# Bulletin No. 2020–32

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URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8aa927f8a48e7363

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

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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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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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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).

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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/h

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8aa927f8a48e7363. Public record. Not legal advice.