Business are preparing to absorb the many costs from new health care laws
Businesses large and small are girding for higher costs, beyond typical increases in insurance premiums, as the government begins to offer health care plans to millions of uninsured Americans.
Even before people start enrolling on Tuesday through online insurance marketplaces, the Affordable Care Act — also known as Obamacare — is affecting business in ways that could have lasting effects on the labor market and economy, experts say. Companies are cutting hours for workers, paring perks, reconsidering growth plans and calculating how to pass on or absorb costs driven by new taxes, fees and changes to the ways insurers can set rates.
“There's really nothing in this law that does anything to reduce the underlying cost of health care,” said Marilyn Landis, CEO of Basic Business Concepts Inc., a North Shore firm that provides financial management consulting to small-business owners.
The government-run insurance marketplaces, which will allow individuals to buy coverage, are a major component of the 2010 law. Small businesses can shop in the marketplaces, but the website won't be available to them until Nov. 1.
Starting on Jan. 1, most Americans younger than 65 who aren't insured through an employer will be required to buy coverage or pay tax penalties.
A mandate requiring companies with 50 or more employees to provide coverage — or pay a fine of as much as $3,000 per worker — will kick in on Jan. 1, 2015.
The law for the first time gives workers greater flexibility to change jobs without concern about losing health coverage, said Uwe Reinhardt, professor of economics and public policy at Princeton University.
“It should impact the labor market in the sense that the labor market becomes more flexible,” Reinhardt said. “You won't have job-lock.”
Given the high cost of health plans, some employers might find that they benefit financially from workers no longer relying on a job for insurance, he said.
“If I were a big business with many low-wage workers ... I might find it advantageous to cancel the insurance and pay the fine and send these workers to the exchanges to buy federally subsidized insurance,” he said.
The cost of insuring his 15 employees rose by double digits in recent years, said Steve Rennekamp, whose replacement window company, Energy Swing Windows in Murrysville, responded by shifting half the cost to workers. Each employee now pays about $300 a month.
“Even though we're not big enough to be covered by the law, I think the impact of the law is going to filter down to us,” Rennekamp said. “Costs are going up for everybody.”
Dan Focht, president of Bioptechs, an optical-engineering company in Butler, has been paying the full cost of health insurance for his nine employees. His insurer warned that the company's costs could increase by 35 percent next year, so pay raises are off the table even as he hopes to hire more workers, he said.
“It raises the cost for us, which can lead to raises in the cost of our products,” Focht said. “And that makes us less competitive.”
Some companies might reduce hiring and pass costs on to consumers because of Obamacare's requirements, said Stuart Altman, chairman of the Council on Health Care Economics and Policy at Brandeis University in Waltham, Mass.
But, he said, “the best I've seen is that it's fairly minimal.” The impact on the economy in the long run is “totally trivial,” he said.
Fred Callahan, owner of Colony Papers Inc., a York County packaging company, might rethink potential expansion to form a bigger workforce. With 40 full-time and two part-time workers, the mandate to offer health insurance is a disincentive for growth, he said.
“We, at times, have looked at certain opportunities, as far as buying a smaller company and merging them with us,” Callahan said. “That (mandate) would certainly be a consideration that we'd look at.”
Restaurants, grocery stores and other businesses with large numbers of part-time workers are trying to address an Obamacare rule that classifies employees as full time if they work 30 or more hours a week. Companies must offer full-time workers insurance.
“Unless you're ready to pay a lot of money for health care, you want to make sure your employees don't go over 30 hours,” said Helen Darling, CEO of the National Business Group on Health, a Washington association of more than 360 large employers.
Some companies, such as grocery-chain Trader Joe's and home-improvement chain Home Depot, withdrew insurance they offered to part-time employees and will tell them to shop online.
Trader Joe's told the Washington Post that part-time workers who don't make a lot of money will benefit by buying subsidized coverage: “Somewhat by definition, the law provides those people a pretty good deal for insurance — a deal that can't be matched by us or any company.”
Businesses with workforces near the 50-employee threshold are “doing everything they can” to keep costs under control, said Kevin Shivers, Pennsylvania director of the National Federation of Independent Business. Some companies are reducing hours, holding open vacant positions, cutting bonuses or shaving salary increases.
“They may not be firing people, but they're reducing hours to get under that threshold,” Shivers said.
Job hunter Linda Brant, 60, of Bethel Park sees that trend among the restaurants where she applies for work. Managers tell her they're capping many workers at part-time hours to control costs as Obamacare takes effect, she said.
“Everyone's doing part-time hiring now — almost every place you see,” said Brant, who works part time at a Washington County restaurant. “That's definitely what I'm finding.”
Brant said she works without insurance because she can't afford coverage.
Many larger companies that offer insurance might continue to do so, but they're exploring ways to hold down health care costs, Darling said. That might mean adding surcharges for smokers or spouses, shifting more costs onto workers through high-deductible plans, or setting up defined contribution plans that give workers money each year to buy insurance.
“What you're beginning to see is an acceleration of steps to slow the cost increases,” said Darling, whose group estimates employer-provided health insurance costs will rise an average of 7 percent next year, including a 1 percent increase directly related to Obamacare.
Though that's a lower rate of increase than in many recent years, businesses are particularly troubled about a 40 percent tax that will hit high-cost insurance plans in 2018. The so-called “Cadillac tax” will apply to plans costing more than $27,500 a year.
At current rates of increase, many company health plans will be subject to the tax — unless companies begin slowing the rate of growth in health care spending, known as bending the curve, Darling said.
“The only way they're going to avoid that (tax) is if they take advantage of every opportunity to bend the curve between now and 2018,” she said.