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Your Health Plan Changing? Employers, Insurers Largely to Blame

October 24, 2013

During a June 23, 2009 press conference, President Obama made a very specific promise about what would become the Affordable Care Act the following March. "When I say if you have your plan and you like it," Obama explained, "what I'm saying is the government is not going to make you change plans under health reform." (Emphasis mine.] As the President emphasized to ABC News' Diane Sawyer the following day, his pledge did not extend to employers and private insurers for a very good reason:

"I can guarantee you that there's the possibility for a whole lot of Americans out there that they're not going to end up having the same health care they have," he said Tuesday. "Because what's going to happen is, as costs keep on going up, employers are going to start making decisions: 'We've got to raise premiums on our employees. In some cases, we can't provide health insurance at all'"...
"That's the case whether we pass health care or not. The fact is that right now, all across the country, people are losing their health care. Every day," he said.

President Obama was exactly right. Using the Affordable Care Act as a smokescreen, several high profile firms announced they were cutting health care benefits for their workers and their families. Meanwhile, some insurers are using the ACA's new patient protection requirements to jack up rates, cancel existing individual policies and shed higher cost customers.

Consider the business side of the equation first. Including Medicare, roughly 263 million Americans--about 85 percent of the population--already have health insurance. As the nonpartisan Congressional Budget Office (CBO) estimated in May, 156 million are workers and their family members who received insurance from their employers. But as the chart above shows, the percentage of Americans getting coverage through their workplace has been dropping for years, and nose-dived during the recession.
But that's not the only indicator of an employer health insurance system "coming apart at the seams." For years, businesses have been shifting the costs for health care onto their workers by hiking employee contributions, raising deductibles, dropping spousal coverage and more. In its 2009 Employer Health Benefits Survey released six months before Obamacare became law, the Kaiser Family Foundation found the pace of cost-shifting was accelerating. As the Washington Post reported the findings from KFF:

Forty percent of employers surveyed said they are likely to increase the amount their workers pay out of pocket for doctor visits. Almost as many said they are likely to raise annual deductibles and the amount workers pay for prescription drugs.
Nine percent said they plan to tighten eligibility for health benefits; 8 percent said they plan to drop coverage entirely. Forty-one percent of employers said they are "somewhat" or "very" likely to increase the amount employees pay in premiums.

Just days before President Obama signed the Affordable Care Act into law the following March, a study by the National Business Group on Health of 507 companies with over 1,000 employees found that:

Many say they may charge more to cover spouses, tighten eligibility standards for their health plans and dispense financial rewards or penalties based on the results of certain lab tests. At some companies, overweight employees could be excluded from the most desirable plans.
Meanwhile, employees at many companies can expect significantly higher premiums, deductibles and co-payments.

Again, this was prior to the passage of Obamacare and specifically its employer mandate whose implementation has been pushed back to 2015. As Kaiser's latest employer survey showed, between 2006 and 2013, the percentage of workers who employer-based plans required a deductible jumped by half from 52 to 78 percent. During that same time frame, the share of workers whose deductible topped $1,000 a year almost quadrupled from 10 to 38 percent.

Nevertheless, CNN Money last month asked, "Are employers dumping health benefits because of Obamacare?" CNN cited anecdotal examples of organizations like Trader Joe's and Romney-aligned Home Depot shifting part-time workers to the ACA exchanges and others like the University of Virginia and UPS which announced plans to end benefits for spouses with coverage options elsewhere. But as the Wall Street Journal and others have documented, part-time employment is falling as businesses add more full-time positions. And as the CNN article also noted, "Obamacare is not the only reason behind the benefits adjustments."

"An increase in costs of a few percent isn't enough to cause widespread changes in benefits," said Larry Levitt, senior vice president at the Kaiser Family Foundation.
Other factors, such as the improving economy, are contributing to rising costs since people use more medical care when the economy is healthier.
Also, companies have been shifting costs to employees for years. While UPS will limit its spousal coverage, it is not the first company to do so.

That is, to put it mildly, an understatement.
On the other hand, the term "understatement" certainly can't be used to describe the headlines about the several hundred thousand Americans whose premiums are being increased or policies cancelled for 2014. While McClatchy recently warned that "for thousands, keeping your old health insurance policy isn't an option," the San Diego Union Tribune reported "thousands told health policies will end." Kaiser Health News explained why some of the 14 million people who directly purchase health insurance for themselves or their families (a total of roughly 30 million people and 9.8 percent of the population) are getting cancellation letters or massive price increase notifications in the mail:

The main reason insurers offer is that the policies fall short of what the Affordable Care Act requires starting Jan. 1. Most are ending policies sold after the law passed in March 2010. At least a few are cancelling plans sold to people with pre-existing medical conditions.
By all accounts, the new policies will offer consumers better coverage, in some cases, for comparable cost -- especially after the inclusion of federal subsidies for those who qualify. The law requires policies sold in the individual market to cover 10 "essential" benefits, such as prescription drugs, mental health treatment and maternity care. In addition, insurers cannot reject people with medical problems or charge them higher prices. The policies must also cap consumers' annual expenses at levels lower than many plans sold before the new rules.

But while Obamacare's new protections are one factor behind the repricing or elimination of some customers' existing policies, there are others. The ACA's prohibition on discriminating against those with pre-existing conditions is allowing some insurers to drop "guaranteed issue" options from their product line. But as Kaiser also explained, some are doubtless taking advantage of the opportunity to purge their costliest policy holders:

Consumer advocates say such cancellations raise concerns that companies may be targeting their most costly enrollees.
They may be "doing this as an opportunity to push their populations into the exchange and purge their systems" of policyholders they no longer want, said Jerry Flanagan, an attorney with the advocacy group Consumer Watchdog in California.

Even with those "10 essential benefits" and the ACA's new limits on insurers' "non-medical expenses," roughly half of Americans purchasing in coverage in the individual market should still realize savings. Another Kaiser analysis showed that 48 percent of those shopping in the exchanges will qualify for federal subsidies averaging $2,672 a year. Meanwhile, insurers can maintain "grandfathered" policies sold before 2010, though these must be purchased by existing policy holders outside of the subsidized exchanges. As Josn Barro pointed out:

Plans that existed before March 2010 are exempt from some of the requirements under the ACA. For example, they do not have to offer free preventive care and they can impose annual limits on benefits. For these reasons, grandfathered plans may be cheaper than new plans, and participants currently on them may want to stay on them. They'll have to buy outside the exchanges to do so.

Unless, that is, their insurers refuse to offer them.
Addressing a joint session of Congress in September 2009, President Obama emphasized that under his health care reform proposal, the federal government would not require Americans to change either their insurance or their doctors:

"If you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: nothing in our plan requires you to change what you have."

That's right. Nothing in Obamacare requires you to change what you have. Sadly, your employer or insurer might. But that's nothing really new under the Affordable Care Act. They've been doing that for years.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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