The U.S. Supreme Court’s decision upholding the 2010 health-care reform law carries with it an implicit message for businesses: Get to work.
The prospect that the high court might strike down or hobble the law caused many employers to delay preparing for some of its more expensive provisions, which are set to take effect in 2014. Thursday’s 5-4 decision removes that uncertainty.
“This gives a direction,” said Randy Zarin, principal of the Houston-based health-care practice for the consulting firm UHY Advisors. “From the country’s perspective, it’s a good thing to be able to get people insurance coverage. There are some roadblocks and hurdles we’re going to have to overcome, and we’re all going to have to help pay for it.”
The cost of adding coverage for some 30 million people, some with expensive pre-existing conditions, won’t be offset by the added revenue from requiring everyone to buy insurance or a penalty in the form of a tax. The shortfall ultimately means people with insurance — many of whom have already seen premiums escalate in recent years — will probably pay more, possibly a lot more.
“It’s directly tied to opening up millions of people who don’t have insurance today to an insurance product,” said Brett Haugh, principal of Houston-based Employee Benefits Solutions, which helps employers manage health-care costs.
To cover the additional costs, insurers will do the same thing they already do with Medicare costs — shift a portion of the expenses to private companies that, in turn, pass the costs on to their employees. Haugh estimates that 40 cents of every health-care dollar spent goes to cover costs shifted from federal programs. When you add millions more people into the system, those costs will rise.
It’s no wonder, then, that many businesses already struggling with spiraling health-care costs waited to see what the Supreme Court would do. Zarin recently conducted a survey of Texas businesses and found that 45 percent didn’t know if they were prepared for possible changes required under the law.
While Republican lawmakers are already agitating to repeal the law — a vote in the House of Representatives is set for July 9 — they’re unlikely to succeed.
Counting on a Republican-led repeal effort would be irresponsible at this point. The changes wouldn’t be implemented until at least early next year, less than a year before the new provisions are supposed to take effect. Businesses gambling on that outcome risk missing the deadlines under the law if the repeal effort doesn’t succeed.
The court’s ruling, of course, addresses only its constitutionality, and while the law was designed to expand insurance coverage, it won’t cure other ills in our health-care system or dramatically reduce costs. The U.S. spends more than any country in the world on health care, yet still exceeds most other developed countries in infant mortality, diabetes and other chronic ailments.
What’s more, the law’s success depends on private insurers selling coverage to millions of new, high-risk customers who aren’t required to stick with one policy.
“It is absolutely an impossible task to manage risk when an individual can enter or leave a commercial product without any restrictions to pre-exisiting conditions,” Haugh said. “That means the price for those products will increase dramatically. It’s not a long-term solution for the uninsured.”
But it’s not all bad for businesses. Smaller employers and companies that have struggled to provide insurance for employees may gain some flexibility. The companies may be able to reduce or better manage their costs by allowing employees to seek their own insurance through the regional exchanges that will be established under the law. They also may find it cheaper to pay the penalty than offer insurance to employees.
“It puts a cap on their expense,” Zarin said. “They can feel better that their employees can have other options.”
Larger companies, especially those that are self-insured, will have incentives to encourage employees to better manage their health through preventive and wellness programs that could reduce long-term costs of chronic care, he said.
Regardless of the impact, though, the court’s decision makes it clear that businesses are out of excuses. The law is coming and, like it or not, they need to get ready for it.