The following article is from the new report from Senator Tom Coburn, M.D. and Senator John Barrasso, M.D., titled "Grim Diagnosis : A check-up on the federal health law". (press release) Thus far, we have posted both the report and sections of the report. Please download the full report (below) as it contains footnotes and references for further validation. This article illustrates the increasing cost of health care on the employer. What impact will this have on the employers, the heart of our economic engine? Read on...
Proponents of the new health law argue the legislation needs time to work. Unfortunately, businesses’ costs will increase with time because of the law, rather than decrease. The new law increases the cost of pharmaceutical drugs, medical devices, and health insurance and bends the “cost curve” up. Regrettably, businesses and employees will bear the brunt of these costs.
The Wall Street Journal recently reported that a survey of more than 70 large companies found that businesses “expect their health-care costs to rise nine percent next year.” Nearly two-thirds of businesses surveyed anticipate they will increase the proportion of premiums paid by employees. And nearly half say they will increase the maximum out-of-pocket costs for employees in the coming year.
Another independent analysis has reached similar conclusions. Hewitt Associates recently released an analysis projecting a nearly nine percent premium increase for employer-sponsored health insurance coverage in 2011 alone. Similarly, an Aon Consulting survey expects an increase of more than 10 percent for employer-sponsored health insurance for the year ahead.
Small Business Tax Credits Fail To Improve Outlook
Businesses continue to bear an increasing burden in health care costs. Unfortunately, business leaders are now learning that new small business tax credits in the law actually do very little and do not prevent health care costs for businesses from climbing higher.
Sections 1421 and 10105 of the health care bills created a small business tax credit for some employers’ contributions toward employees’ health insurance premiums. In April, President Obama said the “health care tax credit is pro-jobs, it’s pro-business.” But business owners are now learning that the credits will actually have a negligible impact on the costs to businesses. While the Congressional Budget Office (CBO) says the credit is available to “for-profit and nonprofit employers with fewer than 25 full-time equivalent employees with average annual wages of less than $50,000,” according to CBO data only about three million employees – or one percent of the American population – will benefit from the credit in 2016.
Not only are few employees eligible for the credit, few businesses appear interested in the credit. Despite the Administration’s eagerness to promote the small business tax credit by mailing postcards about the program to four million eligible companies, a recent Business Week article noted that “the response has been tepid.”
The problem with the credit is the credit itself. Many businesses simply crunch their numbers and find the credit does not work for them because they have too many employees or their employees earn too much to be eligible. “The credit starts to phase out for companies that pay average annual wages of more than $25,000 or employ more than 25 workers,” Business Week notes. And, “the value of the benefit declines quickly, so many business owners in high-cost states get no tax break, and those elsewhere often say the credit is too small to make much of a difference.”
These problems with the tax credit mean, of the few businesses that are eligible for the tax credit, few businesses are likely to even apply. The Washington Post reported that the Commonwealth Fund found that of the three million employees at firms that would be eligible to utilize the tax credit, “for the most part, those are firms that already offer their employees health insurance.” Commonwealth’s analysis found that, even with the credit, businesses not already offering health coverage “are unlikely to consider the tax breaks enough of a financial incentive to start doing so.”
But even if the estimated three million employees at eligible firms enjoy temporary relief from skyrocketing health costs because of the tax credit, this group represents less than two percent of Americans with commercial health insurance. Rather than lowering health costs for all businesses and workers, the new law only offers a temporary credit from which one percent of individuals in America will actually benefit.
Even worse than failing to soften the blow of rising costs for businesses, the tax credit itself also interferes in the labor market, creating perverse incentives for small employers to not expand their businesses and hire employees. According to recent analysis by one think tank, “employers with 15 workers, taking on an additional hire will reduce the credit by $1,400.” The reduction in credit is most severe for companies hiring a twenty-fifth employee, as they would see a $5,600 reduction in the credit at that point.
All of this is headed the wrong direction. Congress should be embracing policies which will spur business expansion and job growth – not policies that will increase health care costs for businesses and employees.
FULL REPORT :A Grim Diagnosis: A check-up on the federal health law
Related:Thousands of Jobs in Jeopardy
