offering quality, affordable coverage to

participants and beneficiaries against ensuring that the proposed policies would not

allow for such significant changes that the

plan or coverage could not reasonably be

described as being the same plan or coverage that was offered on March 23, 2010.

Additionally, the Departments sought to

allow grandfathered group health plans

and grandfathered group health insurance coverage to better account for rising

healthcare costs, including ensuring that

grandfathered group HDHPs are able to

maintain their grandfather status, while

continuing to comply with minimum

cost-sharing requirements for HDHPs, so

that the individuals enrolled in the HDHPs

are eligible to contribute to an HSA. In

previous rulemaking, the Departments

recognized that many group health plans

and issuers make changes to the terms of

plans or health insurance coverage on an

annual basis: premiums fluctuate, provider networks and drug formularies change,

employer and employee contributions

and cost-sharing requirements change,

and covered items and services may vary.

Without some flexibility to make adjustments while retaining grandfather status,

the ability of many individuals to maintain

their current coverage would be frustrated,

because much of the grandfathered group

health plan coverage would quickly cease

to be regarded as the same health plan or

health insurance coverage in existence

on March 23, 2010. At the same time, allowing plans to make unfettered changes

while retaining grandfather status would

be inconsistent with Congress’s intent in

enacting PPACA.16

These proposed rules, if finalized,

would amend the 2015 final rules to provide greater flexibility for grandfathered

group health plans and issuers of grandfathered group health insurance coverage in

two ways. First, the proposed rules would

specify that any grandfathered group

health plan and grandfathered group health

insurance coverage that is an HDHP may

make changes to fixed-amount cost-sharing requirements that would otherwise

cause a loss of grandfather status without

causing a loss of grandfather status, but

only to the extent those changes are necessary to comply with the requirements

for HDHPs under section 223(c)(2) of the

Code. Second, these proposed rules would

include a revised definition of “maximum

percentage increase,” which provides an

alternative method of determining that

amount that is based on the premium adjustment percentage.

B. Overall Impact

The Departments have examined the

impacts of these proposed rules as required by Executive Order 12866 on

Regulatory Planning and Review (September 30, 1993), Executive Order 13563

on Improving Regulation and Regulatory

Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 202

of the Unfunded Mandates Reform Act

of 1995 (March 22, 1995, Pub. L. 104-

75 FR 34538, 34546 (June 17, 2010).

Bulletin No. 2020–32

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August 3, 2020

4), Executive Order 13132 on Federalism

(August 4, 1999), the Congressional Review Act (5 U.S.C. 804(2)), and Executive

Order 13771 on Reducing Regulation and

Controlling Regulatory Costs (January 30,

2017).

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives

and, if regulation is necessary, to select

regulatory approaches that maximize net

benefits (including potential economic,

environmental, public health and safety

effects, distributive impacts, and equity). Executive Order 13563 emphasizes

the importance of quantifying both costs

and benefits, reducing costs, harmonizing

rules, and promoting flexibility. A regulatory impact analysis must be prepared for

rules with economically significant effects

($100 million or more in any one year).

Section 3(f) of Executive Order 12866

defines a “significant regulatory action”

as an action that is likely to result in a

rule (1) having an annual effect on the

economy of $100 million or more in any

one year, or adversely and materially

affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities

(also referred to as “economically significant”); (2) creating a serious inconsistency or otherwise interfering with an action

taken or planned by another agency; (3)

materially altering the budgetary impacts

of entitlement grants, user fees, or loan

programs or the rights and obligations of

recipients thereof; or (4) raising novel legal or policy issues arising out of legal

mandates, the President’s priorities, or

the principles set forth in the Executive

Order. A regulatory impact analysis must

be prepared for major rules with economically significant effects ($100 million or

more in any one year), and a “significant”

regulatory action is subject to Office of

Management and Budget (OMB) review.

As discussed below regarding their anticipated effects, these proposals are not

likely to have economic impacts of $100

million or more in any one year, and

therefore do not meet the definition of

‘‘economically significant’’ under Executive Order 12866. OMB has determined,

however, that the actions are significant

within the meaning of section 3(f)(4) of

the Executive Order. Therefore, OMB

has reviewed these proposed rules and

the Departments have provided the following assessment of their impact.

C. Impact Estimates of Grandfathered

Group Health Plans and Grandfathered

Group Health Insurance Coverage

Provisions and Accounting Table

These proposed rules, if finalized,

would amend the 2015 final rules to provide greater flexibility for grandfathered

group health plan sponsors and issuers

of grandfathered group health insurance coverage to make certain changes

to cost-sharing requirements without

causing a loss of grandfather status. The

proposed rules would specify that issuers or sponsors of any grandfathered

group health plan and grandfathered

group health insurance coverage that is

an HDHP may make changes to fixedamount cost-sharing requirements that

would otherwise cause a loss of grandfather status without causing a loss of

grandfather status, but only to the extent

those changes are necessary to comply

with the requirements for HDHPs under

section 223(c)(2) of the Code. The proposed rules would also revise the definition of “maximum percentage increase”

to provide an alternative method of determining that amount that is based on the

premium adjustment percentage. In accordance with OMB Circular A-4, Table

1 depicts an accounting statement summarizing the Departments’ assessment of

the benefits, costs, and transfers associated with this regulatory action.

