While every small business will now be able to offer health care to employees, many also see the gateway to higher costs and a race to comply with new requirements.
Nearly two weeks after President Obama signed a sweeping new health care law, which seeks to eventually provide insurance coverage for 32 million previously uninsured Americans, many manufacturers are left with a bevy of questions. How does it affect business? In what ways and when will manufacturers start feeling its effect? What are its long-range implications?
Many of those answers won't be known for years, say several experts. But the most significant change the legislation brings is an extension of coverage to millions of new uninsured Americans through the expansion of Medicaid and establishing new federal health insurance premium subsidies.
"I think it's a bit too early to quantify the financial impact for manufacturers," says Mark Armstrong, a health care attorney practicing in the health and life science practice group for Washington, D.C., firm Epstein Becker & Green. "But I think it's going to have a significant impact upon benefits they provide to their employees and their retirees."
Companies are faced with a January 1, 2011, deadline to offer health care plans that extend coverage to employees' adult children up to age 26, while also eliminating lifetime dollar limits and removing pre-existing condition exclusions for children up to the age of 19.
There is also a scramble for many companies to take advantage of a one-time program that reimburses employers for 80% of each claim between $15,000 and $90,000 for health care plans covering retirees age 55 to 64.
Another hot-button issue within the health care law is a provision affecting employers offering prescription drug coverage that is at least equal to Medicare Part D and Medicare-eligible retirees. As originally written in the 2003 law, those employers are eligible for tax-free government reimbursement up to 28% of prescription drug expenses. The new health care law, however, negates the value of that tax break beginning in 2003.
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"There will be a major blow to companies from a financial standpoint and I'm not sure if anyone's convinced it will reduce the costs for health care in short- or long-term," says Barry Sloane, chief executive of Newtek Business Services, which provides loans and business services to medium-sized companies.
According to Armstrong, many companies are going to have to re-evaluate their health care benefits to adjust for the influx of new enrollees.
"Just look at retirees," says Armstrong. "A lot of companies may diminish or eliminate some of the additional retiree benefits just because of the cost associated with it."
While much of the focus of cost associated with the new law centers on the immediate future, some are concerned about cost provisions will be incurred down the road. In 2018, for example, health insurance premiums exceeding $10,200 for individual coverage and $27,500 for family coverage will face a 40% excise tax, with the cost threshold triggering the tax slightly higher for plans covering retirees and employees in high-risk industries.
The new legislation might even affect how unions bargain with management.
"You saw very rich employee benefits when health care was non-taxable," says Armstrong. "Now, I think what we're going to see a tax on those types of plans the Cadillac plans, as they're called is unions and management re-evaluating how they negotiate health care and compensation. There will be a balancing act in a way we haven't seen before."
While many companies are highly skeptical of the new legislation, there is potential for some positive impact, notes Sloane. For instance, with premium subsidies going to millions to purchase coverage in state insurance exchanges, a significant cost will shift away from employers subsidizing COBRA coverage.
"I think the one area that is positive and provides certainty is that there is no small business owner today who can't provide health insurance to an employee," says Sloane. "So if you're a one-person shop, you can probably get a policy for yourself and any amount of workers that you have at a reasonable price. That's a real benefit. But that doesn't mean the legislation doesn't have some real questionable areas in it either."