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Employer Sponsored Health Care Polices: Are They At Risk Under The ACA?

The present furor is about people with individual insurance having their policies cancelled and being faced with significantly higher premiums for ACA compliant coverage. The people so affected are about 5% of the public. The largest group of people with health insurance are covered by plans sponsored by their employer, about 50% of the public. Since the Obama administration elected to delay implementation of the employer mandate for another year, the general impression that I, and I think many others, have had is there would not likely be much impact on this group in 2014.  However, I have been seeing information that makes me wonder if that may not be the next shoe to fall in this great big kerfluffle.

When the employer mandate does kick in it will only apply to employers with 50 or more employees. Employers with a smaller workforce will not be required to provide insurance. However, there are many small employers who do now provide such coverage. They are usually treated by the insurance companies as small group plans and their employees frequently are required to go through individual underwriting like people seeking individual policies. It seems possible that many of these small group plans will get cancelled as not being ACA compliant and replacement plans may well carry higher costs. Since these employers will not be required to provide insurance under the employer mandate, they will then be in the position of weighing whether to establish a new plan.

I have seen several versions of reports that a large number of employer plans will lose their grandfather status under the ACA and be subject to cancellation. This one from The National Review provides a fairly clear statement. Forbes is reporting essentially the same information.

“It is projected that more group health plans will transition to the requirements under the regulations as time goes on,” DOJ lawyers wrote in response to court challenge to the law’s requirement that insurance plans provide coverage of contraception. “Defendants have estimated that a majority of group health plans will have lost their grandfather status by the end 2013.”

The DOJ cites the June 17, 2010, edition of the Federal Register, which acknowledges that within the first year of Obamacare’s employer mandate, the insurance plans offered by many employers will be canceled because their policies will not be grandfathered under the administration’s regulations. ”The Departments’ mid-range estimate is that 66 percent of small-employer plans and 45 percent of large-employer plans will relinquish their grandfather status by the end of 2013,” the Register says. “The low-end estimates are for 49 percent and 34 percent of small and large-employer plans, respectively, to have relinquished grandfather status, and the high-end estimates are 80 percent and 64 percent, respectively.”

There is no question that the ACA is a very complex and confusing piece of legislation. I doubt that anybody can be absolutely certain how things will pan out in this particular area since actual outcomes will depend on business decisions made by insurance companies and employers. However, it does seem probable that people who think that they won’t be impacted because they are covered by group plans may be in for some unpleasant surprises.

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Richard Lyon

Richard Lyon