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Businesses Brace for Health Bill's Costs

Source: WSJ

Posted on 23 Dec 2009

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Companies are alarmed at potentially costly provisions in the Senate health-care bill, many of which they hope will be scrapped during a final round of negotiations early next year.

A scramble to massage the hefty measure, instead of pushing to kill it, reflects the view of many in the business community that a sweeping remake of the U.S. health-care system now appears inevitable.

The U.S. Chamber of Commerce is among a few big business groups calling for Congress to scrap the overhaul effort.

Business is worried that President Barack Obama's push to extend coverage to millions more Americans will raise the burden on employers. Business groups have widely criticized the 2,074-page Senate bill, which looks set for passage on Christmas Eve. They also have offered a variety of fixes.The legislation's scale and complexity, plus uncertainty over how the Senate bill will be meshed with the version that passed the House in November, make it difficult for most companies to gauge the effect it will have on the bottom line.

"We're still committed to the notion that health reform can be done right, but I know of no company that is warmly embracing what is in either the House or Senate bills," said Paul Dennett, top health-care adviser to the American Benefits Council, an advocacy group for large employers.

With all eyes now turning to House-Senate negotiations over a final bill expected next month, corporate lobbyists are jockeying for modifications that will buffer the impact.

Retailers want a longer delay before new employees qualify for company-subsidized benefits. Big employers such as Caterpillar Inc., Boeing Co. and Xerox Corp. want to modify Medicare tax provisions in the Senate bill that would cut their earnings. Small construction companies want an exemption from employee coverage that the Senate bill already applies to other businesses with fewer than 50 employees.

Across the spectrum, businesses worry that a series of new taxes and fees to pay for expanding health-care coverage will push up premiums, particularly for smaller employers.

The Senate bill calls for a nearly $70 billion tax over 10 years on insurance companies, plus a $2 billion-a-year tax on medical devices. Billions of dollars are also meant to be raised from added taxes and fees on wealthier seniors, higher-end insurance plans and tanning salons.

Companies of all sizes have been increasingly burdened by health-care costs, which topped $400 billion in 2007, according to data from the Employee Benefit Research Institute. Unrestrained, that figure is expected to double by 2017. About 70% of workers receive health insurance through their employers.

Groups representing smaller businesses say the threat of increased taxes and premiums could outweigh provisions intended to limit the impact on small employers. The Senate bill "will not only fail to reduce and control the constantly climbing health-care costs small-business owners face, but it will result in new and greater costs on their business," said Dan Danner, head of the National Federation of Independent Business.

Not all companies agree. David Ickert, vice president of finance for Air Tractor Inc., which produces airplanes used in agriculture and firefighting, said that from his analysis, the bill would have "no negative impact" on his operations. The company, based in Olney, Texas, employs about 200 people.

Under the Senate bill, most businesses with fewer than 50 workers will be exempt from penalties if they don't offer employee coverage. Larger companies would face fines as high as $750 per worker if even one employee seeks federal help to buy a policy.

Democrats say a package of tax credits within the Senate bill will reduce costs for small businesses. Small businesses that qualify would get a 25% tax credit to help pay for employee coverage. The legislation would also allow small businesses to band together to seek coverage at costs similar to those of much larger companies.

Large companies that fund their own insurance have been relatively positive about the Senate bill, which is much less prescriptive than the House bill and doesn't contain a government-run insurance plan. Still, large companies cite a list of concerns.

A top gripe is that the Senate bill would alter the tax rules that affect big companies providing prescription-drug benefits to their retired workers. Under the law earlier this decade creating a drug benefit in Medicare, companies that continued to provide such benefits qualified for a 28% tax-free subsidy. The Senate bill would tax that subsidy.

A spokesman for Caterpillar said, "The financial impact would be significant for Caterpillar, particularly in the first year."

Martin Reiser, a Washington representative for Xerox and chairman of the National Coalition on Benefits, said another big concern was "whether a lot of the provisions meant to contain [health-care] costs will actually do so. If they don't work -- and we won't know for years -- then the bill is a failure."