The Departments are unable to quantify all benefits, costs, and transfers of these

proposed rules. The effects in Table 1 reflect non-quantified impacts and estimated

direct monetary costs and transfers resulting from the provisions of these proposed

rules for plans, issuers, participants, and

beneficiaries.

TABLE 1: Accounting Table

Benefits

Non-Quantified:

• Allows sponsors of grandfathered group health plans and grandfathered group health insurance coverage more flexibility to

make changes to certain fixed-amount cost-sharing requirements without losing grandfather status.

• Allows participants and beneficiaries in grandfathered group health plans and grandfathered group health insurance coverage

to maintain coverage they are familiar with and potentially provides continuity of care by not requiring them to change their

health plan to one that may not include their current provider(s).

• Ensures plan sponsors are able to comply with minimum cost-sharing requirements for HDHPs and allows participants and

beneficiaries to maintain their coverage and eligibility to contribute to an HSA.

• Decreases the likelihood that plan sponsors would cease offering health benefits due to a lack of flexibility to make changes to

certain fixed cost-sharing amounts without losing grandfather status.

Costs:

Primary Estimate

Year Dollar

Discount Rate

Period Covered

Annualized Monetized ($/year)

$7.95 million

2020

7 percent

2021-2025

$7.40 million

2020

3 percent

2021-2025

Quantitative:

• Regulatory review costs of $34.9 million, incurred in 2020 only, by grandfathered group health plan coverage sponsors and

issuers.

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Non-Quantified:

• Potential increase in adverse health outcomes if a participant or beneficiary would forego treatment because the necessary

services became unaffordable due to an increase in cost sharing.

• Potential increase in adverse health outcomes if there is an increase in the uninsured rate if participants and beneficiaries

choose to cancel their coverage because of the increases in cost-sharing requirements associated with grandfathered group

health plans and grandfathered group health insurance coverage.

• If an employer would have otherwise switched to a non-grandfathered plan, potential increase in adverse health outcomes if a

participant or beneficiary foregoes treatment for medical conditions that are not covered by their grandfathered group health

plan and grandfathered group health insurance coverage but that would have been covered by non-grandfathered health plan

coverage subject to PPACA.

Transfers

Non-Quantified:

• In grandfathered group health plans and grandfathered group health insurance coverage that utilize the expanded flexibilities

to increase fixed-amount cost-sharing requirements, potential transfers occur from participants and beneficiaries with resulting

higher out-of-pocket costs to participants and beneficiaries with no or low out-of-pocket costs and nonparticipants through

potentially lower premiums and correspondingly smaller wage adjustments to pay for the premiums.

• If an employer would have otherwise switched to a non-grandfathered plan with expanded benefits, potential transfers occur

from participants and beneficiaries who would have benefited from these expanded benefits to others in the plan who would

not have benefited from these expanded benefits through lower premiums and correspondingly smaller wage adjustments.

Table 1 provides the anticipated benefits, costs, and transfers (quantitative and

non-quantified) to sponsors and issuers

of grandfathered health plan coverage,

participants and beneficiaries enrolled in

grandfathered plans, as well as nonparticipants. The following section describes the

benefits, costs, and transfers to grandfathered group health plan sponsors, issuers

of grandfathered group health insurance

coverage, and those individuals enrolled

in such plans.

These proposed rules propose a new

paragraph (g)(3) which would specify

that grandfathered group health plans

and grandfathered group health insurance

coverage that are HDHPs may increase

fixed-amount cost-sharing requirements

that otherwise would cause a loss of

grandfather status, without causing the

plan or coverage to relinquish its grandfather status, but only to the extent the increases are necessary to comply with the

requirements for HDHPs under section

223(c)(2) of the Code. Additionally, the

proposed rules propose a revised definition of “maximum percentage increase” in

redesignated paragraph (g)(4) to provide

an alternative method of determining that

amount that is based on the premium adjustment percentage.

Economic Impacts of Retaining or

Relinquishing Grandfather Status and

Affected Entities and Individuals

The Departments estimate that there

are 2.4 million ERISA-covered plans offered by private employers that cover an

estimated 134.7 million participants and

beneficiaries in those private employer-sponsored plans.17 Similarly, the Departments estimate that there are 83,500

state and local governments that offer

health coverage to their employees, with

an estimated 42.8 million participants and

beneficiaries in those employer-sponsored

plans.18

The 2019 Employer Health Benefits

Survey reports that 22 percent of firms

offering health benefits have at least one

health plan or benefit package option that

is a grandfathered plan, and 13 percent of

covered workers are enrolled in grandfathered plans.19 Using the above information, the Departments estimate that,

of those firms offering health benefits,

527,000 sponsor ERISA-covered plans

(2.4 million * 0.22) that are grandfathered

(or include a grandfathered benefit package option) and cover 17.5 million participants and beneficiaries (134.7 million *

0.13). The Departments further estimate

there are 18,400 state and local governments (83,500 * 0.22) offering at least one

grandfathered health plan and 5.6 million

participants and beneficiaries (42.8 million * 0.13) covered by a grandfathered

state or local government plan.

Although the 2019 Employer Health

Benefits Survey reports that 26 percent of

firms offering health benefits offered an

The Department of Labor estimates based on the 2018 Medical Expenditure Panel Survey Insurance Component (MEPS-IC), available at https://meps.ahrq.gov/data_stats/summ_tables/

insr/national/series_1/2018/ic18_ia_g.pdf; Health Insurance Coverage Bulletin: Abstract of Auxiliary Data for the March 2016 Annual Social and Economic Supplement to the Current Population Survey, Table 3C, available at https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf.

