Health Insurance Reform: Good Or Bad For Business?
With the recent passage of health insurance reform, businesses big and small are still weighing its impact. The legislation is intended to increase access and reduce the cost of insurance. It is set to impact one-sixth of the American economy, but what will be its actual impact?
The health care industry itself is likely to suffer. One of the main targets of those looking to cut health expenses is the layer of administration and bureaucracy within health insurance companies. Indeed, the healthcare reform bill requires insurers to keep their medical loss ratio (MLR) above a certain level. That means that 85% or more of premiums must be spent on providing health care, as opposed to administrative costs or profits. While this has the potential to reduce costs for individuals and other industries, employees in the health care industry will suffer. Simplification of medical billing processes means that many specialists will either lose their jobs or see their pay decreased. In an economy barely crawling out of a recession, the potential loss of hundreds of thousands of jobs is a negative.
With that effect, how can President Obama claim that the bill is pro-business, as he did in an Iowa rally earlier this week? Liberal supporters of a government-run public option, of which Obama initially was one, believed that their strategy would positively impact American businesses. Although it would result in slightly higher taxes, it would also lift the burden of providing health coverage to their employees, which no other industrialized nation has. In that respect, American companies are at a competitive disadvantage when compared to those in nations with socialized medicine.
However, a public option is not in the bill passed by Congress. Instead, Obama claims that businesses will benefit via tax credits that help cover their group health insurance costs. Small businesses will see the greatest impact. He believes that the savings will then free up funding for those companies to create more jobs.
Large businesses, on the other hand, don’t come out as well. Those with over 50 employees will be subject to a mandate, beginning in 2014, which will require them to provide health coverage to their employees. If they do not, they will be fined $2,000 per employee. In addition, 2018 sees a new tax on high cost, so-called “Cadillac” health insurance plans. Employers will also lose a tax deduction for the purchase of prescription drugs for retirees and their families.
Already, major corporations are anticipating the hit to their profits. John Deere and Caterpillar predict $250 million combined in charges related to healthcare reform. White House Spokesman Robert Gibbs brushes off their concerns about what he considers to be the elimination of a loophole that allowed businesses an effective double deduction. Regardless, it was a subsidy the businesses were counting on.
Several other corporations have previously predicted a loss in earnings if the legislation passed. The retail and manufacturing industries are especially worried. The stock market appears to be more optimistic, with the aforementioned companies trading at or slightly above their pre-healthcare reform levels. At the moment, reform’s impact appears to be mixed.
(Image: loop_oh under CC 3.0)