It’s Official: 51% Won’t Be Able to Stay in Their Employer Health Plan
If you listened to the campaign rhetoric during the 2008 election you could be forgiven for thinking that health reform would mainly mean insuring people who cannot afford insurance on their own; in the process there would be no tax increases or benefit cuts for the middle class; and, “If you like the plan you are in, you can keep it!”
Turns out, the reality is 180 degrees different. Things are likely to change least for low-income people. About 18 million of them will be herded into Medicaid. But with no new doctors or nurses, they will face greater access problems than ever before and they will show up at hospital emergency rooms in increasing numbers.
It is for middle-class families who already have insurance that things will change the most:
- Within the next few months senior citizens will be getting notices that their Medicare Advantage plans are being cancelled, and for those who continue there will be premium increases and benefit cuts. Over the next decade, 7.4 million Medicare Advantage enrollees will lose coverage they otherwise would have had.
- By September, between 1 million and 2 million people with limited benefit insurance are likely to lose coverage because their insurance doesn’t comply with the “no lifetime limit on benefits” regulation.
Promises, Promises
What about health plans that were supposed to be “grandfathered,” and thus immune from onerous, cost-increasing regulatory burdens? A draft of the proposed regulations, leaked all over Washington over the weekend and finally made public on Monday shows the news isn’t good. Under a “mid-range” estimate, more than half of all workers will not be in grandfathered plans within three years. Under the worst case scenario, the number will be two-thirds. Here is the full table:
Table source: Department of Health and Human Services
Under the most likely scenario, 87 million Americans will no longer be able to retain the health plan they have and the number could be as high as 117 million. Small businesses will be especially hard hit. As many as 80% will lose their grandfather status by 2013, for example. One reason: any change of insurers (say, to take advantage of lower premiums) will cause a loss of such status. By contrast, a self-insured union plan is free to change its third-party administrator and still keep its grandfather status.
Also, it now appears that “grandfathering” was never intended to be a long-term phenomenon. Eventually, all firms will lose their grandfather status.
Moreover, as I wrote in The Wall Street Journal the other day, even if you are in a grandfathered plan, your employer could drop your coverage anyway. As we previously reported here, the number of workers who will lose their employer-provided insurance is estimated at 9 million to 10 million by the Congressional Budget Office (CBO), 14 million by the Medicare Chief Actuary and 35 million by former CBO Director Douglas Holtz-Eakin.
AT&T, Caterpillar, John Deere and Verizon have all made internal calculations, according the House Energy and Commerce Committee, to determine how much could be saved by a) dropping their employer-provided insurance, b) paying a fine of $2,000 per employee, and c) leaving their employees with the option of buying highly-subsidized insurance in the newly created health-insurance exchange.
AT&T, for example, paid $2.4 billion last year to cover medical costs for its 283,000 active employees. If the company dropped its health plan and paid an annual penalty for each uninsured worker, the fines would total almost $600 million. But that would leave AT&T with a tidy profit of $1.8 billion.
Economists say employee benefits ultimately substitute for cash wages, which means that AT&T employees would get higher take-home pay. But considering that they will be required by federal law to buy their own insurance in an exchange, will they be net winners or losers? That depends on their incomes.
A CBO analysis of the House version of ObamaCare, which is close to what actually passed in March, assumed a $15,000 premium for family coverage in 2016. Yet the only subsidy available for employer-provided coverage is the same one as under current law: the ability to pay with pretax dollars. For a $30,000-a-year worker paying no federal income tax, the only tax subsidy is the payroll tax avoided on the employer’s premiums. That subsidy is only worth about $2,811 a year.
If this same worker goes to the health-insurance exchange, however, the federal government will pay almost all the premiums, plus reimburse the employee for most out-of-pocket costs. All told, the CBO estimates the total subsidy would be about $19,400 — almost $17,000 more than the subsidy for employer-provided insurance.
In general, anyone with a family income of $80,000 or less will get a bigger subsidy in the exchange than the tax subsidy available at work.
But will the insurance in the exchange be as good? In Massachusetts, people who get subsidized insurance from an exchange are in health plans that pay providers roughly Medicaid rates plus 10%. That’s less than what Medicare pays, and a lot less than the rates paid by private plans. Since the state did nothing to expand the number of doctors as it cut its uninsured rate in half, people in plans with low reimbursement rates are being pushed to the rear of the waiting lines.
The Massachusetts experience will only be amplified in other parts of the country. The CBO estimates there will be 32 million newly insured under ObamaCare. Studies by such think tanks as Rand and the Urban Institute show that insured people consume twice as much health care as the uninsured. So all other things being equal, 32 million people will suddenly be doubling their use of health care resources. In a state such as Texas, where one out of every four working age adults is currently uninsured, the rationing problem will be monumental.
