On Friday, Investors Business Daily (IBD) reported on leaked government documents identifying what employer-provided health plans can and cannot do if they wish to retain their "grandfathered" status under the statist health care legislation commonly known as ObamaCare that became law on March 23. One of the items in the government document (83-page PDF) is the following table, which estimates the percentages of large and small employers who will choose to (or be financially forced to) "relinquish" (i.e., give up) their grandfathered status:
In ironic timing, Walecia Konrad at the New York Times, in a personal finance column that appeared in the paper's Saturday print edition and which was probably written shortly before IBD's report, inadvertently revealed that ObamaCare itself may be a reason why employer "relinquishments" over the next three years come in well above the mid-range estimates in the table:
As in years past, employers are also grappling with how to offset rising health care costs. Recent years have brought an average cost increase of about 9 percent, said Tracy Watts, a partner at Mercer Health and Benefits. In most cases, companies have been able to absorb about 6 percentage points of those cost increases a year, passing the rest onto employees.
This year Ms. Watts estimates that changes made in response to the health law will add an extra 2 to 3 percent in cost increases, pressuring employers to engage in even more cost-sharing with employees — whether through higher premiums, co-payments or other out-of-pocket costs.
(Senior vice president at Fidelity Consulting Services Pearce) Weaver also reports increased interest by employers in high-deductible insurance plans. “They’ve been effective in managing costs,” he said.
The estimates tabulated above are based on a review of employer plan design changes made from 2008 to 2009. The government did not attempt to look at what might have happened if "an extra 2 to 3 percent" in ObamaCare-driven costs had been piled into the mix.
Facing a higher mandated cost structure even beyond increases in the cost of health care services, many employers will find themselves unable to redesign their plans within ObamaCare's tight grandfathering constraints while remaining competitive (or possibly viable), and will choose to relinquish, i.e., "de-grandfather."
The government's document says that a de-grandfathered employer has two choices:
"Significantly change the terms of the plan or coverage and comply with Affordable Care Act provisions from which grandfathered health plans are excepted; or in the case of a plan sponsor, cease to offer any plan."
To "comply with Affordable Care Act provisions," an employer would have to offer a plan with ObamaCare’s specified minimum coverage levels, which are far higher and far more expensive than typical private plans, or, conceivably, offer coverage that is even better.
Left unstated by the government is the fact that employers above a certain very small workforce threshold who "cease to offer any plan" must pay a payroll-based penalty for not doing so.
Unless I'm missing something, the government's grandfathering regs as drafted also close off the "high-deductible plan" option Konrad cited above. That's because, as IBD reported, an employer plan will be de-grandfathered if:
- "It eliminates benefits related to diagnosis or treatment of a particular condition."
- "It increases the percentage of a cost-sharing requirement (such as co-insurance) above its level as of March 23, 2010."
- "It increases the fixed amount of cost-sharing such as deductibles or out-of-pocket limits by a total percentage measured from March 23, 2010, that is more than the sum of medical inflation plus 15 percentage points."
- "It increases co-payments from March 23, 2010, by an amount that is the greater of: medical inflation plus 15 percentage points or medical inflation plus $5."
- "The employer's share of the premium decreases more than 5 percentage points below what the share was on March 23, 2010."
Beyond that, the ObamaCare-driven "extra 2 to three percent" to which the Times's Konrad refers above may be low. One mandate alone may (I would say probably will) cause costs to increase by about that amount. This was explained in a May 25 item found at the Society for Human Resources Management (bold is mine):
The Department of Health and Human Services (HHS) released estimates in May 2010 of the costs and benefits of the requirement to cover adult children up to age 26, as part of a regulation directing employers and insurers on how to carry it out. The new benefit is estimated by HHS to cost $3,380 for each dependent, raising premiums by 0.7 percent in 2011 for employer plans, according to the department's mid-range estimate. Some 1.2 million young adults are expected to sign up, more than half of whom would have been uninsured.
... there are concerns about the impact of adverse selection with this population. That is, prior to 2014 when all Americans must secure health care coverage, healthy young adults may chose to forgo coverage through their parent's plan, while the estimated one in six young adults with chronic health issues would be the most likely to accept coverage under their parent's plan. This self-selection for coverage by the least healthy could result in higher coverage costs than the estimates presented above.
... Bruce Davis, health and group benefits national practice leader at HR consultancy Findley Davies ... said as of May 2010 his firm is forecasting an additional cost increase of 2 to 2.5 percent to account for the unknown cost of adding adult children, and an overall health care cost trend increase of around 11 percent for 2011.
Exit questions:
- What in this so-called "Affordable Health Care Act" is really "affordable"?
- Who else (if anyone) in the establishment press will meaningfully address how obviously and utterly untrue the president's core promise to employees ("If you like your coverage, you can keep it?) has become less than 90 days since ObamaCare passed?
Cross-posted at BizzyBlog.com.
