In an op-ed in the Wall Street Journal on February 1, Daniel Kessler described four promises behind the Affordable Care Act (ACA, popularly known as “Obamacare”) that had not been fulfilled. This post focuses on the third broken promise Kessler mentions – “If you like your health care plan, you can keep it.” The Obama administration began breaking that promise almost as soon as the ink was dry on the President’s signature.
1. Grandfathering Rules
The ACA contained grandfathering provisions designed to let employer plans avoid compliance with some of the requirements of the ACA. However, the regulations defining which plans could be “grandfathered” permitted only minor changes in healthcare plans. If a plan made any significant changes in deductibles, coverage, or other provisions, the plan could not be grandfathered.
The grandfathering rules essentially forced plans to choose between cost containment and avoiding the ACA requirements. Moreover, according to William M. Freedman of Dinsmore & Shohl LLP on the Association of Corporate Counsel website, fully insured plans wouldn’t even have the choice, because major insurers had decided not to sponsor two sets of plans – grandfathered and non-grandfathered.
Even for self-insured plans, the costs of attempting to maintain their grandfathered status are likely to be too great. In fact, just a few months after passage of the ACA, the Administration predicted that there would be few grandfathered plans left standing by 2014, when the major provisions of Obamacare kick in:
“[T]he Departments’ mid-range estimate is that 66 percent of small employer plans and 45 percent of large employer plans will relinquish their grandfather status by the end of 2013. The low-end estimates are for 49 percent and 34 percent of small and large employer plans, respectively, to have relinquished grandfather status, and the high-end estimates are 80 percent and 64 percent, respectively. Federal Register, June 17, 2010, page 34552.
So much for keeping the plan you liked.
2. “Essential” Health Benefits, Even When They Conflict with Employer Values
If a plan isn’t grandfathered, it must change to meet the ACA requirements. The Department of Health & Human Services has now begun defining the “essential health benefits” that must be covered under the ACA. Most preventive care is now required under every employer health care plan, and must be provided free to participants. While there are good reasons to believe that preventive healthcare in the long run saves money, these requirements do not serve every employer’s workforce, and at least in the short term, they drive up costs.
As the non-partisan Institute of Medicine noted in its recommendations to HHS, “If cost is not taken into account, the [essential health benefits] package becomes increasingly expensive, and individuals and small businesses will find it increasingly unaffordable. If this occurs, the principal reason for the ACA—enabling people to purchase health insurance and thus covering more of the population—will not be met.”
We’ve all heard about the conflict last summer over the overly narrow religious exemption from the requirement that birth control and abortifacients be covered as preventative care for women. Last week HHS issued yet another attempt at a compromise, which might meet the objections of non-profit employers, but does nothing to satisfy businesses whose owners have similar beliefs.
Birth control is not the only subject that has ethical implications. Blood transfusions are another category, as one case in Kansas demonstrated. Many Christian Scientists do not take medicine or get preventive or other forms of medical treatment.
The point is that under the ACA, employers are not permitted discretion to design benefit plans that they subsidize in ways that do not contradict their moral principles. Once again, if you liked the health plan you had before ACA, you won’t be able to keep it.
3. Mandatory Subsidies, But Not Too Much
In 2014, all employers with more than 50 employees will be required to provide subsidized health insurance to their employees. The law requires these employers to pay at least 60% of the covered health care expenses of a typical population, and it requires that employees cannot be required to pay any more than 9.5% of their family’s income for the employee’s coverage. Otherwise, the employer owes a penalty for not offering affordable coverage.
But if the subsidy is too large, the plans will ultimately be “Cadillac plans.” A Cadillac plan is any plan that costs more than $10,200 a year for single coverage and $27,500 for family coverage (adjusted for inflation), including both employee and employer contributions to flexible spending and health savings accounts. Beginning in 2018 employers will pay a 40% tax on premiums for such plans.
I seriously doubt that there will be many plans that can provide all the coverage mandated under the ACA, while not charging employees more than 9.5% of their pay for the plan, while not providing too great a subsidy so that the plan is a “Cadillac.” Towers Watson predicts that more than 60% of large employers’ current health plans will be subject to the tax, unless the plans are changed.
Keep the plan you like? Not if it costs too little. Or too much.
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With every issuance of new regulations it becomes more and more evident that the Obama Administration is doing everything possible to fit employer benefit plans into a “one-size-fits-all.” When, in fact, this size may not fit a particular employer or its employees. It certainly does not agree with the originally expressed view that “if you like your health care plan, you can keep it.”
More and more employers will opt not to provide any healthcare at all. They will either keep their workforces under 50 employees (see here for an interesting concept that is likely to grow), or they will choose to pay the penalty as cheaper than administering a healthcare plan that doesn’t suit anyone.
Ultimately, we will all be on government-run plans. Which might have been the intent all along.
How do you see employer healthcare plans changing in response to the ACA?