Keep Your Healthcare Plan? Probably Not!

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
June 29, 2010

IN THIS ISSUE:

1.  The Collapse of Employer-Provided Health Insurance

2.  The “Grandfather” Exemption to Be Denied For Many

3.  What Happens if Your Plan is Not Grandfathered?

4.  Obama’s Spin on the Grandfather Controversy

5.  Union Healthcare Plans Grandfathered No Matter What

6.  Health Insurance Requirements That Kick In This Year

The Collapse of Employer-Provided Health Insurance

During the 2008 presidential campaign, candidate Barack Obama promised that, if elected, he would press for some form of nationalized healthcare.  Time after time, he assured Americans: “If you like your healthcare plan, you can keep it; if you like your doctor, you can keep your doctor.”  Many in Congress promised the same thing as they crafted the sweeping healthcare legislation that ultimately passed in March.

Yet on June 14 the Obama administration released an 83-page document which indicates that over half of all employer-provided health insurance plans will be effectively eliminated between now and 2014 because of the new healthcare law.  For small businesses, it’s even worse.  The Obama administration’s own estimates indicate that 66% or more of small businesses will abandon their healthcare insurance plans by the time ObamaCare kicks in on January 1, 2014.

I’m sure you are asking, how can this be?  You may recall that within the sweeping healthcare legislation that President Obama signed into law on March 23, there was a so-called “grandfather” provision that was supposed to allow current employer-provided health insurance plans to remain in place and to be all or mostly exempt from the requirements of ObamaCare.

However, the 83-page set of new regulations that was released on June 14 makes it clear that the requirements to qualify for the grandfather exemption will be so onerous that over half of all private employers will lose their grandfather status, and many are likely to drop their health insurance plans.  According to the latest report, up to 80% of small businesses may drop their health insurance plans and simply pay the fines instead.

If you get your health insurance through your non-government employer, or if you are (like me) the owner of a business that provides health insurance to its employees, you need to read what follows very carefully.  We’ve all been lied to!

The “Grandfather” Exemption to Be Denied For Many

As the owner of a small business myself (we have 12 people at my company), I know first-hand what it is like to provide healthcare insurance for my employees.  I can’t say I was stunned by the latest news that our own company healthcare plan almost certainly won’t qualify for the grandfather exemption in 2014 based on the restrictions in the latest Obama administration report.  What I am stunned by is the lack of coverage on this news by the media.

The report in question is an 83-page document that was prepared by the departments of Health and Human Services, Labor and the IRS, which examines the effects that ObamaCare’s new regulations would have on existing, or “grandfathered” employer-provided healthcare plans.  Draft copies of the document were reportedly leaked to House Republicans late in the week of June 6-12.  House Representative Bill Posey (R-FL) posted the report on his website on Friday afternoon, June 11.

In a statement that afternoon, Rep. Posey said the 83-page document showed that the arguments in favor of ObamaCare were a “bait and switch.”  I first read about this report in Investor’s Business Daily in its Monday, June 14 issue (which is included as a link in SPECIAL ARTICLES below).  A similar story appeared in the New York Post the same day.  A follow-up story appeared in IBD on June 15.  Other than that, nothing until June 17 when former Bush advisor Karl Rove wrote about it in the Wall Street Journal, which you can also read in SPECIAL ARTICLES below.  The mainstream media hasn’t dared to touch this story.

As noted above, the controversy (if you can call it that) swirling around this new report is the fact that then candidate and now President Obama has promised often that if you like your health insurance, you can keep it.  Ditto for your doctors.  Obama promised that existing healthcare plans would be “grandfathered” and thus would be exempt from most of the ObamaCare requirements set to take effect on January 1, 2014.  These include benefit mandates, caps on out-of-pocket expenses, limits on age-based premiums, etc.

Yet the 83-page report states – complete with charts and graphs – that a majority of companies that provide health insurance to their employees will have to abandon their healthcare plans by the end of 2013 because they won’t meet the new ‘grandfather’ rules. 

Who Will Lose the Grandfather Exemption?

The term “grandfathered” is loosely defined by the new healthcare law, and the specifics have been left up to the bureaucracies to work out – in this case, the Dept. of Health and Human Services, the Labor Dept. and the IRS.  One of the key questions is, how much flexibility would employers have in changing their health insurance plans before they are no longer considered grandfathered?

