While much is still not known about what the full impact of federal health care reform will be for employers and consumers, two things are certain: More people will have health care coverage, and costs will increase. Those are the findings in a report issued in April by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary. CMS is part of the U.S. Department of Health & Human Services, and its Office of the Actuary serves as an independent technical advisor to the administration and Congress.
And although the prospect of fewer uninsured is heartening to the business community, the threat of higher costs is terrifying as businesses are already struggling to make ends meet with already extremely high health care costs.
Overall cost impact
The CMS report estimates that as a result of the newly enacted health care reform bill, U.S. health care expenditures will increase by $311 billion during the 2010 to 2019 period. That increase is primarily due to (1) greater utilization of health care services by newly covered individuals, (2) lower reimbursement rates paid to providers for individuals who become covered by Medicaid, and (3) lower payments and payment updates for Medicare services.
As a result, the report estimates that about 15% of providers will become unprofitable and may find it necessary to end their participation in Medicare. Since Medicare and Medicaid are already severely underfunded, any further payment reductions will force providers to increase what they charge to private payers.
Businesses must take note of these lower reimbursement rates since the private sector already picks up much of the current underfunding of Medicare and Medicaid. And from the looks of it, this cost-shifting will likely get worse under the new federal law, driving up private sector costs even higher.
Business impact: fees & taxes
The new federal law also imposes new taxes and fees that will increase costs for many individuals and businesses. Some of these take effect well before the new federal health insurance programs begin in 2014. As a result, businesses and individuals will soon see higher taxes and insurance premiums without the promised benefits of the legislation.
Many businesses including LLCs, LPs and LLPs that pay their taxes through the personal income tax rather than the corporate income tax will see their taxes go up as a result of the increases in the Medicare Hospital Insurance tax.
Additional new cost drivers include collective annual fees on health insurers and manufacturers and importers of brand-name prescription drugs. In both cases, the additional costs associated with them are expected to be passed onto to businesses and other consumers. And the law also imposes a 2.3% excise tax on medical device manufacturers and importers.
The new law also imposes a “play or pay” mandate on employers with 50 or more employees who work 30 hours or more per week.
Similar measures have been proposed and defeated in Connecticut in the past and CBIA has argued that such funding schemes simply raise health care costs for employers and make the state less competitive.
However, that is now a moot point since under the new federal law it’s the law of the land.
Starting in 2014, employers with 50 or more full-time employees will be penalized if (1) they do not offer their employees “affordable” health coverage and (2) at least one of their employees purchases government-subsidized insurance coverage through one of the new state-based health insurance exchanges that will be created under the new law. An affordable health plan would be one in which an employee’s contribution does not exceed 9.8% of his or her household income and pays for at least 60% of covered health care expenses. Such a plan would also have to meet minimum requirements for services covered.
Employers with 50 or more full-time employees who do not offer health insurance at all and have at least one employee who purchases coverage from an exchange will be assessed an annual penalty of $2,000 per full-time employee minus the first 30 employees. (An employer with 50 employees would thus pay $40,000 in annual penalties.)
Employers who do offer insurance but whose plans do not meet the minimum requirements for affordability or coverage will also be penalized, though not as steeply as those who offer no health insurance. The CMS report estimates that from 2014 to 2019, employer penalties will total $87 billion.
So, where does that leave us? Well it leaves us with both positive prospects (fewer uninsured) and negative prospects (higher costs).
The most troubling concern is considering that health care consumers (individuals and businesses alike) are already near the end of how much they can afford, what will these higher costs mean? It is very likely that they could mean both groups begin to drop coverage if the penalties for dropping coverage are less than the cost of the coverage.
If employers drop coverage, then their employees could begin to purchase insurance through the new government exchanges. With the new payment obligations this would mean for the government, this would likely lead to even lower Medicare and Medicaid reimbursements for doctors and hospitals – and that would mean even more cost-shifting onto the private sector.
So, the end result could be debilitating cost increases for the private sector, the ultimate erosion of private insurance and higher premiums and taxes in order to pay for the new government-run system.
That should catch everyone’s attention.
Eric George is associate counsel at CBIA, the state’s largest business organization. He represents business views on health care issues, including reducing health care costs and increasing access to quality health care. He serves on several legislative and administrative panels and councils dealing with health care policy.