Health-care reform, particularly the Affordable Care Act, may not be the only thing keeping CFOs, controllers and other business executives up at night. But that issue, along with concerns about political leadership, was cited in a recent study as the “most significant” reason that many executives took a more pessimistic view of the economy during the third quarter of 2013 than they did in the second quarter.
The AICPA study shows CPAs expect increases in health care costs over the next 12 months to rise to 6.8 percent in Q3, the highest level since 2010. According to the report, “expectations for healthcare cost increases continue to be higher than other costs,” having jumped from an outlook of a 6.3 percent rise in the first quarter to a projected 6.8 percent in the third quarter. That compares with expectations expressed during the third quarter that salary and benefit costs will rise 2.3 percent over the next 12 months, prices paid 1.9 percent and prices charged 1.9 percent.
Jim Morrison, CFO of chemicals-compounding firm Teknor Apex and chair of AICPA’s Business & Industry Executive Committee, understands why health-care-reform worries concerns were flagged by the executives studied. “The closer we come to implementing health-care reform, the more nervous businesses have become,” he says. “Two of the top three challenges facing executives today are driven by health-care inflation and the unknown effect of health-care reform.”
Executives are still wrangling with how to deal with the Affordable Care Act, which was signed into law by President Obama in March 2010, with implementation of some employer mandates delayed until January 1, 2015. It requires companies with more than 50 employees to provide health insurance or face penalties if they don’t.
Hiring is also expected to take a hit from health-care concerns. The AICPA survey showed that hiring expectations for medical-device suppliers and pharmaceutical companies in the next 12 months fell to 0.5 percent during Q3 from 1 percent during the second quarter. Similarly, hiring at health-care providers, such as hospitals and nursing homes, for example, fell to 0.4 percent from 0.8 percent the previous quarter.
The AICPA survey findings echo those of a Duke University/CFO Global Business Outlook Survey released yesterday: the latter found health-care regulations to be a discouragement to hiring. Fifty-nine percent of the 530 U.S. CFOs (taken as a subset of the global 1,200+ respondents) surveyed said they increased the proportion of the workforce with temporary or part-time workers. And 38 percent of those respondents cited new health-care regulations under the Affordable Care Act as part of the reason that their companies decreased full-time employment.
Uncertainty about the overall economy was also a reason that participants in the Duke/CFO survey made the choice in hiring fewer full-time workers. More than 40 percent blamed “extreme economic uncertainty” for why they would hire more temporary workers.
Those findings also were similar to the anxiety that the AICPA respondents expressed in terms of their outlook for the overall economy and their individual organizations. The percentage of respondents to the AICPA who are optimistic about the U.S. economy slipped during Q3 to 44 percent from 49 percent in the second quarter. Similarly, respondents were less sanguine over their own organization’s business outlook this time around with only 55 percent optimistic compared to 57 percent last quarter.
Further, the U.S. economic optimism component of the AICPA’s CPA Outlook Index fell 4 points to 62 during Q3 from 66 during Q2; the overall CPA Outlook Index held steady at 69. (A reading above 50 signals “a generally positive outlook with increasing activity,” while a reading below that number “indicates a generally negative outlook with decreasing activity.”
In a similar manner, the Duke/CFO survey showed that the overall U.S. Business Optimism Index slid back to 58 after rising above 60 during the last quarter, which is below the long-run average index value of 59.