Monday, March 29, 2010

New coverage rules for employer-provided health plans

Most overviews of the effects of the new health reform law have suggested that it won't have a large impact on employer-provided insurance. That ain't necessarily so.

Business Insurance reports that employers "will have to redesign their health care plans to extend coverage to employees' adult children up to age 26, eliminate lifetime dollar limits and remove pre-existing condition exclusions, if any, for children up to age 19."

Historically, insurance has been regulated by the states. While many states have strict coverage mandates (and others minimal ones), employers that offer self-funded health plans to their employees have been exempt from these mandates.  Since more than half of all Americans who get their health coverage from their employers are in self-funded plans -- approximately two thirds of large employers self-fund -- that's a large regulatory loophole.

According to Business Insurance, however, the new federal coverage rules do apply to self-funded plans:
For example, few employers extend coverage to employees' children to age 26 as the legislation will require starting next year; typical cutoffs are at age 23. Many states already require such extensions, but those state laws apply only to insured plans and not to the roughly two-thirds of larger employers that self-fund their plans.
Another provision, which recoups one part of a tax giveaway in the Republicans' deficit-financed Medicare Prescription Drug Modernization Act of 2003, will have a more immediate impact on employers' health care expenses:
That provision affects employers offering prescription drug coverage that is at least equal to Medicare Part D to Medicare-eligible retirees. Under a 2003 law, those employers are eligible for tax-free government reimbursement of 28% of prescription drug expenses that fall within a certain range.

The health care reform law, though, will negate the value of that tax break, effective in 2013. While the government-provided subsidies, which experts say run more than $500 per retiree, will continue to be tax-free, employers collecting the cash no longer will be able to take a tax deduction for retiree prescription drug costs equal to the subsidy.

That tax break change, which must be reported immediately under accounting rules, led three large employers to report charges to earnings last week. AT&T Inc. in Dallas reported a roughly $1 billion charge, while Peoria, Ill.-based Caterpillar Inc. reported a $100 million charge and Moline, Ill.-based Deere & Co. reported a $150 million charge related to loss of the tax break.

Overall, the impact of the new law on employers is as variegated and hard to gauge as its impact on insurers (partly of course because employers often are insurers).  Possibly offsetting the added obligation to cover employees' adult children, for example, is the likely reduced use of COBRA by people who lose their jobs, since they should be able to find cheaper coverage on the exchanges (as of 2014).  While some employers that don't now offer health coverage will be mandated to do so or pay a per-employee penalty, others (with under 50 employees) will take advantage of large subsidies to offer coverage now.

But the fact that new coverage rules apply to all plans represents a sea change.  While the weakest, most illusory insurance plans are probably sold mostly on the open market, some employers do offer plans with very limited coverage. And as Obama highlighted in the Feb. 25 health care summit, Republicans' preferred solutions -- selling insurance across state lines with no overarching rules of the road, promoting association and trade group-offered plans -- would trigger a race to the bottom, incenting insurers and employers to offer coverage under the weakest regulatory regime available.

The opposite has happened. Rules banning some of the worst abuses will be the law of the land within the year.

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