A provision in Barack Obama’s healthcare law could violate his pledge that people can keep their existing plans, some business groups fear.
The stipulation, known as the “grandfather provision,” in the Senate reconciliation package allows healthcare policies in place at the time of the law’s enactment to remain in place, with caveats.
But groups such as the U.S. Chamber of Commerce and the National Federation of Independent Businesses are worried that businesses could lose their grandfathered status if they modify their policies.
Caveats include mandates to cover those with pre-existing conditions and to include the value of health coverage on an employee’s W-2, as well as the high-value plan excise tax when it goes into effect in 2018.
“It is very unclear on how you maintain grandfather or make changes without losing grandfather status,” says James Gelfand, the chamber’s senior health policy manager. “As of March [23] of this year, every plan in the country was grandfathered. However, plans are going to be making changes and as they make changes, they lose grandfathering and have to come into compliance.
”So, we don’t know what you are allowed to change and what you’re not,” Gelfand tells Newsmax.
Unless the Obama administration issues regulations allowing businesses to keep their grandfathered status when they modify their plans’ premiums or co-pays, these changes could prove costly to employers, Gelfand says.
Some estimates suggest that companies could be hit with 10 percent to 15 percent increases in premium costs if their plans lose grandfathered status.
“This is going to cause health insurance rates to skyrocket because the insurance companies have to anticipate that people will free-ride until they’re sick,” Gelfand says.
Employers worry especially how the changes will affect the health plans they are developing for 2011, according to Kaiser Health News.
Small businesses could be hit particularly hard unless the administration issues regulations allowing them to keep their grandfathered status, says Amanda Austin, the business federation’s policy director.
Unlike larger businesses, small business owners modify their plans at different times throughout the year, and many are running scared.
“The insurance industry is making changes,” Austin tells Newsmax. “They have several effective dates for making changes to grandfathered plans, and we still expect them to have significant premium increases.
“The first thing small employers want to do is to vary deductibles because that lowers their costs, so we’re just not sure they can do it.”
The chamber warns that many Americans enrolled in grandfathered plans could lose their existing coverage if the matter isn’t clarified.
“It’s very difficult to imagine a world a world in which, if we can’t change premiums or premiums shared that we could actually keep those plans,” Gelfand says. “For many businesses, when they look at their premium cost increases and they can’t grandfather and they can’t avoid some of these new requirements, they are going to drop coverage, and you are not going to be able to keep the plan you have if you are an employee of that business — like it or not.”
Penalties for dropping coverage are considered weak, which means it may be less costly for an employer to pay a $2,000 penalty per employee for dropping coverage than paying an average annual health premium of $5,000 to $10,000 per employee.
“The grandfathered plans — even if you did a Herculean task on the regulatory side to save them — a rational employer is just going to drop coverage no matter what,” says Ryan Ellis, tax policy director of Americans for Tax Reform. “The regulations likely are not going to be in place fast enough.”
The law’s creation of a health insurance exchange in 2014 will transform the landscape because the individual mandate to have health insurance could provide incentive for some employers to drop coverage, Ellis says.
Austin, who decried the incentives as “perverse,” says they could undermine grandfathered plans, especially for small businesses.
“To keep your tax credit for small employers in the final two years, you need to go into the exchange and get a new plan to continue to get your credit, so I think there’s a lot of things going on, and I don’t think we know yet about the new world we are looking at … outside grandfathered plans,” Austin says. “Things just fade away … and I expect things like that will happen with these plans that people have today.”
Calls to the Department Health and Human Services seeking comment were not returned.