President Obama's promise "if you like your health plan you can keep it" is bumping up against reality.
Just in time for the mid-term elections, the Department of Health and Human Services has issued waivers of the new law to 30 companies, covering almost a million workers, so that companies can keep the plans for another year.
In order to comply with the new health care law, plans are becoming more expensive, and companies are considering whether to drop them. You can't keep your plan if your insurance company drops it.
The 30 companies that received waivers from the Health and Human Services Department include several union plans (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 insurance companies (Aetna, Cigna, Blue Cross).
These companies offer low-cost, low-benefit plans. One plan, offered by McDonald's, had a $14 weekly premium that covered up to $2,000 worth of benefits a year.
Such "mini-med" plans, as they are known, are not permitted under the new law, hence the need for a waiver. Plans must offer at least $750,000 in 2011, $1.25 million in 2012, $2 million in 2013, and an unlimited amount from 2014 onward. These plans require higher premiums.
Neither does the new law permit catastrophic insurance plans, where people insure against major expenses such as cancer and heart attacks, 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.
It's easy to see from the new health care bill why the cost of health insurance is going to rise. From 2014, not only will plans cover an unlimited amount of care, but no copayments will be allowed for routine care. Plans must take everyone who applies, and include dental and vision care for children, and mental health and substance abuse services.
No one knows precisely how high costs will go for these Cadillac plans, but everyone would have to pay more. Since plans will have to accept everyone, regardless of health or pre-existing conditions, people won't even have an incentive to stay healthy.
That's why some companies are going to be tempted to drop their plans and, instead, pay the $2,000 penalty per year. In April, AT&T, Verizon, Caterpillar and Deere provided evidence to the House Energy and Commerce Committee that they would save billions of dollars by dropping their health care plans.
Doug Holtz-Eakin, former Congressional Budget Office director and president of American Action Forum, has estimated that the new law would encourage companies to drop health insurance for 35 million workers.
Families USA has just issued a new study, by state, showing that 29 million Americans will qualify for the new government health care credits, far more than forecast, driving up the costs of the law. The state-specific numbers range from 3.5 million Californians, 400,000 Marylanders, to 42,000 residents of Washington, D.C.
With companies dropping plans and more Americans on the state health care exchanges, Americans will lose their current health care -- even if they like it -- and the deficit will soar. Instead of saving $143 billion over 10 years, as forecast by CBO, Holtz-Eakin estimates the law will lose $554 billion over the next decade, and $1.4 trillion the decade after that.
Rather than granting waivers to 30 companies for one year, the Health and Human Services Department should save time and simply grant waivers to all companies indefinitely. Then will Americans truly be able to keep their plans if they like them.
Examiner Columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.