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A Project of The Annenberg Public Policy Center

Workers ‘Losing’ Employer Plans?

Michigan Rep. Fred Upton exaggerated the impact of the Affordable Care Act when he claimed that “perhaps as many as 80 to 90 million Americans with employer-based health care are going to lose their plans” by late this year.

Upton doesn’t mean that those millions of Americans would no longer have health insurance through their employers. And these workers won’t be receiving cancellation notices in the mail. Instead, he’s talking about health plans losing grandfathered status, which means they are exempted from some requirements of the Affordable Care Act because they existed before the law was enacted.

The claim, which other Republican lawmakers have repeated, is based on the premise that half of all employer plans were expected to lose grandfathered status in 2013, and more would do so in 2014. But all employer plans are expected to eventually lose such status, and most workers are already on non-grandfathered policies — without incident. Many plans have been and will be merely modified without employees even knowing it, particularly for those working at large firms.

It’s true that some businesses will send workers to the state or federal exchanges, the most direct case of “losing” an employer plan — but there won’t be 80 million of those workers.

The nonpartisan Congressional Budget Office has estimated that those with employer-based insurance would decline by a net 7 million in 2019 compared with what would have happened in the absence of the Affordable Care Act, with 11 million losing an offer of insurance from an employer, 3 million choosing to get their insurance from another source, and 7 million gaining insurance at work.

No ‘Pink Slips’ 

Upton made his claim on Fox News on Dec. 11. “People are not able to keep the health care plan that they want,” he said, adding that those who buy their own coverage in the individual market were having their current policies canceled because they didn’t meet the law’s coverage requirements. “And we know that by a year from now, tens of millions, perhaps as many as 80 to 90 million Americans with employer-based health care are going to lose their plans as well,” he said.

Rep. Mike Rogers, also of Michigan, used the 80 million figure on NBC’s “Meet the Press” on Dec. 1, saying that 80 million people “are going to get pink slips.” No, they won’t.

Upton’s office directed us to a column on Forbes.com by contributor Avik Roy — a former health care adviser to Republican presidential nominee Mitt Romney and a senior fellow at the conservative Manhattan Institute — who criticized President Obama’s claim that “if you like your plan, you can keep your plan,” saying it wasn’t true and the administration had known it. (We’ve long debunked the president’s claim as well.) Roy explained that the Obama administration had given a mid-range estimate back in 2010 that about half of employer plans would have lost grandfathered status by the end of 2013. According to the Congressional Budget Office, 158 million people (non-elderly) had employment-based coverage in 2013, so half of employer plans would be about 80 million people.

The Obama administration’s estimates were also cumulative for 2013, with an estimated 38 percent of employer plans already losing grandfathered status in 2012.

According to the Kaiser Family Foundation and Health Research & Educational Trust’s Employer Health Benefits Survey, those mid-range estimates may have been too low, and the majority of insured workers (52 percent) were already on non-grandfathered plans in 2012. For 2013, 64 percent of insured workers were on non-grandfathered plans, with the remainder, 36 percent, still on plans that had retained grandfathered status. That would be about 57 million Americans who were still on employer plans with grandfathered status in 2013.

But employers regularly make changes to health plans, and if employers significantly change workers’ cost sharing or employer premium contributions for a grandfathered plan, it’s no longer grandfathered. In at least some cases, plans will be — or already were — modified. In other cases, employers may elect a new health plan from their insurer.

“Employers change plans all the time,” Gary Claxton, vice president and director of the Health Care Marketplace Project at the Kaiser Family Foundation, told FactCheck.org. “You’re supposed to be notified if your plan is grandfathered. But you get a lot of notices,” so workers may not be aware of it. That is, unless employees think they should be getting something that they’re not, such as preventive coverage with no cost-sharing, a benefit of the law that grandfathered plans don’t have to provide.

And the reverse is true: Many employees may not be aware that their plan wasn’t grandfathered and changes were made. “Typically, the moderate-sized employers would pick an insurance company that would provide benefits,” says Sabrina Corlette, senior research fellow and project director of Georgetown University’s Center on Health Insurance Reforms. “Even if that insurance company is no longer providing a grandfathered plan, that doesn’t mean the employer is dropping coverage entirely. … It’s probably just getting a slightly different plan.”

Upton’s office also pointed to an American Enterprise Institute online post that referred to the administration’s 2010 estimates on grandfathering, saying: “Based on the administration’s own estimates from 2010, [AEI economist Stan] Veuger projects that tens of millions of people with employer-based insurance policies will be ‘affected’ by Obamacare, their plans either modified or cancelled.”

Of course, a “modified” plan is not the same thing as a plan being “cancelled.” And, as we already noted, employer plans are modified regularly, in the normal course of business.

Veuger said in an email to FactCheck.org that it was difficult to give a more precise estimate than “tens of millions,” because the estimate depends on “what assumptions you make, what constitutes a material change, and how many current plans meet what requirements.”

