The news isn't good for proponents of health care reform. I'm not referring to the growing possibility that Democrats will lose control of Congress and elements of reform will be repealed. It's the health insurance marketplace that's delivering the message: Fewer and fewer people are getting to keep the coverage they already have.
Last month, a small Boston-based financial services firm received notice from its health insurer that rates next year would rise 6 percent, in part to cover rehabilitation services mandated by the state's model health reform law. These services, including preventive care, prescription drugs and emergency services, are now deemed part of "minimal credible coverage"—Massachusetts' version of the "essential benefits" in federal health reform.
The firm's current plan has an annual individual limit of $5,000 for rehab services and equipment like motorized wheelchairs, which often exceed that amount. The law says that starting next year there can no longer be annual limits on essential benefits. So, faced with a hefty rise in rates, the company opted instead to require its 150 employees and dependents to pay 30 percent of the bill every time they used that benefit.
Faced with premiums that continue to rise faster than inflation, employers are opting to load more of that cost onto employees, whose bargaining power evaporated in the Great Recession.
The move kept the company's rate flat for next year, according to Mim Minichiello, a senior partner at EBS Capstone, an insurance brokerage for small- and medium-sized firms that helped design the new plan. But it came with a catch. Because it will substantially raise employee coinsurance, the firm, which did not want to be identified because it hasn't told its employees, will have to meet all the other mandates in the Massachusetts reform—such as no co-pays for preventive services. Employers that raise coinsurance rates are no longer considered a "grandfathered" plan, and therefore must meet all the other mandates in the law.
"All the insurance companies are doing this in Massachusetts," said Minichiello. "So the company is going to have to give up grandfather status."
Last week's Kaiser Family Foundation survey of 2010 health insurance rates, which showed the employee share rising 14 percent despite overall costs rising just 3 percent, is a harbinger of what's to come. Faced with premiums that continue to rise faster than inflation, employers are opting to load more of that cost onto employees, whose bargaining power evaporated in the Great Recession.
Giving up grandfather status is a small price to pay in exchange for loading more of the additional costs onto the backs of their employees, which isn't prohibited under reform.
That strategy will eventually crash head on with requirements in the federal Patient Protection and Affordable Care Act, which, like Massachusetts, gave employer plans "grandfather" status as long as they provide roughly the same benefits as before. Grandfathered plans don't have to meet new requirements like covering preventive services without cost-sharing; providing beneficiaries with an external appeals process for claims denials; and reporting on quality initiatives.
But firms are increasingly finding that giving up grandfather status is a small price to pay in exchange for the right to load more of the additional costs of health insurance onto the backs of their employees, which isn't prohibited under reform. The exchanges set up under the law will have a range of available policies, including "low cost" (from an employer vantage point) options that allow for substantial out-of-pocket payments by enrollees.
Under interim rules proposed last June by the Health and Human Services Department, firms will lose their grandfather status if they eliminate major benefits, increase coinsurance percentages (like the Massachusetts firm) or increase out-of-pocket costs more than the medical consumer price index (which is considerably less than premium inflation) plus 15 percentage points, a level that will be quick surpassed by most existing plans. The plans firms had in place on March 23, 2010 serve as the baseline.
The hoped-for limits on out-of-pocket increases in existing plans are already running into the law of unintended consequences.
Consumer groups pushed hard for those rules. "For too long, many employers have been shifting health benefit cost increases onto employees," a 16-member coalition including Consumers Union, the American Heart Association, and the Service Employees International Union said in comments filed last month praising the new rules. "Employers and plans have repeatedly tried to rein in the cost of health benefits by slowly chipping away at those benefits with increased cost sharing. Those plans that continue to chip away at benefits should not be able to circumvent the new patient protections afforded under the Affordable Care Act."
But the hoped-for limits on out-of-pocket increases in existing plans are already running into the law of unintended consequences. In their comments on the rules, large employers—those who usually have the most generous health insurance benefits with the lowest co-pays and deductibles—warned that the interim rules are likely to have the opposite effect."By imposing fairly strict limitations on what employers can do to manage the design of their benefit plans, many employers are likely to elect to forego grandfathered status," the American Benefits Council, which represents large employers, and the HR Policy Association, which represents human resource professionals, said in a joint letter. The future, they said, must include "value-based benefit design," where companies institute higher co-pays for services considered less valuable in terms of delivering better health. Such cost-control strategies are considered a denial of service by many consumer and patient advocacy groups.
The employer groups continued: "Although we can understand the agencies' desire to limit to some extent an employer's ability to shift to employees the costs associated with grandfathered plans, we find the above rule to be unduly restrictive ... Employers who have been willing to bear a significant amount of the costs associated with the plan through the imposition of low coinsurance rates will face the greatest difficulty in maintaining grandfathered status."
A survey released in mid-August by the National Business Group on Health, which represents 72 of the nation's large employers with 3.7 million employees, confirmed that major cost-shifting to workers will continue next year. The survey projected their health care costs would rise 8.9 percent next year, with just one percentage point of that increase due to changes from reform.
Over half those employers planned significant changes to their benefit packages to reduce the tab, while just 19 percent said they would keep their plans roughly similar to maintain grandfather status. Four in 10 large employers planned major increases in deductibles. About half of major employers would give up grandfather status to implement their cost-shifting strategies, according to Helen Darling, president of the group.
"The assumption is that large employers would want to keep grandfather status," said Darling. "But as you can see, most of our employers are continuing to make the plan changes they were going to make."
Merrill Goozner is the author of The $800 Million Pill: The Truth behind the Cost of New Drugs.
