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Health Care Plans, Waivers, Choice?

Diana Furchtgott-Roth
Real Clear Markets
October 14, 2010

The Department of Health and Human Services celebrated the six-month "anniversary" of enactment of the new health care law by granting waivers of its requirements to 30 companies, covering almost a million workers, so that those companies can keep their insurance plans going for another year.

President Obama promised in 2009, when the Patient Protection and Affordable Care Act was being debated, "If you like your health plan, you can keep it."

Maybe not. You can't keep your plan if your employer or your insurance company drops it.

That‘s where the waivers come in. Because the terms of the new law drive up insurers' costs, premiums are becoming more expensive, and companies are considering whether to drop plans. The Obama administration decided to grant 30 waivers in September, presumably in part to avoid the embarrassing spectacle of the widespread disappearance of private plans less than a year after the new law was enacted and just before the midterm elections.

The 30 plans that received waivers include several unions (the United Federation of Teachers, the International Longshoremen's Association, the Transport Workers, the Maritime Association), fast food chains (McDonald's, Jack in the Box, Denny's), and some insurance companies (Aetna, Cigna, and Blue Cross).

The waivers give the government substantial powers to discriminate between companies at the discretion of politically-appointed officials. This could be used to attack companies that do not support the government. This converts American from a country ruled by law to one ruled by politicians-the beginning of the end of the rule of law.

Coincidentally, or not, the largest group of workers benefiting from the latest waivers, 351,000 (36% of the total), belong to a plan run by the United Federation of Teachers, the New York affiliate of the American Federation of Teachers. AFT has given over $28 million dollars over the past 20 years and $2 million this election cycle to Democratic candidates, according to the Center for Responsive Politics.

Whether true or not, the perception that contributions affect waivers is unhealthy, and the ability of politicians to pick and choose between companies invites cronyism and corruption.

Many plans receiving waivers offered low-cost, low-benefit coverage. One plan offered by McDonald's has a $14 weekly premium that covers up to $2,000 worth of benefits a year.

Sponsors of the plans needed waivers because, to comply with the new law, plans must offer at least $750,000 of coverage in 2011, $1.25 million in 2012, $2 million in 2013, and unlimited coverage from 2014. Such plans would require higher premiums than the $14 that some McDonald's employees pay each week. But if plans become more costly, McDonald's employees might not be able to afford them.

The waivers are for one year. But the cost of insurance will only rise next year as required coverage expands, and McDonald's employees, and millions of others, will be less able to afford the higher premiums the underwriters will charge to cover their higher costs. What will the administration do then?

Chances are, it will extend waivers again, perhaps through 2014, well after President Obama's expected try for a second term in 2012. Moreover, by 2014, the new health care exchanges will be in place, where low-income people will be able to purchase coverage at rates subsidized by taxpayers, for people with incomes up to 400% of the poverty line. At that point, employers may drop health insurance altogether and leave employees to state health exchanges.

Waivers would also be required for "catastrophic" health plans, whereby people insure against major expenses such as strokes and broken limbs, and pay for routine care out of pocket or from tax-free savings accounts. Such plans have been shown to lower the costs of health care because they encourage people to shop around for the best deals for routine health services.

The new health care bill will drive up costs and premiums in several ways. From 2014, not only will plans cover an unlimited amount of care, but they must accept everyone who applies. The penalty for not having health insurance is the greater of $750 or 2% or income a year for an individual, so some people may wait to sign up for insurance when you get sick.

Other elements of the required benefit package will drive up costs - dental and vision care for children, mental health and substance abuse services, no copayments for routine care, and coverage of adult children up to age 26 on parents' plans. But none will raise costs-and premiums-as much as having to take anyone who applies, regardless of medical history, with no dollar cap on coverage.

That's why many employers will be tempted to drop plans, and, instead, pay the required $2,000 annual penalty for each employee. It will be simpler and cheaper. In April, AT&T, Verizon, Caterpillar, and Deere told the House Energy and Commerce Committee that they would save billions of dollars by dropping their health care plans.

Douglas Holtz-Eakin, president of American Action Forum, has estimated that the new law would encourage companies to drop health insurance for 35 million workers.

Similarly, Families USA has just issued a new study showing that 29 million low-income Americans will qualify for the new taxpayer-financed government health care credits, far more than forecast when the bill was pending, driving up the law's costs.

With companies dropping plans and more Americans using state health care exchanges, some people will lose their current health care-even if they like it-and the federal deficit will soar. Instead of saving $143 billion over ten years, as forecast by congressional score-keepers, Mr. Holtz-Eakin estimates the law will lose $554 billion over the next decade, and $1.4 trillion in the decade after that.

The 30 waivers are the canary in the coal mine, the first tangible sign that Americans' present health insurance plans are not compatible with the new law. Whichever party controls the next Congress, either the health plans will have to change or the new law must be amended.

Diana Furchtgott-Roth is a contributing editor of RealClearMarkets, an adjunct fellow at the Manhattan Institute, and a columnist for the Examiner.

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