18

2017 Census of Governments, Government Organization Report, available at https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html; 2017 MEPS-IC State and Local

Government data, available for query at https://meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC/startup.; Health Insurance Coverage Bulletin: Abstract of Auxiliary Data for the March

2016 Annual Social and Economic Supplement to the Current Population Survey, Table 3C, available at https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/

health-insurance-coverage-bulletin-2016.pdf.

19

The Departments note that comments received in response to the 2019 RFI and summarized earlier in this preamble described data obtained from Kaiser Family Foundation 2018 Employer

Health Benefits Survey. See supra note 9. For the purposes of this regulatory impact analysis, the Departments used more recent data from the same survey. See Kaiser Family Foundation,

“2019 Employer Health Benefits Survey,” available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/.

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HDHP and 23 percent of covered workers were enrolled in HDHPs, the Departments believe the 2010 Employer Health

Benefits Survey provides a better estimate of the prevalence of HDHPs in the

grandfathered group market as it provides

an estimate for the number of potential

HDHPs that would have been able to obtain and maintain grandfather status. The

2010 Employer Health Benefits Survey

reports that 12 percent of firms offering

health benefits offered an HDHP, and 6

percent of covered workers were enrolled

in HDHPs.20

Benefits

The Departments believe that the economic effects of these proposed rules

would ultimately depend on any decisions made by grandfathered plan sponsors (including sponsors of grandfathered

HDHPs) and the preferences of plan participants and beneficiaries. To determine

the value of retaining a health plan’s

grandfather status, each group plan sponsor must determine whether the plan, under the rules applicable to grandfathered

health plan coverage, would continue to

be more or less favorable than the plan,

under the rules applicable to non-grandfathered group health plans. This determination would depend on such factors

as the respective prices of grandfathered

and non-grandfathered health plans, the

willingness of grandfathered group health

plans’ covered populations to pay for

benefits and protections available under

non-grandfathered health plans, and their

willingness to accept any increases in outof-pocket costs due to changes to certain

types of cost-sharing requirements. The

Departments are of the view that providing

the proposed flexibilities to make changes

to certain types of cost-sharing requirements in grandfathered group health plans

and grandfathered group health insurance

coverage without causing a loss of grandfather status would enable plan sponsors

and issuers to continue to offer quality, affordable coverage to their participants and

beneficiaries while taking into account rising health care costs.

20

The Departments anticipate that the

premium adjustment percentage index

will continue to experience faster growth

than medical CPI-U, and therefore believe

that providing the proposed alternative

method of determining the “maximum

percentage increase” would, over time,

give grandfathered group health plans

and grandfathered group health insurance

coverage the flexibility to make changes

to the plans’ fixed-amount cost-sharing requirements (such as copayments, deductibles, and out-of-pocket limits) that would

have previously resulted in the loss of

grandfather status. Thus, the Departments

believe that these proposed rules would

allow sponsors of those grandfathered

health plans to continue to provide the

coverage with which their participants and

beneficiaries are familiar and comfortable,

without the unnecessary burden of finding

other coverage.

As noted previously in the preamble,

some commenters suggested that their

grandfathered plans offer more robust

provider networks than other coverage

options available to them or that they

want to ensure that participants and beneficiaries are able to keep receiving care

from current in-network providers. The

Departments agree that providing the proposed flexibilities could help participants

and beneficiaries maintain their current

provider and service networks. If providers continue participating in the grandfathered plans’ networks, this continuity

offers participants and beneficiaries the

ability to continue current and future care

through those providers with whom they

have built relationships.

As discussed previously in the preamble, one commenter on the 2019 RFI articulated a concern that the 2015 final rules

may eventually preclude some sponsors

and issuers of grandfathered group health

plans and grandfathered group health insurance coverage from being able to make

changes to fixed-amount cost-sharing requirements necessary to maintain a plan’s

HDHP status. For participants and beneficiaries, this would mean they could experience either substantial changes to their

coverage (and likely premium increases)

or a loss of eligibility to contribute to an

HSA. The Departments expect that, under

the 2015 final rules, there may be limited circumstances in which grandfathered

group health plans and grandfathered

group health insurance coverage that is an

HDHP (grandfathered HDHP) is unable

to simultaneously maintain its grandfather status and satisfy the requirements

for HDHPs under section 223(c)(2) of

the Code. To reduce the likelihood of this

potential scenario, these proposed rules

would allow a grandfathered HDHP to

make changes to fixed-amount cost-sharing requirements that otherwise could

cause a loss of grandfather status without

causing a loss of grandfather status, but

only to the extent the increases are necessary to comply with the requirements

for HDHPs under section 223(c)(2) of the

Code.

