Grandfathered Health Plans

Interim Final Rule

Score: 19 / 60


This document contains interim final regulations implementing the rules for group health plans and health insurance coverage in the group and individual markets under provisions of the Patient Protection and Affordable Care Act regarding status as a grandfathered health plan.


There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.



1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
The Federal Register notice appears readily in with an RIN or keyword search. The brief RIA is in the notice. A keyword search on the HHS website turns up a link to materials on grandfathered health plans, including the regulation.
2. How verifiable are the data used in the analysis?
Where the RIA uses data, data from government sources are cited but not linked. Kaiser/HRET survey is cited as a data source, but no publication info or link is provided. For many proffered benefits and costs, there are no data because no calculations are performed.
3. How verifiable are the models and assumptions used in the analysis?
Analysis explains qualitatively how calculations were done, but not in enough detail for an external observer to replicate them. It presents results but does not fully show the work involved. Many assumptions seem to have been pulled from thin air.
4. Was the analysis comprehensible to an informed layperson?
The analysis is relatively readable if read slowly. The logic, however, is difficult to follow. The principal quantitative analysis is the estimate of the percentage of plans that will relinquish grandfathered status. It is not clear if this is supposed to be a benefit or a cost or how this affects ultimate outcomes of value to the public.


5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
A variety of potential benefits are listed: plan continuity, slower premium growth, continued insurance coverage, greater certainty. The analysis does not really make a case that many of these are ultimate outcomes. The goal of allowing people to keep their current insurance could have been linked either to health outcomes or to consumer welfare, but was not.
Does the analysis identify how these outcomes are to be measured?
None of the results are measured except for the percentage of plans that would relinquish grandfathered status, but this is not carried through to measure any ultimate outcomes.
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
Most of the benefits are listed as effects the regulation "may" have, without much elaboration of a theory. The percent of plans relinquishing grandfathered status is calculated; theoretically, it is not very clear what is driving the employers' decisions or how the regulation alters that.
Does the analysis present credible empirical support for the theory?
No empirical evidence presented for outcomes other than the percent of plans that relinquish grandfathered status. Calculation of the latter is based on observations of plan changes in 2008/09 adjusted for some factors that would preserve grandfathered status for some plans, so this calculation might be taken as some evidence that the regulation will affect decisions about retaining grandfathered plans. There really weren't any numbers to suggest how many people (if any) would want to keep their current insurance (or how insurance would change for people who aren’t grandfathered).
Does the analysis adequately assess uncertainty about the outcomes?
Analysis provides low, middle, and high estimates of percentage of plans that would relinquish grandfathered status. Some other uncertainties about other outcomes are recognized but not quantified.
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
Does the analysis identify a market failure or other systemic problem?
Under "Need for Regulatory Action," the RIA says the Affordable Care Act did not specify the changes health plans could make while remaining grandfathered. Asserts that, in the absence of regulation, unlimited ability to make changes would deprive consumers of their ability to keep the health coverage they had as of March 2010. But there is no real explanation of why such changes would be likely.
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
No relevant discussion. The departments simply presume regulation is necessary to prevent changes to plans outside the boundaries of the regulation. There is a certain dissonance in admitting that many consumers would want to be exempted from a law which is supposed to protect them.
Does the analysis present credible empirical support for the theory?
Some data used in calculations show that plans made changes in 2008/09 that would have resulted in forfeiture of grandfathered status. But why this represents a systemic problem was never explained.
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The (not very well-defined) problem is assumed to exist with certainty.
7. How well does the analysis assess the effectiveness of alternative approaches?
Does the analysis enumerate other alternatives to address the problem?
Several alternatives listed: looser cost-sharing regulations, a broad standard saying changes in a plan over time could not make it "substantially different," an actuarial equivalency standard, a requirement that employers must continue to contribute the same dollar amount, and a requirement that a plan forfeits its grandfathered status if it switches third-party administrators. A later amendment (RIN 0950-AA17) declared that plans do not lose grandfathered status simply because they change insurance policies.
