At a recent Energy and Commerce hearing, health policy experts testified on the effects Obamacare will have on jobs and employer-sponsored coverage. The title of the hearing said a lot: “Cutting the Red Tape: Saving Jobs from PPACA’s [Patient Protection and Affordable Care Act] Harmful Regulations.”

Since Obamacare will require employers to spend more money on health care plans for their employees, it’s expected to hinder job creation. To avoid this, a discussion draft under review would prevent the regulations and requirements in the new law from affecting grandfathered health plans. This way people could keep their existing plans, and employers wouldn’t experience the rising costs that will result from Obamacare’s requirements for employer-sponsored coverage.

Steve Larsen, Director of the Center of Consumer Information and Insurance Oversight, testified that “[R]egulation gives plans the flexibility to contain costs by ensuring insurers and employers maintain the ability to make some routine changes without losing their plans’ grandfathered status.”

However, Heritage’s research shows that as it stands now, “PPACA itself requires changes in existing coverage. (And)…the regulations that are triggered by the PPACA severely limit what is considered to be existing coverage. And Americans’ anxiety and uncertainty are fueled by the confusing ‘guidance’ that accompanies the regulations.”

One of these burdensome requirements is the medical loss ratio (MLR) imposed on insurers. The MLR requirements have been advertised as a protection for consumers against insurance companies. MLR regulations force health insurers to spend 80 percent of premium revenues on medical claims, costs, or “activities that improve health care quality.” If this minimum requirement is not met, the company must pay a rebate to the premium payer.

During the hearing, Heritage senior fellow Edmund Haislmaier testified that MLR regulations will have severe negative consequences on the insurance market. He explained that MLR regulations will reduce competition amongst insurance companies by diminishing the ability of new start-up health insurers to be successful and pushing existing companies to exit the market. Also, it will encourage insurance fraud, because there will be no incentive to control payment errors—which would reduce the rebates insurers would be required to repay their customers.

In support of MLR regulations, Larsen testified that the “MLR provision is causing insurance companies to more carefully evaluate their need for premium increases, slowing the rate of premium growth and, in some cases, decreasing premiums.” But, as Heritage research shows, there are better ways to encourage cost containment and better value in health insurance that don’t create perverse incentives for insurers or have secondary effects on patients.

Congressman Joe Pitts (R–PA) opened the hearing with a quote from President Obama: “If you like your current plan, you will be able to keep it. Let me repeat that: If you like your plan, you’ll be able to keep it.” But one of the many negatives consequences of the countless new rules and regulations is that this simply won’t be true.

Co-authored by Alyene Senger, a member of the Young Leaders Program at The Heritage Foundation. Click here for more information on interning at Heritage.