The Departments are of the view that

providing this flexibility to grandfathered

HDHPs will allow them to preserve their

grandfather status even if they increase

their cost-sharing requirements to meet a

future adjusted minimum annual deductible requirement under section 223(c)(2)

(A) of the Code beyond the increase that

would be permitted under paragraph (g)

(1) of the 2015 final rules. Under section

223(g) of the Code, the required minimum deductible for an HDHP is adjusted

for cost-of-living based on changes in the

overall economy. Historically, the allowed

increases under the 2015 final rules, which

are based on changes in medical care costs

(medical CPI-U), have exceeded increases based on changes in the overall economy (CPI-U), which are used to adjust the

HDHP minimum deductible. Using ten

years of projections from the President’s

FY 2021 Budget, medical-CPI-U is expected to grow faster than CPI-U. Further,

because the allowed increases under the

2015 final rules are based on the cumulative effect over a period of years, it is unlikely that using medical CPI-U to index

deductibles would result in lower deductibles than using CPI-U as required under

section 223(g) of the Code. Therefore,

the Departments note that, to the extent

these trends continue, it is unlikely that

Kaiser Family Foundation, “2010 Employer Health Benefits Survey.” Available at: https://www.kff.org/wp-content/uploads/2013/04/8085.pdf.

August 3, 2020

256

Bulletin No. 2020–32

an increase required under section 223 of

the Code for a plan to remain an HDHP

would exceed the allowed increases under

the 2015 final rules. Furthermore, to the

extent that the revised definition of “maximum percentage increase” in these proposed rules would allow the deductible to

grow as fast, or faster, than under the 2015

final rules, grandfathered HDHPs may not

need to avail themselves of the additional flexibility provided in these proposed

rules. Nevertheless, the Departments are

of the view that affording this flexibility

would make the rules more transparent to

sponsors of grandfathered HDHPs. Thus,

the proposed regulations would allow

participants and beneficiaries enrolled in

those plans to maintain their current coverage, continue contributing to any existing HSA, and potentially realize any reduction in premiums that may result from

changes in cost-sharing requirements.

Costs and Transfers

The Departments recognize there may

be costs associated with these proposed

rules that are difficult to quantify given the lack of information and data. For

example, the Departments do not have

data related to the current annual out-ofpocket costs for participants and beneficiaries in grandfathered group HDHPs

or other grandfathered group health plans

and grandfathered group health insurance

coverage. The Departments recognize

that as medical care costs increase, some

participants and beneficiaries in grandfathered health plans could face higher outof-pocket costs for services that may be

excluded by such plans, but that would be

required or covered by non-grandfathered

group health plans and group health insurance coverage subject to PPACA. It

is possible these increased costs could

be (partially) offset by lower premiums

from participation in the grandfathered

plans. Further, participants and beneficiaries who would otherwise be covered by a

non-grandfathered plan could potentially

face increases in adverse health outcomes

if they chose to forego treatment because

certain services are not covered by their

grandfathered group plan or grandfa-

21

thered group health insurance coverage.

The Departments cannot accurately predict the number of grandfathered health

plans and group health insurance coverage

that would retain their grandfather status

should they choose to avail themselves of

the flexibilities provided in these proposed

rules. The 2019 Employer Health Benefits

Survey reports no significant change from

2018 in the number of firms offering at

least one grandfathered health plan or the

number of covered individuals.21 A large

change would have indicated that the current rules were too restrictive and that a

relaxation of those rules would have a big

effect. The actual small change suggests

the opposite. Therefore, the Departments

do not expect a significant impact on the

number of grandfathered plans or group

health insurance coverage as a result of

these proposed rules.

For those plans that would continue to

maintain their grandfather status as a result of the flexibilities in these proposed

rules, the participants and beneficiaries

would continue to have coverage and may

experience lower premiums when compared to non-grandfathered group health

plans. Although some participants and

beneficiaries would pay higher cost-sharing amounts, these increased costs may

be partially offset by reduced employee

premiums, and indirectly through wage

adjustments that reflect reduced employer

contributions due to the lower premiums.

In contrast, individuals who have low or

no medical expenses, along with nonparticipants, would be unlikely to experience

increased cost-sharing amounts and may

benefit from lower employee premiums,

and indirectly through wage adjustments.

The Departments recognize there

would be transfers associated with these

proposed rules that are difficult to quantify given the lack of information and

data. The Departments realize that if plan

sponsors avail themselves of the flexibilities in these proposed rules, some participants and beneficiaries of grandfathered

group health plans and grandfathered

group health insurance coverage could

potentially see increases in out-of-pocket

costs depending on the changes made to

their plans. Additionally, participants and

beneficiaries in a grandfathered HDHP

could face increases in the plan’s deductible if plans increase their fixed-amount

cost-sharing requirements to meet a future adjusted minimum annual deductible requirement beyond the increase

that would be permitted under paragraph

(g)(1). Changes in costs associated with

increased deductibles or other cost sharing would be a transfer from participants

and beneficiaries with high out-of-pocket

costs to participants and beneficiaries with

low or no out-of-pocket costs and to nonparticipants, as the related premium reductions could affect wages.

Due to the overall lack of information

and data related to what plan sponsors

would choose to do, the Departments are

unable to accurately determine the overall economic impact, but the Departments

anticipate that the overall impact would be

minimal. However, there is a large degree

of uncertainty regarding the effect of the

proposed rules on any potential changes

to cost sharing at the plan level so actual

experience could differ.

Revenue Impact of Proposed Rules

This section of the preamble discusses

the revenue impact of the proposed rules,

considers a variety of approaches that

employers offering grandfathered health

plan coverage might take in the future if

the 2015 final rules are not amended, and

compares the revenue impact of each approach under the 2015 final rules with the

revenue impact under the proposed rules.

a. Employees who would have Remained

in Grandfathered Plans and Coverage

without the Proposed Rules

If the 2015 final rules are not amended,

some employers might choose to continue to maintain their grandfathered health

plan coverage. This subsection discusses

the revenue impact that the proposed rules

may have on this group of employers and

employees.

