The health reform law classified health insurance plans in place before its enactment as “grandfathered plans,” exempting them from many new regulations. As Sara Rosenbaum points out in her Implementation Brief, “Health Insurance Reforms and ‘Grandfathered Plans,’” the statute could be interpreted to mean that the kinds of changes often made by health plans year-to-year—increases to premiums and cost sharing as well as benefit reductions—could cause the loss of grandfathered status. More broadly, the statute left open the question of whether grandfathered plans ease the transition to a marketplace in which all plans meet the requirements of the health reform law or are conceived of as permanent entities.

On June 14, the Department of Health and Human Services Office of Consumer Information and Insurance Oversight, the Department of Labor’s Employee Benefits Security Administration, and the Internal Revenue Service jointly issued an interim final rule regulating these policies and opened a comment period that closed on August 16. In their letters commenting on the rule, both America’s Health Insurance Plans and the National Federation of Independent Businesses argue that the regulations squeeze grandfathered plans out of existence.

AHIP sites Administration numbers in a graph showing that “more than half of all employers, and two-thirds of all small employers, will relinquish their grandfathered coverage by the end of 2013.” It also highlights the estimate that “the percentage of individual market policies losing grandfathered status in a given year will likely exceed the 40 to 67 percent range.” AHIP objects to the fact that the regulations use the medical Consumer Price Index as a benchmark, which it argues does not “include other major factors that drive increases in health care spending, such as increased utilization, the needs of an aging population, and the development of new medical technologies and prescription drugs” that have driven changes ordinarily made in health plans year-to-year. The restrictions on cost sharing based on this measure, it says, threatens the viability of “existing grandfathered plan[s] as an affordable coverage option.”

NFIB more pointedly attacks the regulations as being counter to the “spirit of the Act, as well as the letter of the law.” Their letter reads,

Congress conferred grandfathered health plan status on certain plans by statute, including insured and self-insured employer-sponsored plans providing employee coverage on the date of enactment. Grandfathered status increases a plan’s chances of survival, especially through 2014, so that if the consumer likes the plan, the consumer can keep it. The Interim Final Rules are based on an assumption that Congress intended the agencies to decide whether and under what circumstances a plan meeting the statutory test should be stripped of its grandfathered status, thereby exposing it to a greater risk of extinction. The agencies have not identified any statutory language to support this assumption. Moreover, NFIB believes that the agencies’ assumption is inconsistent with a straightforward reading of Section 1251 of the Act, which certainly does not appear to give anyone the authority to take statutory status as a grandfathered health plan away after the fact.

At heart, the Administration and these organizations are divided on their reading of the Grandfathered Plans language in the health reform statute: Did Congress intend grandfathering to operate as a special status that cannot be diminished through interpretive regulations or, like other provisions in the law, a broad standard subject to policy interpretation and implementation in ways that create conformity with other key provisions of the act such as the market reforms and consumer protections?