In a landmark 5 to 4 decision on June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the 2010 health care reform legislation, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA). While debate continues after this historic decision, businesses must now become more focused on the complex compliance as the laws continue to phase in during 2012 and through 2014. However, a majority of the provisions begin in 2013 and 2014.
There are many opinions related to the effect the health care reform will have on businesses in the future. Business advisors are looking at Massachusetts and the effects its health care mandates have had on the businesses and the residents in that state. It is evident the benefit of the mandates in Massachusetts have ranked the state as having the highest number of medically insured residents in the country. The Massachusetts law requires businesses to offer a fair and reasonable contribution for the health coverage of each employee or pay the state an assessment of $295 per employee for businesses with more than 11 employees. In contrast, under the federal health care reform, businesses with more than 50 employees that do not provide employees the opportunity to enroll in minimum essential coverage can face penalties of up to $2,000 per full-time employee, barring some exclusions. Keep in mind the federal health care reform provides for various tax credits to assist small businesses in obtaining coverage for employees.
During the past 10 years, health insurance costs for large businesses have doubled. For smaller employers that percentage has grown even higher. There are many factors that are forcing health insurance premiums higher every year including an aging population coupled with a longer life expectancy. This is a result of new treatments, better prescription drugs and expensive medical devices, layered with the increase in obesity and chronic illnesses – the largest contributors to increasing health premiums.
Many believe the heath care reform will benefit businesses and here are a few examples why:
Typically, adding healthy, young employees to a company’s health insurance census will help to hold or even possibly reduce the insurance premiums. Since insurance premiums are based on the entire enrolled employee population and not on an individual-by-individual basis. This should certainly have a positive impact on small businesses.
The new law provides tax credits to businesses that provide a specific level of health insurance to employees. Accordingly, those businesses that provided health insurance prior to 2010 did not receive additional credits and now they do. Beginning in 2010, many small businesses were eligible for tax credits of up to 35 percent of premiums paid, and this will increase to 50 percent in 2014.
Many businesses that do not offer health insurance lose key employees to those businesses that do provide these benefits.
From an economic perspective, forcing employers to provide health insurance could negatively impact many businesses in these difficult economic times.
Many businesses have had to reduce or even eliminate health coverage during the past decade due to the annual double digit premium increases. Forcing these same businesses to provide insurance they cannot afford could significantly impact those businesses that rely on part-time and seasonal employees.
The new mandate could cause businesses to lay off employees and even prevent them from hiring in the future.
Businesses may consider outsourcing to other companies or even cause them to go out of business.
Others believe the health care reform will not help to reduce premiums and in fact could cause a rise in premiums, since the legislation will provide better levels of benefits. In addition, new fees and taxes paid by insurance companies will also likely raise the cost of premiums as those costs are passed down to the consumer.
Mandatory health care coverage could force employees who can barely manage their monthly expenses to spend less or fall deeper into debt. As a result, employees that have never had to pay for health insurance could be in for a rude awakening. For a person with a low wage job just over the poverty level, who is being required to pay for health insurance, such costs could have a significant impact on their spending habits. Instead of paying for other necessities, they will be paying an insurance company several thousand dollars or more annually. The negative effect of the businesses these individuals patronize could be significant.
The Bottom Line
Requiring individuals to have health insurance should improve the overall health of the American population. As a result, it should help stimulate people to eat better, exercise more and be more aware of illnesses from a preventive care point of view, resulting in a healthier workforce.
In order to help keep health insurance premiums in check going forward, employers should consider implementing employer-sponsored wellness programs and encourage employees to take an active role in their physical wellness.
Taking the pros and cons into consideration, it is very likely that businesses will see a reduction in work absence, better mental aptitude and an overall improvement of employee morale. These improvements should be the catalyst for an employee population that is more productive and efficient in the work environment.
James A.J. Revels, CPA, MST is a partner with the accounting, tax and business consulting firm Citrin Cooperman in Philadelphia. He provides customized planning, administration and income tax services for a variety of businesses including biotech companies and high net-worth individuals. He can be reached at firstname.lastname@example.org or (215) 545-4800.