Wednesday, March 7, 2012

Another Big Mover


The jobless claims report that comes out this Friday looks like it will be down but outperform expectations. I wouldn’t say ease your shorts but if we see a turn around here from the February 25 reports it could mean good things for the US and Global Markets. A side note I hope you guys don’t mind the odd gut feeling post but in my field we all know it goes a long way.

Health Care Reform and Big Bussiness

The Patient Protection and Affordable Care Act is a United States government federal statute that was signed into law on March 23, 2010.  The law will be enacted gradually, with most provisions beginning in 2014.  Under this new act, health care has been completely revamped, extending coverage to 30 million new Americans and those with pre-existing conditions.  While this is a landmark law in the Unites States, questions arise over the provisions of the bill and how they will affect the current employment landscape.  This paper will analyze how this statute will shape the future of medium to large businesses and organizations, further divided by union and non-union.    
Action Plan – Non-Union

Non-union organizations have to decide if it is better for them to keep their healthcare policies or drop them and incur the government fee.  The first step is to do a cost analysis of the two options.  Many companies have begun doing this, yet it is unknown if the healthcare laws will actually be put in place and to what extent.  It is advisable to have a general cost idea of each option as the healthcare laws currently are expected to change.
In three years large companies will have a clear idea of which laws are in effect and the cost differences associated with the new laws.  Companies can compare their costs for the previous two years against what they projected they would be.  They can also look at what the costs would have been, had they dropped their healthcare and taken on the government fees.  They also may have an opportunity to compare what other large companies have done in response to the new laws.
The ability to compare what other companies actions have been, along with the multiple cost analyses gives the company very clear options.  Each option can be analyzed not only from a cost structure perspective but also how it fits with a company’s core competencies.  Each company must determine if the more cost effective option is the one they feel will better for their company as a whole.
Action Plan - Union
When President Obama began to formulate a plan to overhaul the health care system in America he received an enormous amount of support from unions, or collective bargaining agreements.  Since the healthcare reform has been implemented, a majority of the unions have sought “grandfather” status which would prevent them from having to comply with several of the statutes until the longest running bargaining agreement expired.  However, the language used in the statutes was changed and as of December 31, 2011, unions have been notified they must comply with the new healthcare regulations.  This led the unions to seek waivers from the President regarding several issues with the healthcare reform, which they were granted, and will be honored until 2014.  The unions are strongly opposed to raising rates or “taxing” employees to cover the additional costs that would be added if they complied with all of the new regulations.  One example of a regulation they are waived from is the minimum yearly cap on healthcare spending, which the reform now requires to be $750,000.  Although about half of the unions are currently under waiver they need to look ahead to 2014 when the waivers expire and determine a solid course of action.  If the healthcare reform is upheld by the Supreme Court individual states would be required to set up exchanges for healthcare, unions could use their influence to be involved in the creation of the exchanges and bargain for employer contributions towards the exchange rate for each employee, in lieu of health care benefits from their employers.  The waivers have granted the unions vital time to weigh their options and determine a course of action based on the Supreme Court ruling.  The unions are also presenting political pressure to abandon the notion of a “Cadillac” tax that would mandate the taxation of healthcare plans that cost more than $8,500 for an individual and $23,000 for families.

