Three-quarters of employer plans already compliant with the ACA?

PunditFact logo“[T]he International Foundation of Employee Benefit Plans … found that about three-quarters of all employer-sponsored health plans already meet the criteria of the Affordable Care Act.”

—PunditFact, Nov. 20, 2013

 

Overview

PunditFact, the pundit-checking branch of PolitiFact, misuses a 2013 survey by the International Foundation of Employee Benefit Plans to help excuse insurance plan cancellations under the ACA.

The Facts

The cancellation of hundreds of thousands of health insurance policies, occurring as the Affordable Care Act’s individual mandate goes into effect, has spurred plenty of finger-pointing among politicians and pundits. Fact checkers have tried to sort out the competing claims.

PolitiFact’s offshoot PunditFact, which concentrates its efforts on pundit statements, weighed in with a repeated claim that most employer-based group policies already meet ACA criteria. The claim appeared in fact checks of Glenn Beck and Sean Hannity, and was later repeated in a summary article by PunditFact editor Aaron Sharockman:

According to [the American Enterprise Institute], a conservative think-tank that has opposed the health care law, businesses will see their policies canceled starting next year because of new minimum health care standards.

… The AEI claim … seems to dismiss a 2013 survey by the International Foundation of Employee Benefit Plans, which found that about three-quarters of all employer-sponsored health plans already meet the criteria of the Affordable Care Act.

 

PunditFact went on to assert the survey means less than 26.4 percent, or 38 million, of the people covered under an employer’s group plan would have their policies cancelled in 2014 as a direct result of the ACA.

Analyzing the Rhetoric

What does the International Foundation of Employee Benefit Plans report about its survey? We struggled to match PunditFact’s reading to some part of the survey report, and asked the PunditFact team what part of the report justified its claim that most employer-sponsored health plans meet ACA criteria already.

We received no response from PunditFact, but combed the report for evidence that might support PunditFact’s claim.

Most responding organizations report their plans meet the recently proposed minimum value (81%) and affordability (74%) requirements.

 

Was this the key supporting evidence? After some research we decided it was.

No “essential health benefits” required of large employers

Essental Benefits Healthcare.govThe ACA does not require large group plans to offer the same essential health benefits package required of individual and small group plans.  Meeting the minimum value and affordability requirements isn’t too hard all by itself.  But the 2013 IFEBP survey included responses from some employers with under 50 employees.  Those smaller employers face a higher set of insurance requirements than the larger employers, though at the same time small businesses with fewer than 50 employees are not subject to the ACA’s employer mandate.

So employers meet the ACA’s requirements to a large extent simply by meeting two standards.  First, plans must pay at least 60 percent of the expected costs of medical services for the plan population.  Second, the annual premium cost for employees (for self-coverage) must not exceed 9.5 percent of annual household income.

These two goals come more cheaply than the ACA’s mandate for essential health benefits, though group plans must meet some new standards that add to employers’ costs.  The IFEBP survey asks employers how they expect the ACA to affect their costs.

IFEBP exhibit 11-expected employer costs

 

Nearly 41 percent of the surveyed group—those who stated they were unsure about costs were excluded—said they expected the ACA would increase their costs at least 5 percent.

Who gets cancelled?

Insurance companies cancelled individual and small group policies this year because the ACA added new requirements, the “essential benefits package,” that many plans do not meet.  The law prevents companies from offering those plans unless the plans have grandfathered status.  Plans may keep grandfathered status if the benefits do not change and changes to cost-sharing (co-pays and coinsurance) occur only within tightly regulated limits.

As noted above, large group plans need not provide the essential benefits package regardless of grandfathering.  Large group plans must insure dependent children through age 26, and must provide HHS-mandated preventive care with no cost sharing.  Employers with 50 or more employees also need to offer insurance to all full-time employees or else face a penalty starting in 2015, in accordance with the executive branch’s decision to delay the employer mandate.

PunditFact says that compliance with the minimum value and affordability requirements means employees are unlikely to lose their insurance plans.  But the assertion is groundless.

If large employers were newly required to offer employees insurance covering the essential benefits package and had already cleared that hurdle looking forward toward 2015, then PunditFact’s reasoning would make sense.  But the changes coming for large employers are much different from those we’re seeing in the non-group and small group markets this year.

The insurer AETNA describes one of the possibilities that would alter an employee’s insurance plan:

And what about benefit strategies? Instead of the traditional method where employees choose from a set of health plans, employers might consider giving their employees money to buy a plan on a private exchange.

