While Democrats reconsider their options to pass health-care reform legislation in the wake of Massachusetts Republican Scott Brown’s election to the Senate, others are counting the costs of the current Senate bill that is expected to be at the heart of that effort.
Until recently, House and Senate Democrats have been trying to reconcile their two versions of reform. But now, having lost a filibuster-proof majority in the Senate, their clearest shot at making any of the proposals reality is to have the House pass the more-recent Senate bill in its current form.
Should that Senate bill pass unmodified and become law, the cost of employer-provided health care for large companies would shoot up an additional 7% to 10% per year (beyond current increases) over the next decade, for a grand total of between $62.7 billion and $89.2 billion, estimates the HR Policy Assn., a group of human-resource executives at the country’s largest 300 or so firms.
Based on talks with member companies, Marisa L. Milton, director of health-care policy for the group, says expected cost increases range from $300 million to $1 billion per company over the 10 years. And those don’t include the effect of new rules and unfavorable changes in tax treatment for retiree medical benefits.
Those numbers, crafted in conjunction with consulting firm Applied Economic Strategies (AES), are based on the Congressional Budget Office’s analysis of the Senate bill, but take into account some indirect costs the CBO did not.
The cost-shifting burden the private sector will bear from federal cuts in Medicare and Medicaid, for example, adds $20.7 billion, says D. Mark Wilson, principal at AES and an economist on President Clinton’s 1993 health-care-reform task force. The other major bucket of costs will be additional taxes, which Wilson tags at $42 billion for both insurers and employers.
Indeed, among the many forces that could push up taxes, the 40% proposed excise tax on high-value or “Cadillac” plans has been a major point of contention, despite a recent reported compromise. Since the dollar-value thresholds that separate taxable from nontaxable plans are not slated to rise as fast as health-care costs do, “it seems to be something that could affect a lot of companies,” says Milton.
While union members reportedly gained a concession from the White House in the form of thresholds based on the age of a workforce, so that companies with older (and presumably less healthy) workers wouldn’t be penalized, Milton and others say the compromise doesn’t go far enough. For one, it doesn’t take regional cost variations into account. “You can have a 40% difference [in the cost of insurance] just because you’re in New York,” compared with a 10% to 15% difference based on age, notes Edward Kaplan, senior vice president and national health practice leader at The Segal Co.
If a health-care reform bill similar to the ones in Congress is eventually passed, how will companies react? According to the HR Policy Assn., many members are already considering such actions as reducing benefits for both retirees and employees, passing on the cost of any excise tax to workers, and even delaying hiring for open positions.
A recent poll of readers on CFO.com, which did not control for respondents’ titles or duplicate responses, shows similar results. More than half of those responding plan to make some kind of change to their benefits as a result of the proposed reform. Twenty-four percent say they would decrease coverage to avoid the extra taxes associated with high-value plans, 20% plan to drop coverage altogether and pay the per-employee penalty, and 11% are likely to stop offering health insurance but would provide some type of cash subsidy to employees toward buying their own.
Forty-six percent, though, say they would continue to offer health insurance without any major changes, as it is a key retention tool. “The penalties [of not offering insurance] may be less than the cost of insurance itself, but you don’t want to put valuable employees into a dysfunctional sort of plan,” says Marty Moore, CFO of SVP Worldwide, maker of Singer sewing machines. “We would weigh that option very carefully; it’s more than dollars and cents.”
What is clear is that if reform goes through, the regulatory landscape will continue to evolve in ways that will keep CFOs scrutinizing their health-care offerings much more often. “This isn’t the end of health-care reform, it’s only the beginning,” says Wilson. “So much is likely to change as it is implemented, companies will have to reevaluate what they do every year.”