March 22, 2010 / 8:27 PM / 10 years ago

Employers brace for health reform changes

WASHINGTON/NEW YORK (Reuters) - Expansive U.S. healthcare reforms aim to expand access to care for millions of uninsured, but could further squeeze some employers still trying to shake off a depressed economy.

Companies and their lobbyists said a host of new rules and regulations are likely to increase taxes and health insurance premiums while hampering job growth for manufacturers, retailers and other large businesses.

“This legislation will make it more difficult to offer benefits not just for retirees but also current workers as companies have to weigh these costs,” said Dena Battle, the National Association of Manufacturers’ tax policy director.

Lawmakers’ changes are critical in a country where more than 150 million working-age adults get health benefits from their employers. Government programs insure another 45 million elderly and disabled and more than 43 million poor.

Businesses had battled the Democrats’ sweeping overhaul, which passed the U.S. House of Representatives on Sunday. President Barack Obama is likely to sign the measure into law on Tuesday, the White House said.

In a letter to House leaders last week, Caterpillar Inc said the reforms would cost the manufacturer more than $100 million in the first year “and put at risk the coverage our current employees and retirees receive.”

“We can ill-afford cost increases that place us at a disadvantage versus global competitors,” it said.

Others such as United Parcel Service and Alcatel-Lucent, said on Monday they needed time to study the likely effect of the legislation.

Some Democrats and others have argued shifting the healthcare burden from companies and to the government as most other industrialized nations do would help employers. But Obama abandoned the goal of such “universal” care in favor of the maintaining the more politically viable, employer-based system.

U.S. Health Secretary Kathleen Sebelius said the phased-in reforms would offer security for employees who now are “a pink slip or premium away” from losing coverage.

“Nothing changes in terms of the new marketplace for a couple of years,” she told CNBC television. “People who have employer-based coverage today, will have it tomorrow and the next day — if their employer chooses to keep it.”


Companies have been aware of the potential for higher costs since Obama made revamping the nation’s $2.5 trillion healthcare system a top priority when he took office more than a year ago.

In October, a Grant Thornton LLP survey found 73 percent of chief financial officers in the manufacturing sector considered employee benefits the most worrisome pricing issue they faced, outstripping higher costs from raw materials or energy.

The potential added costs come as manufacturers and other companies begin to recover from the worst economic downturn since World War Two.

Under the bill, employers with 50 or more workers must provide healthcare cover or face a $2,000 fine per employee starting in 2014. In 2018, an excise tax will be imposed on high-cost, or “Cadillac” employer plans.

“Once we’re there, there’s going to be a problem for retail jobs,” said Neil Trautwein of the National Retail Federation, a lobbying group.

The insurance plans companies offer would also be bound by some of the new regulations that restrict industry practices such as rescinding coverage when people fall ill.

In particular, older retired workers and employees’ dependent children could be most at risk of losing coverage as employers look to shave costs, said Les Miller, a senior attorney for the Manufacturers Alliance/MAPI.

A temporary reinsurance program goes into effect this year to help companies maintain coverage for workers age 55 to 64 but will expire in 2014 and employer tax deductions for offering retirees drug coverage are set to expire in 2013.

U.S. industrial companies, which typically have large ranks of retirees, may be among those facing the biggest bill under the new rules, but whether those costs will be passed on to retirees or offset elsewhere remains an open question.

If employers drop prescription drug coverage for retirees, those workers could enroll in the government’s Medicare drug plan and shift billions of dollars of costs to taxpayers, National Association of Manufacturers’ Battle said.

“They have shareholders to answer to,” she said.


But for companies with fewer workers, the pending reforms aimed to offer relief for those unable to afford coverage for their workers or face skyrocketing premiums.

Recent media reports and congressional hearings highlighted health insurance rate increases of nearly 40 percent for some consumers in small group or individual plans.

The bill would help them compare and shop for plans under a new health insurance exchange as well as provide tax credits to pay for coverage.

“The setting up of exchanges is huge,” said John Arensmeyer, CEO of the Small Business Majority industry group.

Certain employers with 25 or fewer employees would be eligible for tax credits of up to 35 percent of the employer’s contribution to the health insurance plan that would increase in some cases to 50 percent after 2014.

Still, the National Federation of Independent Business, whose typical member employs 10 people, rejected the bill for hampering job creation and raising costs.

“This isn’t a healthcare bill, this is a tax bill wrapped up in healthcare paper,” the group said in a statement.

Reporting by Susan Heavey in Washington and Nick Zieminski in New York; additional reporting by Scott Malone in Boston, editing by Leslie Gevirtz

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