 

Employers will make these types of changes regardless of their compliance with the minimum value and affordability requirements.  They will make these types of decisions to save money given that the ACA increases their costs.

Who gets cancelled?  Companies are likely to start paring down “Cadillac” health care plans in anticipation of the excise tax on those plans starting in 2018.  Companies experiencing high cost increases will consider changes to their health plans to help cut costs.

Is this a direct result of the ACA?

Where multiple causes exist, we cannot definitively call the ACA the direct cause of changing or dropping insurance policies.  On the other hand, to the extent that the ACA increases costs on employers and employers react by finding cheaper ways to offer health insurance to employees, the ACA is a direct cause even if not the only cause.

The meaning of the 2013 International Foundation of Employee Benefit Plans survey

The 2013 survey from the International Foundation of Employee Benefit Plans does mean that about three-quarters of employer plans are compliant with the ACA.  But it doesn’t follow that such policies are safe from the risk of policy cancellation.

Cancellations next year will come from insurance companies terminating non-compliant plans and from employers changing insurance plans in response to the ACA.

The survey shows over one-third of employers are now acting to bring their plans into compliance with the ACA:

More than one-third describe their status as implementing changes to make health plan(s) compliant or developing a multiyear approach to dealing with the reforms (38.7% and 38.5%, respectively).

 

Why are 38.7 percent of employers changing their plans to make them ACA-compliant if over 74 percent are already compliant?  Why didn’t PunditFact consider this question?

The administration’s estimates of lost grandfathered status

PunditFact has the germ of a legitimate point about the administration’s estimates for insurance plans losing grandfathered status:

[B]ack in 2010, analysts from three federal departments, Labor, Health and Human Services and the Internal Revenue Service, looked at the number of employer-based plans that would change to the point that they would lose their grandfathered status.

But that study did not try to account for a very common situation — plans that changed, but already met the new health care law’s standards.

 

PolitiFact uses the 2013 International Foundation of Employer Benefit Plans survey to support its point. This is the wrong approach.

The administration’s estimates do not explicitly account for plans that might meet the ACA’s standard to the point they would not need grandfathering. But the IFEBP survey does not contain any measurement of that. There’s no reason to discount the government’s estimates based on the IFEBP survey. The government estimated the loss of grandfathered status as high as 69 percent by 2013. The IFEBP survey estimates the loss at about 73 percent by 2013.

But here’s a potentially valid point: The ACA may force changes to a plan that are fairly minor. Employees may not notice much of a difference.

Right now, we don’t know to what extent changes to employer-based plans will disrupt the market when the employer mandate goes into effect. Plans are likely to change, but premiums may not change much compared to what we’re observing for the non-group insurance market.

It’s not the ACA’s fault that plans change. That’s normal. But at the same time the ACA is forcing extensive changes in health insurance coverage and making it difficult for plans to keep their grandfathered status.

The 2013 IFEBP survey touches on one set of major changes:

Starting in 2018, ACA imposes a nondeductible excise tax on employers with high-cost health plans.5 High-cost plans are defined as any health-related coverage in which combined employer/employee premiums exceed $10,200 for single coverage or $27,500 for family coverage.6 While the 2018 deadline is several years away, Exhibit 26 shows that 16.8% of responding organizations have already started to redesign their primary health plan to avoid triggering the 2018 tax. More than twice as many (40%) are considering action. Exhibits 27 and 28 show there has been a steady increase in organizations redesigning their health plans to avoid triggering the excise tax since 2011, and larger organizations are more likely to be taking this action.

 

Change is coming, and the ACA is driving it.

The AEI claim

Recall that PunditFact charged the American Enterprise Institute with failing to consider the strong state of current compliance with ACA standards. Here’s the AEI claim:

A new and independent analysis of ObamaCare warns of a ticking time bomb, predicting a second wave of 50 million to 100 million insurance policy cancellations next fall — right before the mid-term elections.

The next round of cancellations and premium hikes is expected to hit employees, particularly of small businesses.

 

PunditFact extrapolated the 2013 IFEBP survey to estimate 112 million of the 150 billion receiving insurance through an employer were safe from having their policies cancelled. Using the number surveyed who said they were working on bringing insurance plans into ACA compliance (38.7 percent) that number shrinks to 97.5 billion without even considering other factors such as changes to “Cadillac” health plans. There’s ample room for AEI’s low-end estimate of 50 million losing their insurance policies and no reason to discount its upper-end estimate of 100 million.

Summary

“[T]he International Foundation of Employee Benefit Plans … found that about three-quarters of all employer-sponsored health plans already meet the criteria of the Affordable Care Act.”

