Section 1251 of the Affordable Care Act contains what’s called a “grandfather” provision that, in theory, allows people to keep their existing plans if they like them. But subsequent regulations from the Obama administration interpreted that provision so narrowly as to prevent most plans from gaining this protection.
“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,” wrote the administration on page 34,552 of the Register. All in all, more than half of employer-sponsored plans will lose their “grandfather status” and become illegal. According to the Congressional Budget Office, 156 million Americans—more than half the population—was covered by employer-sponsored insurance in 2013.
Another 25 million people, according to the CBO, have “nongroup and other” forms of insurance; that is to say, they participate in the market for individually-purchased insurance. In this market, the administration projected that “40 to 67 percent” of individually-purchased plans would lose their Obamacare-sanctioned “grandfather status” and become illegal, solely due to the fact that there is a high turnover of participants and insurance arrangements in this market. (Plans purchased after March 23, 2010 do not benefit from the “grandfather” clause.) The real turnover rate would be higher, because plans can lose their grandfather status for a number of other reasons.
Five days after these regulations appeared on the Federal Register, President Obama made remarks about the implementation of the ACA and discussed new regulations that would affect private health insurers. :
This long-overdue step has one overriding focus, and that’s looking out for the American consumer. It’s not punitive. As I said when I met with the insurance executives, it’s not meant to punish insurance companies. They provide a critical service. They employ large numbers of Americans. And in fact, once this reform is fully implemented a few years from now, America’s private insurance companies have the opportunity to prosper from the opportunity to compete for tens of millions of new customers. We want them to take advantage of that competition.
Now, what Americans expect in return is a greater level of accountability and fairness and security. We expect to get what we pay for. And these rights guarantee just that -- basic rules of the road that will make America’s health care system more consumer-driven and more cost-effective, and give Americans the peace of mind that their insurance will be there when they need it -- give Amy that piece of mind that her insurance will be there when she needs it.
So, starting in September, some of the worst abuses will be banned forever. No more discriminating against children with preexisting conditions. No more retroactively dropping somebody’s policy when they get sick if they made an unintentional mistake on an application. No more lifetime limits or restrictive annual limits on coverage. Those days are over.
And I’m pleased to say that some insurance companies have already stopped these practices. When news reports indicated that a company was dropping coverage for women diagnosed with breast cancer, my administration called on the industry to end the practice immediately -- don’t wait until September. And soon after, the entire industry announced that it would comply with the new law early and stop the practice of dropping people’s coverage when they fall ill and need it most.
Some also questioned whether insurance companies might find a loophole in the new law and continue to discriminate against children with preexisting conditions. And to their credit, when we called the insurance companies to provide coverage to our most vulnerable Americans, the industry agreed. Those were the right things to do for their consumers, their customers -- the American people. And I applaud industry for that. And we’re going to hold industry to that standard, a standard in which industry can still thrive but Americans are getting a fair shake.
So this is a long-overdue victory for America’s consumers and patients. And yes, it does away with the status quo that some insurance companies have taken advantage of for so long. But insurance companies should see this reform as an opportunity to improve care and increase competition. They shouldn’t see it as an opportunity to enact unjustifiable rate increases that don’t boost care and inflate their bottom line.
And the fact is, some insurance companies tried to raise rates even before we passed the law, even though some of them were making record profits. Earlier this year, for example, more than 800,000 Anthem Blue Cross customers in California opened their mail to see that their premiums would go up by as much as 39 percent. My administration wanted to know why. People’s wages aren’t going up 39 percent, and the company’s expenses didn’t rise by 39 percent. And when pressed, they took a look at it and said, well, our math was wrong; we didn’t justify that kind of rate increase. So they withdrew it.
The point is that there are genuine cost-drivers that are not caused by insurance companies. But what is also true is we’ve got to make sure that this new law is not being used as an excuse to simply drive up costs. So what we do is make sure that the Affordable Care Act gives us new tools to promote competition, transparency and better deals for consumers. The CEOs here today need to know that they’re going to be required to publicly justify unreasonable premium increases on your websites, as well as the law’s new website -- healthcare.gov. As we set up the exchanges, we’ll be watching closely, and we’ll fully support states if they exercise their review authority to keep excessively expensive plans out of their insurance exchanges.
None of this is designed to deprive insurance companies of fair rates. And as I mentioned when we were meeting with the CEOs, there are a lot of cost-drivers other than those that are within insurance companies’ control.
But it is important to have these steps in places to protect consumers from unjustifiable rate increases. In fact, many states are already exercising their review authority. We’re already seeing a wave of change that’s lifting up consumers and leveling the playing field. Maine rejected a proposed 18 percent rate hike there. Pennsylvania is investigating premium increases made by nine of the state’s largest insurers. New York recently passed a law granting the state the authority to review and approve premium increases before they take effect. And we’re working with other states and the state insurance commissioners here today to support similar efforts. Secretary Sebelius has urged them to investigate other rate hikes. We’ve set up a new Office of Consumer Information and Insurance Oversight to help. And we’ll provide grants to the states that run the best, most innovative oversight programs to protect their consumers.
And beginning next year, insurance companies will be required to spend at least 80 or 85 percent of health care dollars where they should be spent -- on health care and on efforts to improve its quality. Not on profits, not on bonuses, not on administrative costs that don’t make people healthier.
Ultimately, all these reforms are about more than just ending a dangerous status quo. They’re about offering stability and security to Americans who need it. Now, we’re in Washington, so obviously there’s politics involved. And I’ve got some folks on the other side of the aisle that still think none of this should happen and, in fact, have said they’re going to run on a platform of repeal. They want to go back to the system we had before.