NCPA - National Center for Policy Analysis

Saving Jobs from Health Reform's Harmful Regulations

September 20, 2011

While most companies initially hoped they would be able to preserve much of their existing group health plans under the new grandfather provisions in the Patient Protection and Affordable Care Act (PPACA), a survey by Aon Hewitt Consulting found almost all will not.  The administration's own estimates indicate most employers will not be able to maintain grandfathered status, says Grace-Marie Turner, president of the Galen Institute.

The grandfathering rules box employers into a corner.  They cannot make changes, other than minor modifications, to their health plans to keep costs down without being forced to comply with expensive PPACA regulations that increase their health costs.  Unfortunately, health costs are directly related to the creation of new jobs.

  • Higher health costs put additional pressures on the employer's bottom line and increase the cost of hiring new workers, in turn discouraging job creation.
  • This is not good news for the economy or for unemployed workers.

Many people argue that the PPACA's restrictions are necessary to keep employers from cutting benefits or imposing higher health costs onto their employees.  But employees actually pay the price for higher health costs since health coverage is part of employee compensation.

  • A recent RAND study found that most of the pay increases that employees have received over the last 10 years have been consumed by health costs.
  • The study found that the typical family had just $95 a month more to devote to non-health spending in 2009 than they had a decade earlier.
  • By contrast, the authors say that if the rate of health care cost growth had not exceeded general inflation, the family would have had $545 more per month in spendable income instead of $95 -- a difference of $5,400 per year.

It is in the interest of both employers and employees to keep health costs down, and the grandfathering regulations restrict their ability to do that.

Source: Grace-Marie Turner, "Cutting the Red Tape: Saving Jobs from PPACA's Harmful Regulations," Galen Institute, September 15, 2011.

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