Sycamore Chamber

Update

A Closer Look at the Employer Mandate: How Much Could It Cost Your Business?

As Congress weighs its options for reform over the next month, it is important for employers to know what the proposals will and will not mean for their bottom line. According to a recent poll, over 70% of employers fear that costs could actually increase in the wake of healthcare reform.

The legislation that currently lies in both the U.S. House and Senate propose an employer mandate as a way to reduce the ranks of the uninsured while representing smaller employers with a supposedly cheaper alternative to purchasing coverage on their own. The reality of the employer mandate, however, is that it will most likely generate a higher price tag than advertised.

As employers evaluate the tax implications of a new employer mandate, several factors should also be considered:

The new assessment tax is in addition to all other taxes paid by the employer and no credits are given against other taxes.

Employers currently providing healthcare coverage receive a tax deduction that lowers overall tax liabilities.

Employers choosing to pay the new payroll tax will not realize the same dollar value from the tax as those employers who currently provide coverage and receive a tax deduction for those expenses.

The employer mandate not only threatens to increase costs on employers, it also poses problematic to the nation’s ability to create jobs and spur economic growth. According to the National Federation of Independent Business, a new employer mandate could result in the loss of 1.6 million jobs, with over a million of those jobs lost in businesses that employ fewer than 500 employees. Furthermore, the mandate could force employers who rely on temporary or seasonal workers to keep their payrolls lower in order to decrease their tax liability, which translates into fewer available jobs.

Overall, the Illinois Chamber believes the employer mandate is a counterproductive approach to reforming the healthcare system. Employers already voluntarily provide coverage for over 170 million employees because it is an efficient way to provide benefits and allows companies to attract and retain a talented workforce. Healthcare costs, however, have increasingly crippled employers’ ability to maintain robust benefit packages and have also prevented more employers from taking advantage of this asset. The key to successful reform is fixing the problems in the market that have inflated these costs and prevented employers, particularly smaller employers, from voluntarily providing their own coverage.

New Study Looks at the Costs of Inaction

When lawmakers returned to D.C. earlier this month, they were greeted by a President who renewed his calls for significant healthcare reform, declaring that the “status quo as a solution” is not acceptable. The Illinois Chamber of Commerce, Employers for Quality Health Care and the entire employer community at large have long maintained that the increasing health costs borne under the status quo threaten the long-term sustainability of employer-sponsored healthcare coverage and the healthcare system as a whole.

The new Hewitt Associates study, commissioned by the Business Roundtable, estimates that if nothing is done to curb healthcare costs, healthcare spending will approximately double in the next ten years, reaching $4.4 trillion by 2019. During that same period, employers’ annual healthcare costs will balloon by 166%; a cost that is even more crippling when considered with the $56 billion cost shift onto private payers for uncompensated care. Employers and individual with private health insurance also pay a hefty price for the government’s inadequate reimbursement rates under Medicare and Medicaid; a cost that currently amounts to approximately $90 billion a year.

While the new Hewitt report confirms that healthcare costs are indeed spiraling out of control, it also underscores the important role the marketplace can play in slowing this alarming cost trend. The recommendations advanced by the study include goals that align with that of the Illinois Chamber’s:

• Empowering consumers to be better stewards of their own healthcare needs;
• Aligning financial incentives for providers to quality and outcomes; and
• Investing in certain innovations, such as health information technology, that could help improve health outcomes while reducing costs.

The study also suggests that Medicare would serve as the best place to test specific delivery system reforms. The federal government is the largest single purchaser of healthcare services in the United States, with spending expected to reach $500 billion this year.