Under the proposed rules, grandfathered group health plans and grandfathered group health insurance coverage would be allowed to increase

Kaiser Family Foundation, “2019 Employer Health Benefits Survey,” available at https://www.kff.org/health-costs/report/2019-employer-health-benefits-survey/.

Bulletin No. 2020–32

257

August 3, 2020

fixed-amount cost-sharing requirements

(such as copayments, deductibles, and

out-of-pocket limits) at a somewhat

higher rate than under the 2015 final

rules, which may result in a premium

reduction (or similar cost reduction for

a self-insured plan). Specifically, for increases in fixed-amount cost sharing on

or after the effective date of these rules,

if finalized, grandfathered group health

plans and grandfathered group health insurance coverage could use an alternative

standard for determining the maximum

percentage increase that relies on the

premium adjustment percentage, rather

than medical inflation, to the extent that

it yields a greater result than the current

standard under the 2015 final rules.

The premium adjustment percentage

is estimated to be about three percentage

points higher than medical inflation in

2026, using FY2021 President’s Budget

projections of medical CPI and National

Health Expenditures premium projections. Therefore, as of that year, fixedamount copayments, deductibles, and outof-pocket limits could be three percentage

points higher under the proposed rules

than under the 2015 final rules. However, a plan that increases fixed-amount cost

sharing to the maximum amount allowed

under the proposed rules is likely to realize only a small reduction in premiums.

This is because plans incur most of their

costs for a relatively small fraction of participants–that is, from high-cost individuals. Because high-cost individuals generally exceed the out-of-pocket limit for

the year, they are only modestly affected

by higher out-of-pocket limits. Low-cost

individuals are more likely to be affected

by an increase in fixed-amount cost sharing, but they incur a small portion of the

overall costs. Therefore, the impact of the

proposed rules for a particular plan will

depend on the parameters of covered benefits under the plan, as well as the distribution of expenditures for the plan participants. In addition, increased cost sharing

could result in participants and beneficiaries making fewer visits to providers (that

is, lower utilization), which could result

in lower medical costs for some individuals, but higher costs for others who delay

important visits. If individuals generally

would forgo relatively unimportant visits,

but continue to go to providers when cru-

August 3, 2020

cial, premiums could decline even more,

but this outcome is uncertain.

Because of the Federal tax exclusion

for employer-sponsored coverage, a premium reduction would increase tax revenues due to reduced employer contributions and employee pre-tax contributions

made through a cafeteria plan. However,

some employees might partially offset

their increases in out-of-pocket payments

through increased pre-tax contributions

to health flexible spending arrangements

(FSAs) or HSAs. Those increases in pretax contributions to health FSAs and

HSAs would reduce tax revenues. Therefore, the potential increase in tax revenues from premium reductions is affected by whether employees increase their

contributions to health FSAs and HSAs.

To the extent that employers would have

continued to offer a grandfathered plan

without changes to the 2015 final rules,

under the proposed rules, tax revenues

would be expected to increase slightly

on net as a result of premium reductions.

Further, there would be additional revenue gains to the extent that higher outof-pocket payments discourage employees from continuing participation in the

employer’s plan.

b. Employees who would no Longer have

been Covered by Grandfathered Plans or

Coverage without the Proposed Rules

If the 2015 final rules are not amended, some employers might choose to

change their insured grandfathered plans

to self-insured, non-grandfathered plans,

rather than continue to comply with the

2015 final rules, which would result in

little, if any, revenue change. Thus, with

respect to these employers, the adoption

of the proposed rules would have little, if

any, revenue effect.

Alternatively, assuming the 2015 final

rules are not amended, an employer might

switch to a fully insured non-grandfathered non-HDHP plan. With respect to

small employers, employees who would

transfer to the non-grandfathered plan

could improve the risk pool or make it

worse. An employer with a healthy population might be more likely to self-insure, whereas a small employer with a less

healthy population might be more likely

to join an insurance pool.

258

Although the type of benefits covered in the new, non-grandfathered plans

(whether self-insured or fully insured)

would likely be broader in some ways,

such as for preventive care, the share of

costs covered by the plan would likely

decrease due to higher cost sharing. Presumably, if the 2015 final rules are not

amended, an employer would not make

the switch from a grandfathered plan to a

non-grandfathered plan unless the overall

cost of providing benefits would decrease,

which would cause some revenue gain.

(Again, though, the revenue gain could

be partially offset by increases in the employees’ pre-tax contributions to health

FSAs or HSAs.) On the other hand, if the

proposed rules enabled an employer that

otherwise might switch to a non-grandfathered plan to retain its grandfathered

plan, this revenue gain would not occur,

resulting in a revenue loss compared to the

status quo under the 2015 final rules. As a

further variation, if the employer retained

its grandfathered plan under the proposed

rules, rather than switching to an HDHP,

the revenue loss would be smaller than

if the employer had switched to a nonHDHP. Indeed, this could even result in a

revenue gain depending on the magnitude

of tax-preferred contributions that the employees would have made to HSAs.