True Statement Texas sharpshooter fallacy icon

PunditFact’s claim is technically true, given that almost 75 percent of those surveyed said their plans met the ACA’s affordability requirement and an even higher percentage met the value requirement.  But PunditFact doesn’t explain enough for most readers to understand the standards, and the requirements aren’t the whole story.  PunditFact reasons incorrectly that meeting those requirements makes it likely those plans will evade cancellation as a result of the ACA.  The IFEBP survey provides plenty of evidence showing many employers with supposedly compliant plans will change or even drop them in response to the ACA.

PunditFact’s use of the compliance statistic counts as an example of the “Texas sharpshooter” fallacy.

“The AEI claim … seems to dismiss a 2013 survey by the International Foundation of Employee Benefit Plans.”

True Statement red herring fallacy icon Texas sharpshooter fallacy icon

The AEI rightly refrains from considering the 2013 survey by the IFEBP. That survey, interpreted correctly, does nothing to contradict the AEI claim. Compliance with the ACA’s standards for affordability and value does not offer any sure protection against cancellation of a health insurance policy. PunditFact’s flawed reasoning leads it to an improbably low estimate for group plans likely to change in ways contradicting President Obama’s “you can keep it” pledge.

In terms of logic, the irrelevant and incorrect conclusion about a safe harbor for compliant insurance plans counts as a red herring fallacy.  The unsupported assertion harms AEI’s argument with distraction instead of substance.  The red herring echos the Texas sharpshooter fallacy described above.

Afterword

It’s worth emphasizing that PunditFact does a very poor job of making clear that the ACA does not require large group plans to provide the ten essential health benefits mandated for individual and small group plans.

 

References

Greenberg, Jon. “Glenn Beck Says Barack Obama Knew That 50% of Americans Would Lose Health Insurance.” PolitiFact PunditFact. Tampa Bay Times, 6 Nov. 2013. Web. 25 Nov. 2013.

Greenberg, Jon. “Sean Hannity Says Government Predicted Massive Loss of Health Care.” PolitiFact PunditFact. Tampa Bay Times, 13 Nov. 2013. Web. 25 Nov. 2013.

Sharockman, Aaron. “Confused about the Health Care Law? We Can See Why.” PunditFact. Tampa Bay Times, 20 Nov. 2013. Web. 25 Nov. 2013.

Glossary: Minimum Essential Coverage.” HealthCare.gov. U.S. Centers for Medicare & Medicaid Services, n.d. Web. 26 Nov. 2013.

Glossary: Essential Health Benefits.” HealthCare.gov. U.S. Centers for Medicare & Medicaid Services, n.d. Web. 25 Nov. 2013.

Glossary: Minimum Value.” HealthCare.gov. U.S. Centers for Medicare & Medicaid Services, n.d. Web. 25 Nov. 2013.

Glossary: Affordable Coverage.” HealthCare.gov. U.S. Centers for Medicare & Medicaid Services, n.d. Web. 26 Nov. 2013.

Why Health Law’s ‘Essential’ Coverage Might Mean ‘Bare Bones’KHN: Kaiser Health News. Henry J. Kaiser Family Foundation, 26 Aug. 2013. Web. 26 Nov. 2013.

Cauchi, Richard, and Steve Landess. “Small and Large Business Health Insurance: State & Federal Roles.” Small and Large Business Health Insurance: State Roles. National Conference of State Legislatures, 20 Oct. 2013. Web. 26 Nov. 2013.

ACA Provisions 2014: Impacts To Large Groups.” AETNA.com. Aetna Inc., n.d. Web. 26 Nov. 2013.

Emanuel, Mike. “Second Wave of Health Plan Cancellations Looms.” AEI.org. American Enterprise Institute for Public Policy Research, 20 Nov. 2013. Web. 25 Nov. 2013.

Mrkvicka, Neil, Justin Held, CEBS, Julie Stich, CEBS, and Kelli Kolsrud, CEBS. “2013 Employer-Sponsored Health Care: ACA’s Impact.” IFEBP.org. International Foundation of Employee Benefit Plans, 2013. Web. 25 Nov. 2013.

Paragon Benefits, Inc. “PAY OR PLAY? Navigating the Health Care Reform Mandates.” GSGA.org. Georgia State Golf Association, 2013. Web. 25 Nov. 2013.

Curtis, Gary N. “Equivocation.” Fallacy Files. Gary N Curtis, n.d. Web. 25 Nov. 2013.

Employer Responsibility.” Health Law Guide For Business. Health Law Guide For Business, n.d. Web. 25 Nov. 2013.

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