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
These are essentially variations on the same regulatory approach, though they're a bit more creative than simply altering the stringency of a standard.
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
Outcomes are barely measured for the alternative chosen, much less for these options. Each alternative is considered and dismissed in a few sentences. The amendment (0950-AA17) contains no regulatory analysis even though it is economically significant.
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The RIA asserts that the baseline in the absence of this regulation would be massive changes to existing plans that would not be subject to the new law's requirements. No analysis is presented to justify this claim. To estimate the number of plans that will relinquish grandfathered status, baseline is based on changes to plans in 2008/09 that would have resulted in forfeiture of grandfathered status. Not clear if this is a reliable baseline given all the other changes in the law and the justification given for the regulation.
8. How well does the analysis assess costs and benefits?
Does the analysis identify and quantify incremental costs of all alternatives considered?
Analysis quantifies cost of notifying beneficiaries and participants. Increased use of services, replacement of grandfathered plans with new plans, and increased premiums in exchange as high-risk plans are discontinued are mentioned as possible costs but not quantified. Costs of alternatives are not calculated.
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Only notification paperwork costs. The agency sort of recognizes problems where people are stuck in a plan that is not the most efficient, but there is no discussion of health expenditures which may arise from this.
Does the analysis identify how the regulation would likely affect the prices of goods and services?
In some cases, the analysis mentions changes in out-of-pocket costs or premiums that might occur, but there is no systematic analysis telling the reader how much these are likely to change. Some mention if the potential anticompetitive effects of this rule (small businesses will be more constrained than larger competitors) would be useful.
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
Qualitative discussion of considerations plan sponsors will take into account when deciding to retain a grandfathered plan, create a new plan, or stop offering a plan. Analysis suggested that plans with more high-risk people would be less likely to grandfather in response to the higher costs of serving those patients. To estimate how many plans would relinquish grandfather status, the analysis considers whether plans that changed could have made other changes to achieve the same level of cost containment without relinquishing grandfather status or whether these firms could have absorbed small premium increases.
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Occasional uncertainties acknowledged but not modeled.
Does the analysis identify the alternative that maximizes net benefits?
Since benefits were not estimated, net benefits were not calculated.
Does the analysis identify the cost-effectiveness of each alternative considered?
Since benefits were not estimated, cost-effectiveness was not calculated.
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Some analysis but far from comprehensive. Percentage of plans relinquishing grandfathered status is calculated for large and small employers, but costs affecting these plans are not, and this is not translated into consumer costs either. Analysis notes that the regulation may create wealth transfers from premium payers generally to people who use medical services more heavily, but it does not measure these transfers.
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Primary beneficiaries are people who retain grandfathered plans and use medical services. Little discussion of incidence aside from this and the discussion of transfers mentioned above. No calculations.


9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
Affordable Care Act does not specify what changes plans can make and remain grandfathered. An RIA exists, but the departments do not claim to use the analysis. When alternatives are discussed, they are dismissed with a few sentences. No extensive analysis of the alternatives was done. Since there is no extensive definition or analysis of the systemic problem, it is hard to see how the analysis would have prompted the departments to issue the regulation. These were issued as interim final regulations because there is insufficient time for a notice-and-comment rulemaking to establish rules by the Sept. 23, 2010 date specified in the legislation.
10. Did the agency maximize net benefits or explain why it chose another alternative?
Costs and benefits were not calculated, so the departments proceeded with no cognizance of net benefits.
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No goals or measures are established. Since the RIA does not attempt to measure ultimate outcomes, it would require a lot more work than is in the RIA to develop goals and measures.
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
No commitment to gathering or using data. The Kaiser survey results could be used to monitor changes made in plans, which would at least allow the departments to track this aspect of the results and compare it to what was predicted.
Total19 / 60

Additional details

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