Without the change to the 2015 final

rules, some employers might replace their

grandfathered plan with an individual

coverage health reimbursement arrangement (individual coverage HRA). If the

employer contributed a similar dollar

amount to the individual coverage HRA as

it currently does to the grandfathered plan,

the employees’ tax exclusion would be at

least roughly the same as for the grandfathered plan. Moreover, the employees

offered the individual coverage HRA

would be as likely to be “firewalled” from

obtaining a premium tax credit as if they

had continued to participate in the grandfathered plan. Thus, under this scenario,

there would be very little revenue effect

from the proposed rules.

c. Termination of Employer-Sponsored

Coverage

If the 2015 final rules are not amended,

some employers might drop health coverage altogether and opt instead to make an

Bulletin No. 2020–32

employer shared responsibility payment, if

required under section 4980H of the Code,

which may result in an increase in federal

revenue. In this case, all affected employees would qualify for a special enrollment

period to enroll in other group coverage,

if available, or individual health insurance

coverage on or off the Exchange. Those

employees with household incomes between 100-400 percent of the federal

poverty level may qualify for financial

assistance to help pay for their Exchange

coverage and related healthcare expenses, which would increase federal outlays,

as discussed further below. Others may

have household incomes too high to be

eligible for a premium tax credit or might

receive a smaller tax subsidy through the

income-related premium tax credit than

through an employer-sponsored health

insurance tax exclusion. Accordingly, if

these employers continued their grandfathered plan under the proposed rules,

there may be an associated revenue loss.

Other employees could purchase individual health insurance coverage, but receive

a premium tax credit that is greater than

the value of the tax exclusion for their current employer plans. For this population,

the proposed rules may result in a revenue

gain. However, this is likely a small population for an employer that is currently

offering a grandfathered plan.

Despite the availability of a special enrollment period, some affected employees

might forgo enrolling in alternative health

coverage and become uninsured or might

opt instead to purchase short-term, limited-duration insurance. In this case, these

employees would no longer receive a

tax exclusion for the grandfathered plan,

which along with an employer shared responsibility payment, if any, may result in

an increase in federal revenue. However,

if these employees were to remain covered under a grandfathered plan as a result

of this proposed rule, there may be a loss

in federal revenue for this group.

Overall, there are a number of potential revenue effects of the proposed rules,

some of which could offset each other.

Additionally, there is a large degree of

uncertainty, including uncertainty with regard to how many plans would continue as

grandfathered plans if the 2015 final rules

are not amended, what alternatives would

be chosen by the employers who do not

keep grandfathered plans, and how many

plans would make plan design changes as

a result of the proposed rules. As a result,

it is unclear whether these effects in the

aggregate would result in a revenue gain

or revenue loss. Because the employer

market is so large, even a small percentage

change to aggregate premiums can result

in large revenue changes. Nevertheless,

the Departments are of the view that overall net effects are likely to be relatively

small. The Departments seek comments

on the impact estimates in this analysis.

Regulatory Review Costs

Affected entities will need to understand the requirements of these proposed

rules, if finalized, before they can avail

themselves of any of the proposed flexibilities. Sponsors and issuers of grandfathered group health plan coverage would

be responsible for ensuring compliance

with these proposed rules should they seek

to make changes to their plans’ cost-sharing requirements. The Departments estimate the burden for the regulatory review

to be incurred by the 546,234 grandfathered plan sponsors and issuers of grandfathered group health insurance coverage.

If regulations impose administrative

costs on private entities, such as the time

needed to read and interpret these proposed rules, if finalized, the Departments

should estimate the cost associated with

regulatory review. Due to the uncertainty

involved with accurately quantifying the

number of entities that will review and

interpret these proposed rules, the Departments assume that the total number of

grandfathered group health plan coverage

sponsors and issuers that would be able to

avail themselves and comply with these

proposed rules would be a fair estimate of

the number of entities affected.

The Departments acknowledge that

this assumption may understate or overstate the costs of reviewing these proposed

rules. It is possible that not all affected entities will review these rules, if finalized,

in detail, and that others may seek the

assistance of outside counsel to read and

interpret the rules. For example, firms providing or sponsoring a grandfathered plan

may not read the rules, if finalized, but

might rely upon the issuer or a third-party administrator (TPA), if self-funded,

to read and interpret the rules. For these

reasons, the Departments are of the view

that the number of grandfathered group

health plan coverage sponsors and issuers

would be a fair estimate of the number of

reviewers of these proposed rules. The

Departments welcome any comments on

the approach in estimating the number of

affected entities that will review and interpret these proposed rules, if finalized.

Using the wage information from the

Bureau of Labor and Statistics (BLS) for

a Compensation and Benefits Manager

(Code 11-3141), the Departments estimate that the cost of reviewing this rule is

$127.74 per hour, including overhead and

fringe benefits.22 Assuming an average

reading speed, the Departments estimate

that it would take approximately 0.5 hour

for the staff to review and interpret these

proposed rules, if finalized; therefore, the

Departments estimate that the cost of reviewing and interpreting these proposed

rules, if finalized, for each grandfathered

group health plan coverage sponsor and

issuer is approximately $63.87. Thus, the

Departments estimate that the overall cost

for the estimated 546,234 grandfathered

group health plan coverage sponsors and

issuers would be $34,887,965.58 ($63.87

*546,234 total number of estimated grandfathered plan sponsors and issuers).23

D. Regulatory Alternatives Considered

In developing the policies contained

in these proposed rules, the Departments

considered alternatives to the presented

proposals. In the following paragraphs,

Wage information is available at https://www.bls.gov/oes/current/oes_nat.htm. Hourly wage rate is determining by multiplying the mean hourly wage by 100 percent to account for overhead

and fringe benefits. The mean hourly wage for a Compensation and Benefit Manager (Code 11-3141) is $63.38, when multiplied by 100 percent results in a total adjusted hourly wage of

$127.74.