Upton’s office also included quotes from the conservative American Enterprise Institute’s Scott Gottlieb, who wrote that many small businesses, with up to 50 employees, had renewed their non-grandfathered health plans early in 2013, so they won’t face some of the law’s requirements for 2014 until next fall. “Starting in October 2014, many employees of small businesses will start getting the same notices that are now being mailed to individuals, informing [them] that their existing health plans are also being cancelled,” he predicted.

Non-grandfathered small group plans face more potential changes than large group plans, as we’ll explain. And since small businesses can use the exchanges and some would be eligible for tax credits (as would their lower-wage workers), some employers may switch to those policies. Gottlieb didn’t give an estimate for how many workers he thought could be affected. As we said, the nonpartisan CBO estimated that those with employer-based insurance would decline by a net 7 million in 2019.

Grandfathered No More

Let’s step back and look at what a grandfathered plan is and how it might change once it loses that status.

Employer plans that existed in March 2010, when the Affordable Care Act was signed into law, had grandfathered status. That doesn’t mean those plans were completely immune from requirements under the law. Like other health policies, grandfathered plans had to eliminate annual and lifetime caps on essential coverage, provide coverage for dependents up to age 26, issue rebates if they failed to spend 80 percent or 85 percent (for large group plans) of premiums on medical costs, and eliminate coverage exclusions for preexisting conditions. If “losing” a health plan is defined as any change in coverage, then most Americans would have already “lost” their plans, minus any cancellation notice. And people would “lose” their plans all the time, with or without the ACA.

But there are other requirements under the law that grandfathered plans don’t have to worry about: They’re exempted from covering preventive benefits without cost sharing — such as cancer screenings, and having an external appeals process for policyholders whose claims were denied. In the small group market (for firms with up to 50 workers), plans also have to cover the law’s essential health benefits, which include mental health services and prescription drugs, and they can’t rate policies based on health status. They’re also subject to federal or state review of premium increases greater than 10 percent. In 2016, the law requires the small group market to include businesses with up to 100 employees.

Losing grandfathered status could be a bigger deal for small employers, because of these additional requirements. If the small group was healthy, it would want to continue pricing based on health status; whereas, if a small group policy includes those with health conditions, it might be better to give up grandfathering status, as KFF’s Claxton explained.

In fact, workers at large firms were less likely than those at small firms to still be on a grandfathered plan in 2013. Just 30 percent of covered workers at firms with 200 or more employees had a grandfathered plan; 49 percent at firms with three to 199 employees had grandfathered policies, according to the KFF/HRET survey.

According to administration regulations, insurance plans can lose grandfathered status if any one of these changes are made:

  • The benefits for diagnosing or treating a health condition are eliminated.
  • The employer contribution to premiums is decreased by more than 5 percent points.
  • Cost-sharing requirements are increased above a certain amount (deductibles are increased by more than medical inflation plus 15 percentage points).

Workers with health insurance also could switch from a grandfathered plan to another non-grandfathered policy by simply changing jobs or selecting a different plan during open enrollment with their current employer.

Employers make changes to policies in light of rising medical costs. But in some cases, says Claxton, “insurers may not have allowed employers to keep a grandfathered plan.” The insurer could have stopped offering it.

“We don’t know how many employers think it’s that important” to keep grandfathered status, says Claxton. “For a large employer, it’s not terribly important.”

Timothy S. Jost, a health care expert who holds the Robert L. Willett Family Professorship of Law at the Washington and Lee University School of Law, agrees. “In the large group market, there are very few changes that are going to be happening in 2014,” he told FactCheck.org. Once a large employer plan loses grandfathered status, it would have to cover preventive services with no cost sharing and add an external appeals process — “not huge, radical expensive changes,” Jost says.

Small employers may face bigger changes, since they’ll also have to cover essential health benefits, as defined by the administration. Jost says most plans cover these anyway. “Literally it is not true that 80 to 90 million people are losing their coverage,” he says.

We asked Aon Hewitt, a human resources consulting and insurance brokerage firm, how concerned businesses were with keeping grandfathered health plans. J.D. Piro, a senior vice president on health and benefits, told us in an email that keeping grandfathered status will be a priority for some employers, but for many, making changes to their plans was more important “especially if the plans already comply with most of the ACA rules.”

Piro: Based on our observations, it is not a matter of if an employer plan will lose grandfathered status, but when. We expect most employer plans will lose grandfathered status due to actions around annual enrollment. Redesigning plans or changing deductibles and copayments will trigger the loss of grandfathering. For many employers, making these changes is more important than maintaining grandfathered status, especially if the plans already comply with most of the ACA rules. For some employers, however, retaining grandfathered status will be a priority.

There will be some workers, particularly at small businesses, who may feel the effects of their policies losing grandfathered status — especially if their employer decides to switch insurance carriers, get coverage from the exchanges, or drop coverage. Other workers may not even notice a modification in their policies. Certainly 80 million or 90 million aren’t going to “lose” their health plans or “get pink slips” in 2014 by no longer having grandfathered plans.

— Lori Robertson