Health Reform and America’s Businesses: The Bottom Line

Throughout the course of the health reform debate, amongst the President’s top concerns has been how the sky-rocketing costs of health care affect America’s businesses and the economy.  The final health reform legislation is a reflection of that, and will help contain the costs that threatened to swallow up the budgets of businesses across the country. That is why the independent Congressional Budget Office confirmed that the bill would lower health insurance premiums and why the Business Roundtable estimated that provisions to help bend the health care cost curve like those in the bill could save $3,000 per person in health costs.    

In the last few days, though, we have seen a couple of companies imply that reform will raise costs for them. Let’s look more closely at what they’re referring to:

• The concern stems from a corporate loophole that was created as part of the Medicare Part D prescription drug bill that passed in 2004. Under that bill, businesses were provided a 28% subsidy to help cover the cost of providing prescription drug coverage to their retirees.
• But a loophole in the law allowed businesses to deduct the value of that subsidy twice – they can exclude the 28% from their income and at the same time deduct the 28% from their income for tax purposes. 
• The health reform legislation closes this loophole by allowing businesses to deduct this money once rather than getting a double deduction on taxpayer dollars. These businesses will still get a generous subsidy to help them cover retiree prescription drug costs and they still get to exclude that benefit from their income – they just don’t get a double deduction on taxpayer dollars.
• The President supports this subsidy to help seniors and believes that a change in its tax treatment won’t negatively affect seniors.  But to be clear, this change doesn’t even go into effect until 2013, and while some companies may make accounting changes to book these changes now, the provision was delayed two years from the original Senate bill specifically to give companies time to adapt.

Perhaps most importantly, though, is that this change is part of an overall reform package that will provide substantial benefits to employers and their employees. Consider just a few of the provisions that will directly benefit firms:

• Reinsurance for early retirees starting in 90 days: The bill invests $5 billion in a new reinsurance program for early retirees starting this year that will directly reduce health premiums for large employers who offer coverage to retirees between the ages of 55-64. This provision is estimated to reduce retiree premiums by as much as $1,200, helping to ensure these plans remain affordable for businesses and their retirees.
• Reducing the hidden tax: By reducing the number of uninsured, the bill will reduce the hidden tax of about $1,000 per person that those with insurance pay to cover the cost of the uninsured who rely on emergency rooms to get their care.
• “Gamechangers” that will bend the health care cost curve: The bill includes several reforms that independent health experts agree will help slow the long-term growth rate of health costs. These provisions that create market forces that lead to more efficient care, like a fee on insurance companies’ most expensive plans, research into what works and what doesn’t, an independent commission to make sure Medicare costs grow more slowly, and other measures to reward quality of care.
• Tax credits to make health care affordable: the bill includes $40 billion in new tax credits for small businesses to help cover the cost of health coverage for their employees. According to the council of economic advisers, about 4 million small businesses will be eligible for these new tax credits, which will help not only reduce the cost of coverage but increase the competitiveness of America’s small firms.

When taken as a whole, the bill will reduce premiums and increase business competitiveness in the U.S. That is why the Congressional Budget Office projects that it will lower premiums for employer-sponsored insurance by zero to three percent, which using the midpoint of this range works out to about $10 billion per year in savings for large firms and their employees. That’s the bottom line.

Gary Locke is Secretary of Commerce