23

Total number of grandfathered plan sponsors and issuers of grandfathered group health insurance coverage, discussed earlier in the preamble, was derived from the total number of ERISA

covered plan sponsors multiplied by the percentage of entities offering grandfathered health plans (2.4 million * 0.22 = 527,000), the number of state and local governments multiplied by the

percentage of entities offering grandfathered health plans (83,500 * 0.22 = 18,400), and the 834 issuers offering at least one grandfathered health plan (527,000 + 18,400 + 843 = 546,234).

22

Bulletin No. 2020–32

259

August 3, 2020

the Departments discuss the key regulatory alternatives considered.

The Departments considered whether

to modify each of the six types of changes,

measured from March 23, 2010, that cause

a group health plan or health insurance

coverage to cease to be grandfathered. To

provide more flexibility regarding changes to fixed cost-sharing requirements, the

Departments considered revising the definition of maximum percentage increase

to increase the allowed percentage points

that are added to medical inflation. However, the Departments are of the view

that the proposed policy allows for the

desired flexibility, while better reflecting

underlying costs for grandfathered group

health plans and group health insurance

coverage. The Departments acknowledge

that the premium adjustment percentage,

which the Departments propose to incorporate into the definition of “maximum

percentage increase,” reflects the changes

in premiums in both the individual and

group market, and that individual market premiums have increased faster than

premiums in the group market. Due to the

comparative sizes of the individual and

group markets, however, the historically faster growth in the individual market

has had a minimal impact on the premium

adjustment percentage index. Therefore,

the Departments believe that the premium

adjustment percentage is an appropriate

measure to incorporate into the definition

of “maximum percentage increase.”

Another option the Departments considered was allowing a decrease in contribution rates by an employer or employee

organization without triggering a loss of

grandfather status. Under the 2015 final

rules, an employer or employee organization cannot decrease contribution rates

based on cost of coverage toward the

cost of any tier of coverage for any class

of similarly situated individuals by more

than five percentage points below the contribution rate for the coverage period that

included March 23, 2010 without losing

grandfather status. The Departments considered permitting group health plans and

health insurance coverage with grandfather status to decrease the contribution

rates by more than five percentage points.

This would increase employer flexibility,

24

25

but the Departments were concerned that

a decrease in the contribution rate could

change the plan or coverage to such an

extent that the plan or coverage could

not reasonably be described as being the

same plan or coverage that was offered on

March 23, 2010. As a result, this option

was not included in the proposed rules.

Another option the Departments considered was allowing a change to annual dollar limits for a group health plan or health

insurance coverage without triggering a

loss of grandfather status. Under the 2015

final rules, a group health plan or group

health insurance coverage that did not

have an annual dollar limit on March 23,

2010, may not establish an annual dollar

limit for any individual, whether provided

in-network or out-of-network, without relinquishing grandfather status. If the plan

or coverage had an annual dollar limit on

March 23, 2010, it may not decrease the

limit. Although for plan years beginning on

or after January 1, 2014, group health plans

and health insurance issuers generally may

no longer impose annual or lifetime dollar

limits on essential health benefits, permitting changes to annual dollar limits on benefits that are not essential health benefits

may still represent a significant change to

participants and beneficiaries who need the

benefits on which a limit is applied. Therefore, this option was not included in the

proposed rules.

The Departments considered options

to offset cost-sharing requirement changes by allowing sponsors of group health

plans and issuers of group health insurance coverage to increase different types

of cost-sharing requirements as long as

any increase is offset by lowering another cost-sharing requirement to preserve

the plan’s actuarial value. As discussed

in previous rulemaking, however, an actuarial equivalency standard would allow

a plan or coverage to make fundamental

changes to the benefit design, potentially

conflicting with the goal of allowing participants and beneficiaries to retain health

plans they like, and still retain grandfather

status. 24 There would also be significant

complexity involved in defining and determining actuarial value for these purposes, as well as significant burdens associated with administering and ensuring

compliance with such rules. Therefore,

the Departments did not include this option in the proposed rules.

The Departments considered changing

the date of measurement for calculating

whether changes to group health plans or

health insurance coverage will cause a loss

of grandfather status. For example, instead

of looking at the cumulative change from

March 23, 2010, the rules could measure

the annual increases, starting from the effective date of the proposed rules, if finalized. However, the Departments concluded that this option could limit flexibility

for some employers. For example, some

employers might want to keep the terms

of the plan the same for a few years and

then make a more significant change later.

The Departments also considered making changes to the 2015 final rules to encourage more cost-effective care. One

option the Departments considered to encourage cost-effective care was allowing

greater cost sharing for brand name drugs

if a generic becomes available. However, the Departments decided not to make

this change because allowing greater

cost-sharing for brand name drugs when

a generic becomes available does not result in loss of grandfather status under

the 2015 final rules.25 Another option the

Departments considered was allowing

unlimited changes to cost sharing for outof-network benefits. However, the Departments are concerned that unlimited discretion to change cost-sharing requirements

for out-of-network benefits could result

in changes to plans of such a magnitude

that they no longer resemble the plan as

it existed as of March 23, 2010. Additionally, the Departments decided that the

proposal to change the applicable index

for medical inflation provides sufficient

flexibility for fixed cost-sharing requirements. This option would give flexibility

to grandfathered plans with respect to all

fixed-amount cost-sharing requirements,

including for out-of-network benefits.