Even if health plans in the exchange are identical to health plans at work, the subsidies available can only be described as bizarre. In general, the more you make, the greater the subsidy at work and the lower the subsidy in the exchange. People earning more than $100,000 get no subsidy in the exchange. But employer premiums avoid federal and state income taxes as well as payroll taxes, which means government is paying almost half the cost of the insurance. That implies that the best way to maximize employee subsidies is to completely reorganize the economic structure of firms.
Take a hotel with maids, waitresses, busboys and custodians all earning $10 or $15 an hour. These employees can qualify for completely free Medicaid coverage or highly subsidized insurance in the exchange.
So the profit-maximizing arrangement is for the hotel to fire the lower-paid employees, and contract for their labor from firms that employ them but pay fines instead of providing health insurance. The hotel could then provide health insurance for all the remaining, higher-paid employees.
Ultimately, we could see a complete restructuring of American industry, with firms dissolving and emerging solely based on government subsidies.
Promises, promises? How about lies, lies?
I disagree with Bruce. I think it is an appropriate musical pairing. I also think Obama never intended to keep the promises, however.
John, the most important point you make is that eventually no one will be grandfathered.
A promise made without the intention to keep it is a lie. In this case, a lie of omission: “If you like the plan you have now, you can keep it [but only for a limited time].”
I believe the idea that… “if you like what you have, you can keep it” was a promise politicians knew they did not have the power to keep. The mere act of closing off certain options to insurers means insurers may abandon segments of the market. Moreover, telling employers that adjustments cannot be made to a plan also means the plan will likely go away before long. The “churn” in employer health plans is more than 20% annually. People change jobs, and employers frequently change insurers based on competitive bids.
I doubt that there will be a significant number of people in grandfathered plans a decade from now. I assume the health reformers were operating under the same assumption from the onset.
We all knew this was coming. The professionals understand government manipulation and promises. The general public is naive.
In the end, it is still “survival of the fittest”
I have lived long enough to be able to tell lies told from candidates just to get the job. I NEVER believed a single promise this man made. I still do not believe what he says and he has proved me correct over and over. Now, we ALL have to suffer for those who did believe him!
The restructuring of American industry was an entirely foreseeable result of the health care “reform” as passed. What that restructuring will look like is another question altogether.
I’m reminded of Thomas Sowell’s observation that we are not “blocks of wood” and tend to act to reinvent or redefine ourselves to optimize our position, the result being that the intended outcomes of legislation are never realized. In the case of health care, many (especially those without means) will have the redefinition imposed by an employer or government edict – and not likely to the individual’s favor.
If the changes employers decide to make to these plans are cost-increasing, then why are 51% of employers choosing to make those changes?
In the caes of AT&T, why would they pay a $600 million dollar fine, and use the leftover $1.8 billion to raise wages so employees can get a health insurance plan in the exchange that was worse than the one they had with the company? That would hurt their employees without producing any net benefit to the company.
Maybe I’m missing something, but that just doesn’t make any sense.
Why do the unions keep getting sweetheart deals at the expense of everyone else? It’s discriminatory and it’s harming the conhesion and morale of the country. As a consequence, I will never look for the union label.
Or look for the union label so you know which product not to buy.
I seem to recall a union ad many years ago. It was a company bulletin board with a hand written sign saying “If you don’t come in Sunday, don’t come in Monday”.
John:
Excellent job in digging further into the grandfathering regs and what they mean.
With all due respect… disingenuous subject title and exaggerated characterization. The 51% aren’t going to lose their employer health plans just because they’re not grandfathered. The plan will just have to drop any lifetime and/or annual limits, offer preventive care without cost sharing etc. and otherwise comply with the new rules. So the plan has a choice – stay basically the same in terms of coverage, cost-sharing, and employee contribution and you don’t have to abide by the new rules on annual and lifetime limits or preventive coverage etc. – that’s what the grandfathering term means. Of course, you can also decide to change your plan substantially, but you have to abide by the new rules too. People aren’t necessarily going to lose their employer coverage either way, at least not because of the rules on grandfathering.
So you really trust corporate America, too, that they won’t drop coverage to spend less in fines than the actual insurance? I agree that would be short-sighted & greedy, but what do you think they will really do in the long run? Spending $600 million vs $2.4 billion…. Hnnnnn… Think about it.
