Employer health care plans stay the course under reform

WASHINGTON – The landmark health care law approved last week was sold as an effort to reform unfair insurance practices, but it largely exempts the existing employer-based network from the overhaul.

The law grandfathers many existing employer-sponsored plans, sparing them from the consumer protections that will apply to new plans, including minimum-benefit standards and limits on how much a worker can pay in out-of-pocket medical costs.

“The basic bottom line is there is very little change in employer coverage,” said Karen Davis, president of the Commonwealth Fund, a private foundation that promotes improvements in the health care system.

Through a variety of carrots and sticks, the health care law is designed to prod businesses that don’t provide coverage today to start offering benefits. But strictly speaking, the legislation doesn’t mandate that employers provide insurance.

Because the law requires that individuals obtain coverage, businesses may see more workers join their employer-sponsored plan in the next several years. But the essential benefits that must be offered by new plans starting in 2014 – including coverage for mental health conditions and prescription drugs – aren’t required for existing plans.

“By and large, these are important consumer protections, which is why they are in the bill,” said Stacey Pogue, senior policy analyst at the Center for Public Policy Priorities, a liberal-leaning think tank in Austin, Texas. “The grandfathering creates a loophole.”

Small businesses – those with fewer than 50 workers – are similarly exempt from many of the law’s requirements. Many of these firms don’t provide insurance to workers. (Small firms often pay more for health insurance because they lack the clout to negotiate with insurers, and one sick worker can raise premiums for the whole group.)

The law favors small businesses in two ways. As soon as this year, they’ll be able to claim a tax credit worth up to 35 percent of their premium contributions.

In 2014, when new health-insurance exchanges are operational, they’ll be able to shop for plans in an online marketplace. The exchanges are supposed to make it easier to compare and buy coverage. Individuals and families who don’t have coverage from their employers will also be able to shop for plans on the exchange. Individuals with incomes below $43,320 and families with income below $88,000 will qualify for tax credits that would make coverage cheaper.

Some small businesses may drop their own coverage and let their workers look for coverage in the exchange, according to economists. But employer-sponsored coverage would still account for 61 percent of the market in 2019, according to the Congressional Budget Office. (The ratio today is 69 percent, according to CBO.) The law will have little impact on premiums for employer-sponsored coverage, the CBO found.

But larger employers that don’t offer coverage, or offer substandard coverage, will face penalties if their workers get subsidized coverage through the exchange.

Businesses with more than 50 workers that don’t provide coverage in 2014 could pay a $2,000 per-worker penalty. Firms that offer substandard or unaffordable plans could pay as much as $3,000 for each full-time worker who gets a tax credit for coverage through the exchange.

Because of these penalties, business groups argue the legislation effectively contains an employer mandate.

“This mandate constitutes a massive incentive for small businesses not to grow or hire new workers,” the U.S. Chamber of Commerce wrote in a letter to lawmakers on March 12. “And many businesses will be hesitant to hire low-income, low-skill workers, who would be likely to trigger the new tax.”

The legislation defines “substandard” coverage as a policy that doesn’t cover at least 60 percent of an employee’s total medical costs, or whose premiums cost more than 9.5 percent of the worker’s income.

One type of plan that probably won’t meet the standard is the mini-medical benefit plan, which has low premiums but caps what insurers pay toward medical costs. (The law prohibits annual limits on benefits beginning in 2014, and the reconciliation bill would extend this to existing plans.)

While existing “mini-med” plans are grandfathered by the law, employees could drop them in the future and seek coverage through the exchange, triggering a penalty for the employer.