Tuesday, June 15, 2010

How Half of All Workers Will Lose Their Current Coverage

“What I’m saying is, the government is not going to make you change plans under health reform.”

— President Obama, press conference, June 23, 2009[I]

“After some period of time, most plans will relinquish their grandfathered status…”

— Obama Administration draft document, June 10, 2010[ii]

 

On June 14, 2010, the Departments of Labor, Treasury, and Health and Human Services issued rules regarding the ability of individuals and employees to maintain their current health coverage.[iii] These rules will cause half of all American workers to lose their current health coverage, while raising costs for individuals and businesses alike:

  • The rules outline the circumstances under which a change in plan benefits or structure would trigger loss of grandfathered status, defined as a plan in effect prior to enactment of the health care law (P.L. 111-148) on March 23, 2010. The distinction is important, and not just because of the President’s promise that individuals who like their current coverage will be able to keep it. Plans that lose their status as a grandfathered plan existing prior to the health care law’s enactment will be subjected to a series of at least 13 new federal mandates created under the law.[iv] Loss of grandfathered coverage will also mean higher premiums due to these new mandates—breaking candidate Obama’s key campaign promise, to “save a typical family up to $2,500 on premiums.”[v]
  • The rules include a mid-range estimate that 51 percent of all employees, and 66 percent of workers in small businesses, would lose grandfathered status by 2013—less than three years from now.[vi] Under the worst scenario, nearly seven in 10 workers, and four in five employees in small businesses, would lose their current coverage by 2013. Even under the best possible outcome, 15 percent of American workers, constituting tens of millions of employees and their families, will lose their current coverage in 2011—just over six months from now.[vii]
  • The rule does not give employers flexibility to modify their benefit packages while keeping their current plan’s status. Any of the following would trigger loss of such status under the new rule:
    • Any increase in percentage-based cost-sharing (e.g., co-insurance);
    • Increases in co-payments of more than $5, if such increases also exceed a certain percentage established by a bureaucratic formula; or
    • An increase of more than five percent in the employee share of premiums paid.[viii]

The rule admits the burden created by these new federal mandates, noting that 66 percent of small employers and 48 percent of large employers made at least one cost-sharing or premium change in excess of the above limits during 2009 alone.[ix]

  • The rules would also see the federal government micro-managing employers’ health benefit offerings, as employers could not eliminate benefits for particular conditions without losing their existing status.[x] This restriction would impede plans’ ability to tailor their offerings in a way that reduces costs, and effectively serves as a benefit mandate in perpetuity.
  • The intent of the rule to eliminate Americans’ existing health coverage—in violation of candidate Obama’s campaign promise—is clear. The document talks about the potential for adverse selection beginning in 2014, when the insurance exchanges and subsidies begin. Businesses with healthy workers could choose to keep their current plan, which might raise premiums for firms with sicker employees who seek to purchase coverage through the exchanges. As a result, the Departments characterized the rules as enabling “greater flexibility in early years and less over time.”[xi] In other words, the Administration wants to force businesses to drop their existing coverage and enter the government-run exchanges—so all Americans will have to pay the higher premiums as a result of the new law’s costly mandates.

Speaker Pelosi famously said, “We have to pass the bill so that you can find out what is in it.”[xii] Many American workers and businesses will be upset by what they find in these rules. Businesses struggling to control health costs will find their ability to do so limited. Violating any of the restrictive new rules would trigger even higher costs to comply with more federal mandates. This death spiral of increasing costs could cause more firms to drop their coverage entirely, placing those additional costs on the federal government’s back.

Any way you slice it—bureaucratic mandates, rising premiums, loss of coverage, an economic drag on business—the rules, and the law they are implementing, represent the furthest thing from true reform.

 

[i] http://www.whitehouse.gov/the_press_office/Press-Conference-by-the-President-6-23-09/

[ii] Draft interim final rule by Departments of Labor, Treasury, and Health and Human Services regarding grandfathered health insurance status, obtained June 10, 2010, http://www.posey.house.gov/UploadedFiles/HealthCareReformDraftRegulations-June-2010.pdf, p. 56. Even though the number of individuals affected by the rule remained unchanged from the internal draft to the rule as published, the sentence in question was subsequently edited, such that the published rule omitted the fact that “most” grandfathered plans would lose their status.

[iii] Interim final rule by Departments of Labor, Treasury, and Health and Human Services regarding grandfathered health insurance status, released June 14, 2010, http://www.federalregister.gov/OFRUpload/OFRData/2010-14488_PI.pdf

[iv] Draft rule, Table 1, pp. 16-18

[v] Obama for America campaign document, “Background Questions and Answers on Health Care Plan,” http://www.barackobama.com/pdf/Obama08_HealthcareFAQ.pdf

[vi] Interim final rule, Table 3, p. 54

[vii] Ibid.

[viii] The full list of benefits changes triggering loss of status can be found at pp. 34-35 of the interim final rule.

[ix] Interim final rule, p. 48

[x] Also included in the list on pp. 35-36.

[xi] Interim rule, p. 43

[xii] March 2010 speech, available at http://www.youtube.com/watch?v=hV-05TLiiLU&feature=related