Based on the new 83-page report, employers could make very few changes in their plans without losing their grandfathered status.  For example, here is a list of changes or activities that would cause employers to lose their grandfather status.  Under the regulations in the document, a plan is no longer considered to be grandfathered if:

  • It eliminates benefits related to diagnosis or treatment of a particular condition.

  • It increases the percentage of a cost-sharing requirement (such as co-insurance) above its level as of March 23, 2010.

  • It increases the fixed amount of cost-sharing such as deductibles or out-of-pocket limits by a total percentage measured from March 23, 2010, that is more than the sum of medical inflation plus 15 percentage points.

  • It increases co-payments from March 23, 2010, by an amount that is the greater of medical inflation plus 15 percentage points or medical inflation plus $5.

  • The employer's share of the premium decreases more than 5 percentage points below what the share was on March 23, 2010.

In a nutshell, if employers do anything to reduce coverage, increase co-pays, or make the cost of health coverage go up for its employees, then their plans lose their grandfather exemption.  And they are prohibited from changing insurance carriers between now and 2014, even if they can find the same coverage at a lower rate.

The bureaucrats who issued the 83-page report stated that they analyzed data on employer-provided healthcare plans from 2008 and 2009, and concluded: “Many employers who made changes between 2008 and 2009 that would have caused them to relinquish grandfather status did so based on exceeding one of the cost-sharing limits [noted above].”

They go on to say that 66% of small businesses and 47% of large businesses made a change in their health care plans last year that would have forfeited their grandfathered status.  They even provided a chart with best-case and worst-care scenarios: 

Grandfather Gets It

View Enlarged Image

Please make sure that you understand what this means.  If you are covered by an employer-sponsored health insurance plan, and if that employer makes any one of the changes highlighted above between March 23, 2010 and January 1, 2014, the plan will lose its grandfather status, according to the new report.

In the best-case scenario, 47% of small businesses and 34% of large companies would lose their grandfather exemption.  In the mid-range estimate, 66% of small businesses and 45% of large companies would lose their grandfather exemption.  And in the high estimate, 80% of small businesses would lose the exemption, as would 64% of large companies.

It is not uncommon for companies small and large to make changes to their health insurance plans periodically.  Certainly in the world of small businesses, changes to the plans are commonplace.  As healthcare costs continue to soar, most small business owners search every year to see if they can find a better or less expensive healthcare plan.  Yet according to the new report, changing insurance companies is a violation.  So if they want to be grandfathered in 2014, they can make no changes that would have any negative effect on their employees – whether they can afford it or not.

House Representative Phil Gingrey (R-GA), a physician, said: “These rules will ensure that up to 69% of employees — and 80% of workers in small business — will lose their current plan within three years. The reality is this: 58% of Americans want ObamaCare repealed because they fear they will lose their health care — and even their jobs — once this law is fully implemented.”  Now we know that this fear is completely warranted.

What Happens if Your Plan is Not Grandfathered

The obvious question at this point is, what happens if your employer-provided health plan loses its grandfather exemption?  There are two options (at least as far as we can tell at this point).  According to the new ObamaCare rules, employers whose plans lose their grandfather exemption must buy a “new” plan that incorporates all of the new mandates for health coverage as they come along.  At present, this will likely mean shopping for a new, conforming (read: more expensive) health plan.

Beginning in 2014, small employers will have the option to shop for coverage for their employees on the new government-sponsored “exchanges” once they become operational.  Plus, some small employers with less than 25 full-time employees may qualify for a tax credit to help cover the costs of healthcare.  However, this tax credit phases out quickly for employers with more than 10 employees and average wages over $25,000.  The non-partisan Congressional Budget Office predicts that only 12% of small business will qualify for this tax credit.

It is becoming increasingly clear that the cost of healthcare insurance under ObamaCare will be higher than initially projected by 2014.  Many employers, myself included, believe that health insurance premiums will be significantly higher by 2014.  On a related note, the Congressional Budget Office has already revised upward its estimate of ObamaCare’s cost over its first decade.  Expect more subsequent cost revisions to the upside.

