Unaffordable Uncertainty: Affordable Care Act

Area businesses report that the upcoming rollout of key measures of the Affordable Care Act (ACA) will be a bitter pill to swallow for their bottom lines.

R. Charles Murray, CEO and chairman of Sarasota-based PPi Technologies Group, recently had to make what he called a “horrific decision.”

Murray said the anticipated financial burdens of the Affordable Care Act led him to cut new Sarasota hires by half and scrap plans to expand his business in the U.S., in favor of new ventures in Guyana and Tobago.

“I’m a proud American,” said Murray, whose international export company recently purchased a $3.75 million, 81,000-square-foot building on Northgate Boulevard in Sarasota as a manufacturing plant and headquarters. “We were looking to double our U.S. employees. But, now, we’re going out of country to build our business. It makes absolutely no sense to burden everyone in the company for the health-care costs of new U.S. employees.”

With health-insurance exchanges, the lynchpin of the federal health bill, set to open Oct. 1, and the employer mandate scheduled for 2015, some area businesses like Murray’s are hiring fewer workers and limiting, or even eliminating, health-care benefits they already voluntarily provide for their employees — all in anticipation of higher insurance premiums and new taxes accompanying the health-law’s debut.

Cost hikes hurt

Insurance industry experts report that the health-care exchanges, a key portion of the ACA set to take effect Oct. 1, will significantly increase the cost of health-insurance premiums. These price increases will vary from state to state, with health-care experts estimating Florida’s average insurance premiums will increase by around 17% under the new law.

Some area businesses report that insurance providers are estimating a potential 20% to 30% hike in premiums across the state.

“There are numerous fees and costs associated with the law that will simply be passed on to the consumer,” said Kathleen Hargreaves, a certified public accountant and head of Sarasota-based KB Healthcare Consultants.

Murray said the cost of maintaining the current level of coverage he offers employees is projected to increase by about 25% under the new law.

“I can’t increase my prices even 10% and be competitive,” Murray said. “I just don’t understand why they want to burden us with these new costs. The law was obviously written by people who have never been in business.”

Last year, Gov. Rick Scott rejected the option to set up a state-based online health-insurance exchange, citing cost concerns, paving the way for a federal government insurance marketplace where Florida residents and small businesses can buy insurance and learn if they qualify for federal subsidies.

Supporters of the ACA claim that insurance premiums have been on the rise for decades, and the new health law has been become a scapegoat for a pre-existing problem.

The Department of Health and Human Services recently reported that health-care premiums are increasing at the slowest pace in years.

Medical prices, however, are also increasing at their slowest pace in a half-century, according to Commerce Department data; a trend that helps curb rising insurance rates, but also indicates that cost burdens are shifting to patients.

Too much of a good thing
The employer mandate, which is set to take effect in 2015 following a one-year delay in its implementation by the Obama Administration, requires businesses with more than 50 full-time employees (full-time is defined as a 30-hour work week) to provide health insurance for its workers.

The problem with the employer mandate, some area business owners claim, is that it penalizes employers who voluntarily provide high-cost plans exceeding the minimum standard required by law.

John Saputo, CEO and president of Gold Coast Eagle Distributing, said he already voluntarily provides health-care benefits to his 165 employees beyond what would be required under the ACA, and he anticipates to be hit by the “Cadillac tax” provision of the health-care law.

“The travesty is that I’m going to get an added tax because I’m providing such a good program to my employees,” Saputo said. “My people are worth it, and that’s why I pay extra for them. But I don’t see why my employees have to pay more for other people’s insurance.”

Under the law, health-care plans with premiums that exceed the “high-cost threshold,” more than $10,200 for individuals and more than $27,500 for families, will face a 40% “Cadillac tax” on the overage. The intent of the tax, according to federal lawmakers, is to fund coverage for the uninsured and to discourage the overuse of medical care, which some politicians claim stems from overly generous health-care plans.

Opponents of the tax argue that high-cost premiums do not always indicate higher levels of care or decreased deductibles, because other factors such as age and health conditions can raise rates.

The “Cadillac tax” affects insurance companies, but employers like Saputo, who self-insure their employees’ health care (an estimated 50% of employees are currently self-insured by their employer), will also pay the 40% tax.

“That is a slap in the face to an employer who wants to take care of his people with a really good plan,” Saputo said. “And where do they think that money is coming from? It means I hire fewer people and invest less capital in growing my business.”

