Increased Health Rates & Employee Deductibles Likely

Texas Insider Report: AUSTIN Texas Nearly half (47) of all employers expect their health care plans will lose grandfathered" status in 2011 resulting in the imposition of new federal mandates & requirements which will raise costs still further.  The Mercer consulting group released results of their latest study focused on the implications of the Obama Health Care Law on employers & employees the results border on horrific.   The new health care reform law gives employers a choice:

1. If they avoid making certain changes to their health plans such as raising employee coinsurance requirements their plans will be grandfathered" and
2. Thus exempt from a number of new cost-sharing & coverage mandates.

Interim regulations released in June estimated that between 67 and 85 of employer plans would retain grandfathered status in 2011 but a new Mercer survey of nearly 1100 employers found that just 53 believe they are likely to retain grandfathered status for all their plans.  For many others however the cost advantages of making changes to their plans outweigh those of avoiding some reform mandates.

When asked what changes they would consider making that would result in the loss of grandfathered status:

• 35 said increase deductibles or OOP maximums by more than the allowed amount"
• 31 said increase employee coinsurance levels"

Among Mercers Key Findings:

• Nearly half (47) of all employers expect their plans will lose grandfathered" status in 2011 nearly a third (32) will lose grandfathered status for all of their plans (or their only plan) while another 15 will lose grandfathered status for one but not all of their plans in 2011.  These projections are significantly worse than the mid-range estimates released by the Administration in June which predicted that only 22 of existing plans would lose their grandfathered status  in 2011.
• Of the plans that will not lose grandfathered status this year nearly half expect to lose grandfathered status in 2012 (33) or 2013 (15). 
• Employers expect the health care law will raise premiums by 2.3 percentage points in 2011.  Among small firms with fewer than 500 employees the percentage increase is higher at 3.0 percent.  Both figures are higher than the Administrations prior statements that the mandates in the law will raise premiums by only 1-2 percent.
• Among reasons given for losing grandfathered status employers plan to:
  • Increase deductibles by more than permitted (35);
  • Increase co-insurance levels which is not permitted (31);
  • Increase co-payments by more than permitted (23);
  • Change insurers which is not permitted for small businesses except those in union-run multi-employer plans (21); and
  • Decrease employer contributions by more than the permitted amounts (20).

The statistics paint a grim picture of employers predicament both now and in the future.  Businesses cannot merely absorb the entire burden of rising costs in a competitive business environment but because of the stringent restrictions imposed by the Administrations regulations many will lose grandfathered status for attempting to pass some of those costs on to their workers.  Loss of grandfathered status will result in the imposition of new federal mandates and requirements which will raise costs still further.  The result could be an upward premium spiral lasting for several years one that sees more Americans losing their current coverage than even the Administration had projected with employers and employees alike struggling to cope with the financial impact of higher health costs on their livelihoods.