Tuesday, June 29, 2010

How the Obama Administration’s New Regulations Give Insurance Companies More Control Over Small Businesses

President Obama and Democrats in Congress claim that their government takeover of health care will curb insurance company abuses. But in reality a series of new rules will give small businesses struggling to afford coverage for their workers even less ability to control skyrocketing premiums. Instead of being able to negotiate with insurance companies for more affordable coverage, small businesses face a “choice” of either accepting their current carrier’s premium increases or purchasing new, costlier coverage mandated by the health care law:

  • On June 14, 2010, the Administration issued rules affecting the ability of individuals and employees to maintain their current health coverage.[i] Violating the rules would require employers and individuals to purchase new policies that meet all the additional mandates, requirements, and regulations imposed in the law.
  • The Administration estimates that 51 percent of all employees, including 66 percent of workers in small businesses, would find themselves in violation of the rules, and have to obtain new coverage, by 2013—less than three years from now.[ii] Under the worst scenario, nearly seven in 10 workers, and four in five employees in small businesses, would lose their current coverage by 2013.[iii]
  • The rules have a particularly dire effect on small businesses, most of which purchase coverage from an insurer rather than assuming the financial risk themselves. Small businesses will not be permitted to change insurance companies without violating the new rules, giving them a significant disadvantage in negotiating with their current carrier.[iv]
  • As a result, small business owners face a difficult choice: They can accept double-digit premium increases from their existing insurance companies, averaging 10 to18 percent nationwide,[v] or they can shop around for new coverage, in which case they will have to comply with 20 new mandates in the health care law, each of which could raise insurance premiums by one to three percent.[vi]
  • Within days of the rules being released, press accounts told of small business owners forced to accept skyrocketing premium increases because they feel they cannot change carriers. For instance, the Wall Street Journal reported: “Tim Sledz, manager of Windwalker Aviation Services in Romeoville, Illinois, is so worried about the future that he has elected to hang on” to his current policy—but was forced to accept a 15 percent premium increase as a result.[vii] If he had been able to negotiate with other insurance companies, Mr. Sledz may have been able to find a better deal for his workers; instead, he and his employees will be forced to absorb these rapidly rising insurance costs.
  • While small businesses face difficult choices about affording coverage for their workers, labor unions apparently obtained a “backroom deal” during the regulatory process, as the rules would allow collectively bargained plans to switch carriers without violating the new guidelines.[viii] Even though President Obama admitted in January that the health care deal-making “legitimately raised concerns” about an “ugly process,”[ix] this latest sweetheart deal for unions was not subjected to public scrutiny before being announced.

Speaker Pelosi famously said, “We have to pass the bill so that you can find out what is in it.”[x] Many American small businesses have already expressed strong concerns about what they have found in these rules. Small businesses struggling to control rising premiums find their ability to do so limited, not least because they have little ability to shop around for new policies. Violating any of the restrictive new rules would trigger even higher costs to comply with more federal mandates—again placing small businesses at the mercy of their current insurance companies. This death spiral of increasing costs, which violates President Obama’s pledge to “save a typical family up to $2,500 on premiums,”[xi] could also cause more firms to drop their coverage entirely, placing those additional costs on the taxpayer’s back.

Any way you slice it—bureaucratic mandates, rising premiums, loss of coverage, an economic drag on business—the rules, and the law they are implementing, represent the farthest thing from true reform.

 

[i] Interim final rule by Departments of Labor, Treasury, and Health and Human Services regarding grandfathered health insurance status, released June 14, 2010, http://www.federalregister.gov/OFRUpload/OFRData/2010-15278_PI.pdf

[ii] Interim final rule, Table 3, p. 54

[iii] Ibid.

[iv] Paragraph (a)(1)(ii) of the interim final rule would provide that any “new policy, certificate, or contract of insurance after March 23, 2010 (e.g., any previous policy, certificate, or contract of insurance is not being renewed)” would trigger loss of grandfathered status; see pp. 75-76.

[v] “Small Firms Find Changing Insurance Is Trickier” by Avery Johnson, Wall Street Journal June 23, 2010, http://online.wsj.com/article/SB10001424052748703513604575311013340405940.html

[vi] Ibid.

[vii] Ibid.

[viii] Paragraph (f) of the interim final rule would permit collectively bargained plans to make conforming changes to their plan prior to the end of the last collective bargaining agreement in place as of March 23, 2010, and would be permitted to change plan issuers. The restriction in paragraph (a)(1)(ii) prohibiting a change in carrier would not apply to collectively bargained plans until the last of the collective bargaining agreements in place on March 23, 2010 expires—flexibility not granted to small employers and others purchasing fully insured products. See pp. 81-82 of the interim final rule.

[ix] ABC television interview with Diane Sawyer, January 25, 2010, transcript available at http://abcnews.go.com/print?id=9659064

[x] March 2010 speech, available at http://www.youtube.com/watch?v=hV-05TLiiLU&feature=related

[xi] Obama for America campaign document, “Background Questions and Answers on Health Care Plan,” http://www.barackobama.com/pdf/Obama08_HealthcareFAQ.pdf