Health reform mandates will cost businesses

Publication: Denver Business Journal
June 11, 2010
By Ed Sealover

A number of mandates and regulations in the national health-care reform bill could have significant financial impact on businesses

Companies of all sizes could face premium rate hikes in the next year, ballooning Form 1099 filing requirements by 2012 and a reduction in their ability to offer health-savings accounts, a less expensive approach to health care that’s gained popularity.

While health-care advocates say the end result of these changes will be a less-expensive system that covers 32 million more Americans within five years, they admit it’s going to get more expensive for businesses before they realize the full financial benefits.

“I don’t think this is going to be cheaper in the short run, and we’re all going to have to bear a disproportionate burden,” Dr. Jandel Allen-Davis, vice president of government and external relations for Kaiser Permanente Colorado, told a Greenwood Village Chamber of Commerce health care forum in late May. “In the long view, I think this will pay off. It’s just that none of us know when the long view is.”

The first provisions of the Patient Protection and Affordable Care Act to take effect will be mandates that insurance companies cover children living at home up to age 26, and also require insurers to cover children with pre-existing conditions. Dennis Triplett, CEO of UMB Healthcare Services in Kansas City, Mo., said he expects the corresponding rate hikes passed along to businesses to not exceed 3 percent.

The biggest hit to large businesses may be the $2,000-per-worker penalty, effective in 2014, that will be assessed against companies of at least 50 employees that don’t offer a minimally acceptable health care plan to everyone. While the federal government has offered preliminary definitions of acceptable plans, more thorough guidelines are likely years away.

Some businesses may be tempted to delay consideration of whether they want to offer insurance or just pay the penalty – which could be cheaper in many cases than offering a health care plan to workers.

They should start thinking about that now, said Larry Evans, the tax technical resource leader for Fargo, N.D.-based accounting firm Eide Bailly LLP, which has six offices in Colorado.

“What a lot of people will be doing is calculations: Is it better for me to pay the fine or is it better to pay the health care cost?” he said.

Form 1099 paperwork looms

A lesser-known section of the federal legislation, which deals with expense reporting, could pack the biggest wallop for small companies.

Beginning in 2012, companies that pay more than $600 a year to a person or another business for services or products must file a Form 1099 regarding each payment recipient, said Dennis Buelow, a partner in the Greenwood Village office of accounting firm Clifton Gunderson LLP.

That mandate covers everything from contracted workers to consultants to buying Starbucks coffee for company meetings, and businesses that don’t comply could be subject to penalties, he said.

This could mean that businesses that now file roughly 10 Form 1099s a year could have to file several hundred of them instead, an administrative burden that “can be a killer for small business,” Buelow said.

Companies also will have to change their accounting systems to keep up with all of the spending specifics they previously didn’t have to record, Evans said.

“It’s these types of things that push people out of small business,” Buelow said.

HSAs also affected

Low-cost health savings accounts (HSAs), which the Colorado Division of Insurance reports are used by 24 percent of small businesses in the state that offer health insurance, also face increased regulation.

Workers can place pre-tax earnings into these accounts to use on a wide range of medical costs. Businesses that often can’t afford full insurance use HSAs to supplement high-deductible plans or to offer some semblance of health care.

Beginning on Jan. 1, 2011, HSA funds no longer can be used for over-the-counter medication such as cough syrup and pain relievers, explained Triplett, whose firm has a number of Colorado clients. Then, in 2013, flexible spending accounts will get a $2,500 cap, meaning that employees will be more likely to use them for minor rather than major medical costs.

“That’s, I think, going to be very difficult,” Triplett said. “And I think that will be most impactful for the chronically ill or younger moms and dads who have children that need braces. That cap is unfortunately harmful to the wrong people.”

There are other taxes in the bill that won’t hit businesses directly. But they’re likely to be passed along to companies in the form of higher costs of services that will, in turn, lead to higher insurance premiums.

Those include new fees on drug and medical-device manufacturers, said Leo Tokar, vice president of marketing, sales and business development for Kaiser.

Those costs determine what an insurer charges. “As an insurer, we don’t just sit in bathrooms and make up what we want the costs to be,” Allen-Davis said.

Companies also will have to begin reporting the financial value of health care plans on workers’ W-2 forms in 2011.

And in 2018, the federal government will impose a 40 percent tax on “Cadillac” health care plans whose premiums exceed $10,200 a year for an individual or $27,500 for family coverage. Employers that self-fund their insurance plans must pay this tax for workers.

Some of these cost increases will be offset partially by tax credits and wellness grants that will be available to smaller businesses that offer health care plans for workers. And the increase in the number of insured Americans will have both tangible and intangible benefits, proponents say.

But there’s no denying some businesses will pay more, said Ed Regalado, a Denver-based benefit consultant for HUB International Insurance Services Inc.

“Some people are going to get a tax credit, but it’s got to cost more money,” Regalado said.

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