The Impact Of The Health Care Law On Corporate Budgets
How will President Barack Obama's signature health care reform law (the Patient Protection
and Affordable Care Act) impact the budgets of America's corporations? That is a question that many people in organizations have been trying to answer since the legislation was passed in 2010. The answer is: it's complicated and it depends on the size of the business. Also, many of the decisions about how the law will be implemented have yet to be made.
Another factor is the upcoming U.S. Supreme Court decision. In the 2011-12 Supreme Court term, the body will hear arguments that some parts of the law are unconstitutional. However, the Court is unlikely to strike down the law as a whole, so some of its provisions will probably still stand.
Larger Businesses: Larger companies with 50 or more employees may experience the law's biggest impact due to its "pay or play" employer responsibility design where companies will have to determine whether or not they will offer adequate health coverage or pay a penalty. A recent Financial Executives Research Foundation (FERF) study on "Health Care Reform and its Effect on Corporate America" found that while 46 percent of the senior financial executives surveyed expected the law will cause them to make structural changes to their company's health care benefits, 34 percent did not yet know what the impact would be.
Starting in 2014, large companies will pay a $2,000 penalty for each full-time worker who gets a public subsidy to buy insurance individually. The Congressional Budget Office (CBO) believes that relatively few companies will choose the route of dropping coverage; CBO projects that only 3 million workers will lose their employer-sponsored health care because of the law's requirements.
In the meantime many large businesses are already feeling the effects of the new law. Companies such as The Boeing Co., Caterpillar Inc. and Deere & Co. have warned that they will take income tax hits of $100 million to $150 million because of the new law.
Larger companies with many low-wage employees will also face substantial changes from the law as they will need to provide acceptable health insurance or face penalties. Already companies such as McDonald's Corp. have reportedly petitioned the Department of Health and Human Services (HHS) for permission to continue offering the so-called "mini-med" policies, which offer limited benefits that cap at $2,000 a year - to their workers. PPACA's provisions require that in 2011 companies must offer policies with much higher caps, and the law will phase out these annual dollar limits all together by 2014. But HHS granted permission to more than 1,000 companies to continue offering the mini-meds. While some companies hoped HHS would continue to offer these waivers indefinitely, the Centers for Medicare and Medicaid Services (CMS) this year issued guidance that after Sept. 22, no new applications for these waivers would be considered.
It is unclear what companies with many low-paid workers will do otherwise. Some experts do not believe these companies will find the resources to cover insurance for these employees and worry that larger corporations may reduce their workforces. They may also stop offering insurance altogether, pushing those workers into state health insurance exchanges.
Small Businesses: Because of their size, the new health care law stands to have a more profound influence on small businesses. Many provisions in the law are designed to offset the negative effects and address issues that small businesses currently have with health insurance. The law provides for an exemption from the employer responsibility requirements for those employers with less than 50 employees, meaning that these small businesses will not be penalized for not providing adequate health coverage. Instead, small companies can receive tax credits to offset the cost of paying for employees' health care. In 2011, the tax credits can be up to 35 percent of the total cost, but the amount rises to 50 percent in 2014. The tax credit is available to companies with fewer than 25 full-time employees who pay an average salary of less than $50,000 annually. In order to benefit from the tax credit, the company must also pay for at least half of its employees' premiums.
In addition, beginning in 2014, companies with 100 or fewer workers will be able to participate in health insurance exchanges that will pool small businesses' buying power. CBO projects that these exchanges will create lower administrative costs for the companies and will reduce the cost of premiums by 1 percent to 4 percent. Furthermore, the new law will prohibit insurance companies from raising premiums for employers who have one very sick worker or from refusing insurance to employees with preexisting conditions.
by: Liliana DeVita
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