Robert Samuelson November 26, 2013

President Obama’s broken promise that people can keep their existinghealth insurance is much larger than we’ve been led to believe. Untilnow, attention has focused on the individual insurance market: peoplebuying coverage for themselves and their families from insurancecompanies. Policies have been canceled because they don’t comply withthe Affordable Care Act (ACA). But the individual market is small, representing about 5 percent of the non-elderly population. But cancellations, under today’s law, will ultimately spread to the largest insurance market: employer-provided coverage.

So Chapter Two of the broken promise looms. In 2012, 171 million Americans received health insurance from their employers, reports the Census Bureau. This dwarfs Medicaid(51 million) and Medicare (49 million), the next largest sources. Giventhe ACA’s complexity, it’s hard to know how many Americans with employer coverage might be hit with policy cancellations. But plausibleassumptions suggest between 25 million and 50 million, mostly at smallfirms.

Just because policies are canceled, of course, doesn’tmean people lose insurance. Gary Claxton of the Kaiser Family Foundation says that modest modifications — presumably at some extra cost — mightbring many plans into ACA compliance. Still, it seems increasingly clear that the ACA was sold on a premise that simply isn’t true.

The debate’s tenor was that the coverage mandated by the law would be an add-on to the status quo. As the president said, “If you like your plan, you can keep your plan.” The pledge was not a one-time exaggeration but a regular part of the administration’s pitch.

The White House faced a dilemma. On the one hand, it didn’t want to scarepeople satisfied with their insurance; they had to be reassured. On theother, it wanted to define some basic level of “essential benefits”provided by insurance; otherwise, individuals and firms could buy flimsy policies to comply with the law’s insurance mandates. So, for example,the ACA imposes an upper limit on patient deductibles: $2,000 for single coverage, $4,000 for a family. Policies with higher deductibles generally would not comply with the ACA.

But the goals collide: The stricter the standards for mandated coverage,the harder it becomes for existing policies to comply — and the morelikely they’ll be canceled. That’s now happening in the individualmarket. For legal reasons, most potential cancellations in the employermarket are probably at least a year away.

The employer marketdivides into two parts. Most big firms (the IBMs, Procter & Gambles) self-insure. They define workers’ benefits and pay the costs directly.The ACA largely exempts these plans from the “essential benefits”standards on the apparent assumption that the plans are generous. Whenthe president said people wouldn’t lose their existing coverage, he wasprobably referring to self-insured firms. About 60 percent of workerswith employer-provided insurance receive it from these companies,according to government figures.

The other 40 percent get it frommostly smaller firms that buy coverage from insurance companies. The ACA “grandfathered” policies that existed when the law was passed. Peoplecould (as Obama promised) keep those plans, even if they didn’t meet the law’s standards. But there was a big catch that largely nullifies thisprotection: Minor changes to existing policies would cause firms to lose their “grandfathered” status. Not surprisingly, that’s happened. In2014, perhaps three-quarters of small firms (fewer than 100 workers)will no longer be grandfathered, estimates economist Stan Veuger of theAmerican Enterprise Institute, a conservative think tank.

How many people might be affected by cancellations is unclear. Veuger’s estimate of vulnerable firms implies a maximum of about 50 million workers anddependents, but it could be much lower. Still, even half of that wouldbe a lot. Cancellations won’t hit immediately, because theadministration allowed firms to renew existing policies through most of2014. Interestingly, though the ACA doesn’t require firms with fewerthan 50 full-time workers to provide insurance, they must comply withthe ACA’s standards if they do buy it. This might cause some firms todrop coverage.

Embarrassed by cancellations in the individualmarket, the White House has urged states — which approve insurancepolicies — to allow old policies to be renewed for another year. It hasalso requested a further extension of existing policies in thesmall-employer market. Most states are considering the requests.Meanwhile, it’s an open question whether the ACA would have been enacted if its supporters had acknowledged that millions of Americans couldn’tkeep their old plans.

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