Impact of New Laws – Non-Union

The health care reform will have a large impact to all large business. The health care debate often focuses on the effects of reform on premiums. Premium rates paid by businesses will undoubtedly change but to concretely say in which direction is next to impossible. Some sources state that premiums for large self-insured business will become slightly more expensive as they will now be forced to cover the previously uninsured. Other experts note that many people are uninsured because of good health and including them will likely cause premiums to fall. Despite this, from a strategic business planning perspective generally represents a cost not a saving to a business bottom line. As such a big business should most likely anticipate a small increase in premiums for the beginning of the health care reform process. 
The next major issue that business planners will be concerned about is the status of their healthcare plans. Grandfathered plans are exempt from many of the regulations that non grandfathered plans are subject to.  There is many ways for a company’s status to change and a company will now be forced to navigate this to avoid massive shift in coverage. For example plans that lose their status may suddenly become subject to antidiscrimination regulations. This could be potentially damaging to employers that offer more coverage to employees in high pay scales but not to ones in lower pay scales. Many of these things will potentially have huge impacts to a business’s profitability.
Despite all of the uncertainty surrounding the plan there is one area which has very concrete impacts to businesses.  The healthcare reform changes to the 2003 Medicare Prescription Drug Bill will cost business billions of dollars. Coverage is currently subsidized by around 28%, but the entire cost of the plan is eligible for a tax write off. The governments closing of this gap will affect millions and cost businesses dearly.
Impact of New Laws - Union
               The two biggest changes that will be affecting union members are children who will now be covered under their parents plan until they turn 26, and the lifetime dollar limits on claims will be eliminated.  Children will be able to stay enrolled even if they aren’t in school or being claimed as dependents on tax returns.  Both new requirements are likely to cost considerable money.  Plan administrators estimate that covering kids through the age of 26, will increase overall costs from 2 to 5 percent, additionally eliminating lifetime coverage limits will increase costs up to an additional 1 percent.[1]   Another change is that annual coverage limits will be phased out over three years; however plans have the option of requesting waivers, and have not been reluctant to do so.
            A change that may impact union health trusts is that at least 85 percent of the premiums collected for large group insurance policies are now required to be spent on actually paying for healthcare plans, hence profits and administrative expenses can no longer be over 15 percent.  This can potentially provide some union health trusts with rebates if they purchased group health policies in states that haven’t met the 85 percent requirement.
            Unions won major concessions on the issue of taxing “Cadillac” plans, which is a tax on some of the more expensive insurance plans.  Many of these plans require little or no co-pays, resulting in policyholders taking excessive and unnecessary trips to the doctor resulting in additional healthcare costs.  Taxing such plans would discourage this type of coverage.  Thanks to the compromise achieved by the unions, the Cadillac tax would kick in at a higher premium amount ($24,000 instead of $23,000).[2]  The biggest win for unions however came in the form of pushing back the effective date of the tax from 2013 to 2018 for those covered by union contracts only.  The compromise was a major hit to the budget and is estimated to lose revenue of about 60 billion over 10 years. 
Opinion - Non-Union
            As The Patient Protection and Affordable Care Act  begins to roll out, many companies will follow the lead of AT&T, Verizon and Caterpillar in evaluating the cost versus benefit of providing their employees with health insurance rather than incurring a penalty. Other organizations may adopt a less proactive approach, and instead follow in their competitors’ footsteps.  A domino effect could likely occur, whereby if one company drops coverage many others will follow so to remain competitive.  In this way, whether or not health insurance is provided will become a much more strategic business decision. It could be utilized as a recruiting and retention tool, particularly as employees become more aware of this benefit.  As this may become a larger factor into where they find employment, those that provide better benefits may be more attractive to more valuable employees.  On the other side, companies may choose to instead incur the lower-cost penalty, and use these cost savings to achieve a competitive advantage in some other way.  Whatever the decision may be, companies should be cognizant of the effect this decision will have on corporate culture, as it shows what the company values.  Regardless of the decision, large businesses are likely to incur greater costs with the passing of this bill, and will need to adjust to absorb this new expense.
            Looking specifically at business in New York, large corporations should be especially concerned about providing support for health coverage for early retirees, extending coverage to young adults, and providing insurance for uninsured with pre-existing conditions.  Approximately 283,000 New Yorkers retired before they were eligible for Medicare and have health coverage through their former employers (a problem that has grown over time).  With this bill, companies will need to cover this gap from 55 to 65 until Medicare can take over.  Costs have also raised when, beginning on September 23, 2010, plans offering coverage to children on their parents’ policy must allow them to remain on until they are 26 years of age.  This extended coverage to an estimated 77,800 New York individuals, with increased costs for the associated companies.  Finally, in 2014, coverage will be extended to those uninsured with pre-existing medical conditions, which will likely increase premiums and raise companies’ costs further.
            Overall economic growth has been somewhat stagnated by this bill, mainly as a result of uncertainty of how the reform will truly impact businesses. As a result, many business decisions- particularly in regards to hiring- have been halted, which delays the overall economic recovery.  Since the plan provides benefits to smaller benefits, they will be able to become more competitive with large businesses who do not receive subsidies.  Additionally, because employers with fewer than 50 employees can avoid many of the penalties, there is a disincentive to hire more people beyond 50.  This could create a greater divide between large and small companies as a hiring plateau develops, and could encourage small companies to find ways to operate leaner to avoid expanding their human resources.  The economy may also be affected by the huge risk that costs of the bill will be greatly amplified, particularly as many companies seek to drop their coverage.  With American employers no longer providing the backbone of the nation’s health care system, the deficits anticipated by the reform will be much harder to control.  Where the economy may be spurred is with employees taking home a larger salary from employers seeking to compensate for dropping the plans. If this happens, employees will pay more taxes to the government as a result of a raise, and will have more money in pocket for personal spending.
Opinion - Union
In terms of overall opinion on how the Patient Protection and Affordable Care Act will affect unionized labor, it should have a “minimal” impact. That is not to say this act will not change the way employees and employers deal with minor policy changes but the fact is labor unions will not allow employers to drop health care coverage for its members. One potential impact of this, although it remains to be seen, is that employers could look to “right to work” states even more than they currently do. For years now the trend has been for employers to typically unionized jobs into non-unionized states and this health care bill could incentivize employers to continue that trend if health care becomes too expensive and the employer decides it will drop or reduce coverage.
            Furthermore, one of the most interesting things about the health care bill has been the waivers given to certain employers. It is not a secret that unions were heavily involved in getting this bill passed and as such President Obama has awarded these unions with waivers that exempt them from some of the immediate impacts of the bill. It is an interesting development because it speaks to the effectiveness of the bill. If the unions, who wanted this to pass, get waivers so that they do not have to deal with the effects of the bill, does the bill deliver the benefits it says it will? It is a great question that can only be answered in time; that is of course assuming the bill is given the time it needs to render a verdict.