And that brings us to the second option.  Employers can simply elect to drop their health insurance plans altogether.  From now until 2014, there is no negative impact of discontinuing coverage, other than possible lower employee morale and higher turnover.  Beginning in 2014, companies with 50 employees or more that do not provide health coverage will have to pay a fine per employee for not offering health coverage.  Small employers are not currently subject to a fine for failure to provide health insurance. 

The fine for companies with 50 or more employees has initially been set at $2,000 annually per employee, but the penalty is waived for the first 30 employees to help phase in the cost.  Some large employers have determined that paying the fine would be considerably cheaper than providing health coverage, which could undermine the whole purpose of passing a healthcare bill in the first place.  This could drive uncovered employees to the health exchanges where you and I and other taxpayers will help pick up the bill. 

In the article written by Karl Rove, which is linked below, he talked with the owner of a large national restaurant chain who currently spends $25 million a year on his company’s health insurance plan.  He estimates that his annual cost would more than double under ObamaCare.  Rove also talked to a Midwestern contractor who employs 70 people and currently spends just under $600,000 for his company’s health insurance. 

Both men plan to drop their company health insurance plans altogether before 2014 and simply pay the $2,000 annual fine per employee.

Do the math.  The Midwestern contractor with 70 employees would only pay fines for 40 employees, since the first 30 are exempted, and thus would pay a total fine of only $80,000 versus the $588,000 he paid in health insurance premiums in 2009.  Of course, if ObamaCare becomes a reality in 2014, as I expect it will, it is almost certain that the fines will have to be increased to limit the number of employers who elect to drop their health insurance altogether.  

As Karl Rove puts it in his article linked below: “Either Mr. Obama was stunningly blind to these perverse effects when he promised people could keep their coverage, or he felt that admitting his plan would collapse employer-provided health coverage could keep it from passing. Either way—self-deception or deliberate deceit—health reform is going to turn out far differently than was promised.”

Union Healthcare Plans Grandfathered No Matter What

It is important to keep in mind that the 83-page healthcare document released on June 14, with all its grandfather rules and restrictions, only applies to health insurance plans offered by the private sector.  These rules do not apply to government employee plans; they will keep the current health insurance, which also covers members of Congress.  And President Obama made sure to give unions a guaranteed exemption as well.

The grandfather rules and restrictions highlighted above do not apply to health insurance plans that are part of “collective bargaining agreements” negotiated by unions and set up on or before March 23, 2010.  As long as the collective bargaining agreement is in force, the union health plan retains its grandfathered status – even if the employers and unions agree to change insurance carriers, or violate any of the other rules and restrictions that apply to private sector businesses.

Thus, unions can switch to another insurance provider that offers similar benefits at cheaper prices without losing their grandfathered status.  Non-union employers that change providers will lose their grandfathered status and face all of the requirements of ObamaCare, including benefit mandates, caps on out-of-pocket expenses, limits on age-based premiums and all of the other rules and restrictions noted above – all at a higher cost, of course.

The guaranteed grandfather exemption for union healthcare plans is nothing less than Obama tossing a big bone to his political base.  No doubt about it.  You can read about the union exemption in IBD at this link:

http://www.investors.com/NewsAndAnalysis/Article/537289/201006141911/Union-Contract-Can-Exempt-Health-Plan-From-ObamaCare.aspx

Obama’s Spin on the Grandfather Controversy

As Investor’s Business Daily was preparing its article on the grandfather controversy, they contacted a senior White House spokesman and suggested that these onerous grandfather rules would effectively break President Obama’s promise that if you like your healthcare plan, you can keep it.  To that, the White House spokesman responded:

“This is a draft document, and we will be releasing the final regulation when it is complete. The president made a promise to the American people that if they liked their health care plan, they can keep it. The regulation, when finalized, will uphold that promise.”

However, the source conceded: “It is difficult to predict how plans and employers will behave in the coming years, but if plans make changes that negatively impact consumers, then they will lose their grandfather status.”

It is clear that President Obama and his administration are going to take the position that, while their grandfather rules may be strict, it is possible that your health insurance provider can ensure that it meets the grandfather requirements – if it makes no changes in the plan between now and January 2014.