Although the tax doesn’t take effect until 2018, a report from the Kaiser Family Foundation reports that the tax burden will be passed on to employers in the form of higher premiums years in advance.

Catch-22
The new health bill leaves business owners such as Murray and Saputo with two options to manage the law’s financial burdens: Either downgrade the level of benefits they offer their employees, or hire fewer workers to limit the costs and associated fees of insuring new workers.

Saputo said he is not willing to budge on the quality of benefits he offers, so he will hire fewer employees and offer more overtime to offset the financial burdens of the new law.

“I used to be very free with my hiring; I would normally bring people on before I needed them,” Saputo said, referring to the effects of the ACA on his hiring practices. “And, now, what I’m doing is I don’t hire someone until I absolutely need them. It’s going to be so expensive to put on new employees that I’m very hesitant to hire people.”

PPi Technologies purchased its new Sarasota facility to increase production of pouched beverages, including alcohol.

“That building will be the largest contract packaging center for alcohol in the United States,” Murray said in a recent Business Observer story. “It will be capable of producing 1 billion pouch units a year.”

Murray initially wanted to hire about 30 new employees for his expanded Sarasota operations, but plans to cap his new hires to about 10 to 15 to stay below the employer mandate’s 50-employee threshold. Murray also said that insurance premium hikes will force him to downgrade the health plans he currently provides in favor of more affordable options.

“Right now my employees are receiving top-class health care,” said Murray, who voluntarily provides health-care benefits to his employees. “But, once this new system comes in, there is no way I can keep doing this.  It will cost us thousands more.”

Health-care experts worry that the increase in premiums, due to the health law’s rollout, will give larger corporations that can more easily bear the increased prices a competitive advantage in vying for new employees over smaller, more cash-strapped enterprises.

But larger corporations are also bracing for higher premiums and uncertainty surrounding the law. Two national corporations with footprints in Sarasota County moved to ditch traditional health-insurance plans in favor of sending employees to the exchanges.

The drugstore giant Walgreen’s Co. announced last week that it would be offering eligible employees, comprising about 160,000 personnel, payments to shop for health insurance in the private health-insurance marketplaces. Trader Joe’s, a national supermarket chain, also recently announced that it would no longer cover part-time employees, but would offer them a $500 stipend to purchase insurance on their own.

The only certainty is uncertainty
“Congress went global and now it’s trying to fill in the details,” Hargreaves said, referring to the creation of the ACA. “The market doesn’t like uncertainty and, now, that’s all we’re left with — uncertainty.”

Other area business-owners who have not yet taken concrete steps to brace for the impact of the ACA, said that the complexity of the health law and the partisan political debate surrounding it have created an environment of uncertainty that makes it hard to diagnose the impact on payrolls and budgets.

“It’s hard to get the facts about what’s really going on,” said Marc Grimaud, owner of Café Gabbiano on Siesta Key. “Just getting a straight answer on how the plan is going to play out and what we’ll have to pay is completely skewed based on the political leanings of who you’re talking to.”

“Nobody has any idea what the effects of this are going to be,” Sarasota City Commissioner and restaurant owner Paul Caragiulo said, referring to the new health law. “It will fundamentally change the system, and no one can predict what will happen.”

“It’s impossible to know now what our options will be until everything is figured out,” said Jordan Letschert, co-owner of Crunch Gym on Bee Ridge Road. “We’ve looked into what the new law will mean for us, but the quotes are too widely scattered for us to make a good decision.”

According to a U.S. Chamber of Commerce survey conducted this year, 71% of small businesses report the new health law will make it harder to grow their businesses.

“It’s an amazingly complex piece of legislation,” Hargreaves said. “The devil’s in the details, and we don’t have the details.”

“They’re asking little businesses like ours to pay huge sums of cash that we can’t afford,” Murray said. “But it’s not just the financial impact that hurts, but the impact this will have on my people and their families. They’re horrified.”

Saputo, a retired Marine Corps colonel, said concerns about diminished benefits for his employees trump the potential damage to his business’s bottom line.

“I could give them Obamacare, but I wouldn’t do that to my employees,” Saputo said, referring to insurance plans available through the federal exchanges. “They’re working hard, and they deserve to not worry about losing their shirt if they get sick. It’s like being an officer in the Marine Corps; it’s just like taking care of my troops.”