If You Liked Your Health Plan Before Obamacare, Sorry, You Can’t Keep It


presidential sealIn 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

HHS sealIf 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.

* * *

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?

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5 Comments

Filed under Benefits, Human Resources, Law, Politics

5 responses to “If You Liked Your Health Plan Before Obamacare, Sorry, You Can’t Keep It

  1. Of course, that’s the ultimate goal. If he’d said the truth in the beginning, perhaps some thinking people might not have voted for him. (Imagine that!)

  2. Mike Lance

    “If you like your health care plan, you can keep it.” Yet you argue that if employers no longer like their current plan, because it costs more than a different plan, employers should be able to change to that different plan. It would seem that is a specious argument, because they no longer like their plan.

    Or, possibly your argument is that you don’t like the limits established which measure whether a plan has become “different.” Perhaps it would be more useful if you made a reasonable suggestion as to how those limits should change.

    Another argument you seem to be making is that the government should turn a blind eye on employers forcing their religious beliefs on their employees through manipulation of a health care plan. That should be an interesting Supreme Court test in the future.

    The employer should provide their employees with options. If the employees share the employer’s beliefs, they won’t exercise those options. That would be a real step toward supporting religious freedom. After all, isn’t that what happens now anyway? For example, Christian Scientists with healthcare insurance can accept or deny blood transfusions their insurance permits. The logical extension of your argument is that Christian Scientist employers should have the right to deny their employees medicine, “or preventive or other forms of medical treatment.”

    • Mike,
      Thank you for your comment.
      The problem I see with the limited range of changes that the regulations permit before a plan loses “grandfathered” status is that these limits preclude employers from managing their employee benefit costs. If they cannot manage their costs by making healthcare plan changes, they are less likely to hire employees, increase wages, and/or continue to provide healthcare benefits. In other words, they will find other ways to take back control of their labor costs.
      You and I may need to differ over whether it is acceptable to tell employers who object for moral reasons to providing certain benefits that they have to do it anyway, and let their employees make the decision whether to use the benefits. I simply do not believe that an employer’s money should be used for benefits of which they disapprove. As you say, this will be an interesting Supreme Court case.
      The basic point of this post was that many aspects of the ACA regulations are in fact changing healthcare away from plans permitted prior to the ACA, despite President Obama’s statement that people could keep their plans. You can agree or disagree with the changes being made under the ACA, but the degree of change is far greater than, and contrary to, how the law was sold in early 2010.
      Thanks again for reading and commenting,
      Sara

  3. As of October 2013 when the healthcare exchanges opened, President Obama’s “you can keep it” promise has received new attention. But this post from February shows that the promise was never true.
    Sara

  4. Pingback: Obamacare: Get People Enrolled, then Amend It—Fast! | Sara Rickover, Behind the Corporate Veil

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