 In other words, it will be your employer’s fault if your health insurance plan does not qualify for the grandfather exemption in 2014.  It’s not the Obama administration’s fault.

And they are taking this position even though their own projections show that over half of all employer-provided health insurance plans will fail to qualify for the grandfather exemption in the most likely scenario, and up to 80% of all small businesses will not qualify by 2014.

What you have to keep in mind is that President Obama has always maintained that he wanted a universal “single-payer” healthcare system provided by the government.  Only when he realized that the so-called “public option” was not going to pass did he accept what was passed in March.  Obama and his Health and Human Services Department Secretary both noted that this healthcare legislation was a good “first step.”

The bottom line is that these latest health insurance restrictions will prove almost impossible for most businesses to comply with.  The onerous grandfather restrictions – by the Obama administration’s own admission – will result in the collapse of employer-provided health coverage by 2014 at the latest.  Apparently, that is what they want to see happen.

Health Insurance Requirements That Kick in This Year

The new 83-page report from the Obama administration also included some significant changes that will be required for all health insurance plans that renew after September 23, 2010.  All health insurance plans – whether or not they are grandfathered plans – must provide, at a minimum, the following certain benefits to their customers for plan years starting on or after September 23, 2010 including (verbatim from the Obama report):

  • No lifetime limits on coverage for all plans;

  • No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application;

  • Extension of parents’ coverage to young adults under 26 years old; and the

For the vast majority of Americans who get their health insurance through their employers, additional benefits must be offered, irrespective of whether the plan is grandfathered, including:

  • No coverage exclusions for children with pre-existing conditions; and

  • No “restricted” annual limits (e.g., annual dollar-amount limits on coverage below standards to be set in future regulations).

It should obvious that these additional benefits will cause our health insurance premiums to rise, perhaps significantly, and these additional coverages will be required for all healthcare plans that renew after September 23 this year.  Whether you agree or disagree with these changes, we will all feel the effects of ObamaCare when our plans renew vis-à-vis higher premiums.  So much for Obama’s promise that healthcare costs would go down under the new law.

Conclusions

With the release of the 83-page set of regulations and restrictions on private sector health insurance plans on June 14, we are now seeing the true intent of ObamaCare.  By its own admission in the report, over half of all businesses will lose the grandfather exemption and will likely drop their health insurance plans altogether between now and 2014.

The report noted that 66% of small businesses and 47% of large businesses made a change in their health care plans in 2009 that would have forfeited their grandfather exemption in 2014.  In one scenario, the report projects that up to 80% of small businesses would lose the grandfather exemption, and many would almost certainly drop their health insurance plans by 2014.

Among other onerous restrictions in the latest report, private sector businesses will not be allowed to change health insurance providers, even if they can do so at a lower cost, or they will lose their grandfather status in 2014 (unless their employees are unionized).  This should outrage all of us!

These latest regulations can only be viewed as a huge step toward an ultimate universal single-payer, government-run healthcare system – unless voters make sweeping changes in 2010 and 2012.

Call to Action: If your health insurance is provided by your employer, you will want to make sure that the owner is aware of these new regulations and restrictions that can jeopardize your plan’s grandfather exemption between now and 2014.  I suggest you have them read this E-Letter and encourage them to become familiar with the regulations and restrictions related to the grandfather exemption.

Finally, feel free to forward this week’s E-Letter to family, friends, co-workers, etc.

Wishing you wellness,

Gary D. Halbert

SPECIAL ARTICLES:

Keep Your Healthcare Plan? Probably Not.
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=537208

Karl Rove: Bad News About ObamaCare Keeps Piling Up
http://online.wsj.com/article/SB10001424052748704198004575310773636609374.html?mod=WSJ_Opinion_BelowLEFTSecond

Fears about health reform’s costs are coming true.
http://www.nydailynews.com/opinions/2010/06/17/2010-06-17_a_bad_omen_on_obamacare_fears_about_health_reforms_costs_are_coming_true.html

Why ObamaCare is So Unpopular (very interesting read)
http://www.realclearpolitics.com/articles/2010/06/28/americans_relate_to_founders_not_progressives_106117.html


Read Gary’s blog and join the conversation at garydhalbert.com.


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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