Large businesses that pay out of pocket for their health care benefits
do not have to comply with all the requirements of the new health
reform law but to be eligible for this exemption they must keep the
health plan they had as of March 23.

Many employers, however, are choosing to change their plans rather
than maintain their so-called grandfathered status. The reason, of
course, are rising health care costs.

These findings are in a report published last week by the National
Business Group on Health. The Washington, D.C., employer coalition
released its report just as businesses are gearing up to offer health
plans to their employees. It also comes about a month ahead of the
Kaiser Family Foundation's annual report on health benefit cost
trends.

Rising health care costs-about 8.9 percent for 2011 compared to an
average of 7 percent for 2010-is nothing new. Those estimates reflect
similar ones made earlier this year. After a few years of slight
leveling, health care inflation is once again on the rise.

The new health care law of course is changing the way employers do
benefits. To comply with the law, about 70 percent of employers
surveyed will have to remove caps on the amount of health care an
employee is entitled to, 40 percent will have to lift annual caps and
13 percent will have to remove clause denying or limiting coverage to
children under 19 with pre-existing conditions. These are requirements
that all plans must abide by.

But some changes are, strictly speaking, optional. Self-insured
employers can maintain the plans they have. This was the pledge
President Barack Obama made when he told Americans "you can keep the
insurance you have." But grandfathered status appears to be almost
meaningless. It essentially only allows employers to offer the
benefits they currently offer employees or make them more generous.

The government allows employers to make modest changes but the list of
"cannots" is so and the list of benefits so short (grandfathered plans
are not required to offer free preventive care) it makes little sense
for employers to choose grandfathered status. (For a fuller
explanation of the pros and cons of grandfathered plans click here.)

No surprise, then, that 53 percent of employers are choosing to change their plans and comply with the new law rather than maintain their current plan design. As more employers grasp the limitations of grandfathered status more will surely opt out of this over-hyped and under-delivered exemption.

One of the bigger changes affecting health plans, and one we've written about here and here, is how health care reform might motivate businesses to introduce health plans with higher deductibles. The survey said 61 percent of businesses will offer consumer-directed health plans, which have high deductible and health savings accounts. Twenty percent will make it the only plan they offer, up from 10 percent just last year.

The full report is here.