This is the second article in a two-part series. The first appeared Friday, September 7.
Many finance chiefs are rooting hard for a Romney triumph in the Presidential race and for Republicans to win back a majority in the Senate, in hopes of a repeal or dilution of the Affordable Care Act (ACA). In the meantime, however, they are proceeding as if Obamacare is here to stay.
A combination of the continuing sluggish economy, the ceaseless upward spiral in health-care costs, and the impending creation of health exchanges as required by the law has more and more CFOs thinking about deep-sixing employee health benefits.
“Insurance risk is an unknown, and when you’re faced with health-care costs that are rising faster than other costs, it’s a risk that every employer is going to analyze, all the way to paying the [$2,000-per-employee] penalty [for not offering coverage],” says Richard Ramos, CFO at Maritz, a $2 billion provider of employee motivation, incentive-travel, and customer-loyalty programs.
Ramos says talk about what to do about health care is dominating executive dialogue at Maritz this month. The firm’s analysis of 2012 health-care costs through May showed a 16% increase over the same period last year. “If the elections offer some relief on the impact of the [ACA], it would really help us out,” he says.
The company is particularly concerned about having to offer health benefits to about 400 employees who work more than 30 but less than 40 hours per week, as the law stipulates it must do beginning in 2014. Maritz is also wary that other companies’ aggressive moves to rejigger benefits plans could push some employees who had been using spouses’ insurance back into the Maritz fold.
Another worry for Maritz — an S corporation at which earnings are passed through to its few shareholders and taxed as ordinary income — is a new 3.8% tax on the capital gains realized on certain investments, such as real estate, that are ancillary to the company’s business and in which shareholders play only a “passive” role. The tax, inserted into the ACA by amendment in 2010 to help defray the costs of health-care reform, takes effect next year. “For us, the impact of the tax could be great,” Ramos says.
Smaller companies with shallower pockets are hurting even more. Vacuum Process Technology, a $10 million company in Plymouth, Massachusetts, is spending about $20,000 per month on health premiums, says CFO Dave Quimby. That’s on top of payments that companies in the Commonwealth must make to support its ACA-like health-care program, signed into law by then-governor Romney in 2006.
“Depending on the company, you might say gee, I can offload $20,000 of monthly cost. If the [ACA] stays in effect, there’s a pretty strong incentive to move away from employer-based coverage,” says Quimby. He suggests, though, that companies that take that step may reverse course later if, as expected, the tax for not offering employee health care is increased.
Tom Gillespie, president and financial overseer at Access Receivables Management, a collection agency, says about health-care expense that “as a small business, it is my largest concern at the moment. We will be forced to provide lower levels of care for employees. It will also lead to hiring fewer full-time associates. It is a disaster waiting to happen.”
Gillespie notes that the company has many 20-year employees. That’s problematical when it comes to health care, as insurers frequently raise rates when an employer’s average employee age passes certain thresholds. “Is this not an incentive for companies not to hire people in their 50s?”
When the ACA is fully implemented, he says, Access will probably be forced to tell employees to seek insurance from the exchanges. “That’s going to hurt them, because our current benefits are fairly generous and the coverage they’re going to get will be far worse,” adds Gillespie.
He says he hopes that if Romney is elected, in addition to repealing the ACA, the new President will work to achieve tort reform. “We can’t afford to give people a high level of care and also have so much money being paid out in lawsuits. That needs to be addressed, but it’s not going to be under a Democratic administration.”
Given the lack of clarity on how election results might change the health-care picture, some companies are waiting to move forward with new health-care plans. “We were disappointed that the Supreme Court didn’t overturn the ACA,” says Hank Funsch, CFO at Dayton T. Brown, an engineering, testing, and technical-services firm for which the Defense Department is its largest client. “But at this point, we’re not sure what even a Romney presidency and stronger Republican Congress would be able to accomplish in reversing Obamacare or making it ineffective by holding back funding for some provisions. We’re in a wait-and-see mode at the present time.”
The company has decided, though, that it needs to obtain more professional management of health-benefit claims. And “after some experience in that arena,” it plans to solicit quotes from insurers to cap its annual financial exposure now that the ACA has banned insurers from imposing lifetime caps on coverage, Funsch says.
Others are more set on what direction to take. “I have my doubts about either side being able to effect much change due to the Senate rules that allow 41 senators to block change,” says Stanley Berman, CFO at Global Impact, a large charitable organization. “We’re planning for the law to continue being enacted largely as passed.”