I just see a lot of emotional stress and suffering ahead if the government runs this. At least insurance companies knew their clients and give a fairly quick response because they have their own quality assurance requirements.
Although as a practicing primary care physician, I strongly favor healthcare reform, I am very concerned that the reform measures passed will create a host of unforeseen problems. I acknowledge your concerns. So what do you suggest as an alternative?
Dr. Blanchet:
I have a crazy idea.
[fantasy]HSA’s that can accrue savings over a lifetime coupled with high-deductible plans. People pay out of their HSA’s for routine care, and use their insurance in the event of a medical catastrophe. Premiums are lower and a smaller percentage of their income is handed over to insurance companies every month.
People at the low end of the income-scale get a cash infusion every year. Price transparency and competition reduce prices while every-day thrift and prudence reduce utilization.
You replace your billing overhead with a cash register and a credit/debit card terminal. [/fantasy]
Pie in the sky? Hardly. Particularly when compared with the glaring conflict between the incentive structure built into the reform and its purported outcomes. This “reform” has collapse built into it. Whether that’s a feature or a bug depends on whether or not you dread or eagerly await the arrival of a single payer system.
Since you supported this monstrosity, I sincerely wish that you enjoy your life as a public servant on the wrong end of the inevitable price-fixing and rationing regime that awaits at the end of the collapse. Hope you’ve got those loans under control. Don’t think they’ll be nearly as eager to socialize your debts as they are your income.
Savor, in particular, the robot-like adherence to proscriptive care regimens based on statistical aggregates rather than your own clinical acumen. Better yet – you’ll be penalized for failing to follow the guidelines (rationing rules)*and* will still be on the hook for every ounce of liability, despite following their marching orders.
Best of all, when it’s clear that you’re acting as the ultimate HMO’s rationing agent, you can look forward to every patient you see questioning your motives.
Cheers,
-Ron
November 2010 and 2012 can not get here fast enough!
BTW, keep a watch out for essential benefit requirments that will make it illegal to offer an HSA eligible plan.
It seems also illegal to put employees into an Exchange and then offer an HRA only for health incentives and rewards.
Employers will not have these vehicles to support the physical and mental maintenance of their human capital.
Would anyone want to limit the cost and access to equipment maintenance? Would anyone want to subsidize others who don’t buy an equpiment maintenance agreement?
On the Facebook Page: “I bet we can find 1,000,000+ people who disapprove of the Health Care Bill”
(there are over 1,730,000 members and it’s growing), there are people complaining that they and their relatives are already losing their health benefits. Their employers are already planning to pay the fine, and are certainly NOT planning to use the difference in cost for the benefit of their employees.
This healthcare law was not created to do anything but fail, so that people will clamour for the government to do something to rescue them…instant acceptance of a totally government-controlled healthcare system…the more you control in a “citizen’s” life, the more you control the citizen…socialism 101…after a hundred years of fighting socialists, communists, and all the other dictatorships to keep them out of other people’s countries, we are handing ours over, lock, stock, and barrel, without a weapon fired, to the traitors that are taking our nation down in order to restructure it into everything she was NOT ever intended to be…
We have a president who refuses to protect our borders until the immigration laws suit HIS idea of what they should be. Since when can a public servant decide whether or not to do his SWORN duty…he did take an oath that he has betrayed repeatedly…he and Congress and our Justices all took an oath to uphold our Constitutional laws.
Obama has stepped out of his legal boundaries in demanding compensation from BP, without a judge or jury to measure blame, set an amount of compensation, or to assign someone to oversee the distribution of the funds. He has declared himself judge, jury, and will probably assign the “distribution” to whomever is in charge of not distributing the Louisiana Katrina funds…
We now have a toll-free number straight to the government, not to report that a company is illegally working illegal aliens, but so the illegal aliens can get government help in getting paid good wages in their illegal paychecks…is that not aiding and abetting an illegal act – A FEDERAL CRIME, since it is, after all, the federal government’s responsibility to protect our borders and check the identity and background of each person we allow into our country.
If we grant amnesty to those already within our borders, without a proper background check (remember – they are UNDOCUMENTED illegal aliens), how do we know we are giving permission for a Mexican national or an Islamic extremist who speaks very good Spanish? Why should people who came here without going through proper channels be given priority over those people who have been waiting and doing what is required of them?
Aren’t good citizens supposed to be law-abiding citizens…not people who take short-cuts because they don’t want to go to the trouble of qualifying (who probably would not qualify if they tried). Hey! They’d make VERY GOOD Democratic Congressional Candidates…they don’t believe in following the law, they take short-cuts because they know what they are doing is illegal…sound familiar?
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