E. Collection of Information

Requirements

These proposed rules do not impose

new information collection requirements; that is, reporting, recordkeeping,

75 FR 34538, 34547 (June 17, 2010).

80 FR 72192, 72197, 72198 (Nov. 18, 2015).

August 3, 2020

260

Bulletin No. 2020–32

or third-party disclosure requirements.

Consequently, there is no need for OMB

review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C.

3501 et seq.). Though the proposed rules

do not contain any new information collection requirements, the Departments are

continuing the current requirements that

grandfathered plans maintain records documenting the terms of the plan in effect

on March 23, 2010, include a statement

in any summary of benefits that the plan

or coverage believes it is grandfathered

health plan coverage and provide contact

information for participants to direct questions and complaints. Additionally, the

Departments are continuing the requirement that a grandfathered group health

plan that is changing health insurance issuers is required to provide the succeeding health insurance issuer documentation of plan terms under the prior health

insurance coverage sufficient to make

a determination whether the standards

of paragraph 26 CFR 54.9815-1251(g)

(1), 29 CFR 2590.715-1251(g)(1) and 45

CFR 147.140(g)(1) are exceeded and that

insured group health plans (or multiemployer plans) that are grandfathered plans

are required to notify the issuer (or multiemployer plan) if the contribution rate

changes at any point during the plan year.

The Departments do not anticipate that

the proposed provisions would make a

substantive or material modification to the

collections currently approved under the

collection of information OMB control

number 0938-1093 (CMS-10325), OMB

control number 1210-0140 (DOL), and

OMB control number 1545-2178 (Department of the Treasury).

F. Regulatory Flexibility Act

The Regulatory Flexibility Act, (5

U.S.C. 601, et seq.), requires agencies

to prepare an initial regulatory flexibility

analysis to describe the impact of proposed rules on small entities, unless the

head of the agency can certify that the

rules would not have a significant economic impact on a substantial number of

small entities. The RFA generally defines

a “small entity” as (1) a proprietary firm

meeting the size standards of the Small

Business Administration (SBA), (2) a notfor-profit organization that is not dominant in its field, or (3) a small government

jurisdiction with a population of less than

50,000. States and individuals are not included in the definition of “small entity.”

HHS uses a change in revenues of more

than three to five percent as its measure of

significant economic impact on a substantial number of small entities.

These proposed rules would amend

the 2015 final rules to allow greater flexibility for grandfathered group health

plans and issuers of grandfathered group

health insurance coverage. Specifically, the proposed rules would specify that

grandfathered group health plans that

are HDHPs may make changes to fixedamount cost-sharing requirements that

would otherwise cause a loss of grandfather status without causing a loss of grandfather status, but only to the extent those

changes are necessary to comply with the

requirements for being HDHPs under section 223(c)(2) of the Code. The proposed

rules would also include a revised definition of “maximum percentage increase”

that would provide an alternative method

of determining the “maximum percentage

increase” that is based on the premium adjustment percentage.

G. Impact of Regulations on Small

Business – Department of Health and

Human Services and the Department of

Labor

The Departments are of the view that

health insurance issuers would be classified under the North American Industry Classification System code 524114

(Direct Health and Medical Insurance

Carriers). According to SBA size standards, entities with average annual receipts of $41.5 million or less would be

considered small entities for these North

American Industry Classification System

codes. Issuers could possibly be classified

in 621491 (HMO Medical Centers) and,

if this is the case, the SBA size standard

would be $35 million or less.26 Few, if

any, insurance companies underwriting

comprehensive health insurance policies

(in contrast, for example, to travel insurance policies or dental discount policies)

fall below these size thresholds. Based

on data from MLR annual report submissions for the 2018 MLR reporting year,

approximately 84 out of 498 issuers of

health insurance coverage nationwide had

total premium revenue of $41.5 million

or less.27 This estimate may overstate the

actual number of small health insurance

companies that may be affected, since

over 72 percent of these small companies

belong to larger holding groups. Most, if

not all, of these small companies are likely to have non-health lines of business

that will result in their revenues exceeding $41.5 million, and it is likely not all

of these companies offer grandfathered

plans. The Departments do not expect any

of these 84 potentially small entities to

experience a change in revenues of more

than three to five percent as a result of

these proposed rules. Therefore, the Departments do not expect the provisions of

these proposed rules to affect a substantial number of small entities. Due to the

lack of knowledge regarding what small

entities may decide to do with regard to

the provisions proposed in these proposed

rules, the Departments are not able to accurately ascertain the economic effects on

small entities. However, the Departments

believe that the flexibilities provided for

in these proposed rules would result in

overall benefits for small entities by allowing them to make changes to certain

cost-sharing requirements within limits

and maintain their current grandfathered

group health plans. The Departments seek

comment on ways that the proposed rules

may impose additional costs and burdens

on small entities.

For purposes of analysis under the

RFA, the Employee Benefits Security Admin

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