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What Supreme Court health care ruling means to business

Updated: July 30, 2012 6:17AM



The High Court backing of health care reform will mean millions of new customers for hospitals, insurers and drug companies. For other businesses, the ruling gives at least some certainty of what they are required to do.

But how businesses will act on the new law is less certain.

“The 10 million dollar question” is whether the ruling will cause employers to drop insurance as an employee benefit because of costs, said Glenn Horton of the Orland Park-based insurance agency The Horton Group.

“What could happen is it gets so expensive for businesses that they’ll drop it because the ($2,000) penalty (per worker) inflicted on the employer for not having it is much less expensive than the cost of having insurance,” Horton said. “If there’s a big exodus of those who pay for it, things potentially could be worse than they are now. ... although typically, legislation or executive mandates lead to adjustments.”

His agency, which employs 350, will gain more business under the law.

“It’s good for my business. But to us and to most businesses my size, I think it means our costs are likely to go up.”

Employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees will receive a tax credit, while employers with 50 or more full-time employees face fees under certain circumstances if they don’t offer coverage.

What if individuals also decide paying the penalty is a better deal that buying coverage?

The penalty for not buying coverage remains weak, said J.D. Piro, national practice leader in the Health Law Group of Chicago-based benefits and human resources company Aon Hewitt. It is $695 per year up to a maximum of three times that amount — $2,085 per family or 2.5 percent of household income by 2016, whichever is greater. The penalty is to be phased in and starts at $95 in 2014 or 1 percent of taxable income.

So some people still might not opt to purchase insurance until they get sick, instead choosing to pay the penalty. That could impact the affordability of insurance offered through exchanges and high-risk pools, he and others said.

One result of the ruling that appears far more certain is that hospitals that have struggled with having to eat the cost of treating the uninsured will benefit from the larger pool of potential patients.

The health care law calls for hospitals, insurers and other medical providers to join forces and create accountable care organizations, which are groups of doctors, hospitals, and other health care providers, who come together to give coordinated high quality care. Some like Advocate Physician Partners, the largest in Illinois, have already been created, and others are in the works. More will likely move in that direction, especially as hospitals find savings in the model, said Advocate Executive Vice President and Chief Medical Officer Lee Sacks.

“It really ends a lot of uncertainty,” Sacks said of the ruling.

David Ansell, Chief Medical Officer of Rush University Medical Center sees the law as “a mixed bag.” He said while more people will have insurance, the law still won’t cover everyone, and compared to private insurance, hospitals will lose revenue on Medicaid.

“But I don’t want to minimize the pluses,” he added.

Hospital operators, who have complained about low or no reimbursements for care provided to patients without insurance, were more encouraged by the ruling.

Mary Freyer, chief operating officer for Little Company of Mary Hospital in Evergreen Park, said, “As a hospital, we are in a position to provide services to our community, and it appears with this ruling we’ll be able to provide more services. That’s a positive for the community.”

While she noted “nothing is perfect,” Freyer was reluctant to note potential negatives, saying, “We are concentrating on the positives.”

Asked if the cost of health care will be affected, she said, “That remains to be seen. Reimbursements are always challenging for any hospital, and right now, we don’t know what the impact of this ruling will be (on reimbursements).”

Under the law, those who are sick or have pre-existing conditions cannot be denied coverage.

“Those are all wins, along with children up to age 26 continuing to have coverage,” Advocate Health Care spokeswoman Stephanie Johnson said.

Insurers, including Blue Cross and Blue Shield of Illinois, the largest health insurer with nearly 7 million members, should see increased business from the new insurance marketplaces or exchanges that states will have to set up and the government subsidies that will be available to help pay for insurance coverage.

But insurance providers also face new requirements, including having to provide policies to people with pre-existing conditions, having to spend a certain percentage of premium revenue on care vs. administrative costs, and annual fees — including $8 billion starting in 2014. Meanwhile the federal government is encouraging states to more closely scrutinize premium increases, and any increase over 10 percent has to be justified to the Centers for Medicare and Medicaid Services, noted Morningstar Inc. analyst Matthew Coffina.

Despite the increased regulation, given the gain in customers insurers are expected to receive, the industry is “better off with the law in place” than it would have been if the law was overturned, Coffina said.

Drugmakers will face fees under the law, including $2.8 billion in 2012-2013. But they will benefit longer-term due to “the sheer volume of patients” the law is expected to bring into the marketplace, said Alex Morozov, director of health care research at Morningstar. The law is expected to bring 32 million new customers with insurance cards into the marketplace, also benefiting insurers, thanks to the survival of the mandate that requires people to have insurance or pay a penalty, health care analysts and experts say.

But Morozov noted a lot of the newly insured will be going on Medicaid, expanded under the law, or participate in the individual insurance market — segments that tend to utilize health care services and pharmaceuticals to a lesser extent than commercially insured patients.

Other businesses “will turn to executing the strategies for 2013 and 2014 that they have so far put on hold,” Hewitt’s Piro said.

Steven J. Banke, CEO of an Oak Brook company that provides IT services to small businesses, is considering whether to continue his employees’ health care coverage as is or move the employees to a health-insurance exchange so they can pick their own coverage.

“I would like to be in a situation where I could give my (25) employees ‘x’ number of dollars to obtain their own coverage, and it is likely that would be the most desirable option for the employees, since the group plan offers the same coverage for everyone,” said Banke. He serves on the executive committee of the newly created Small Business Advocacy Council, a coalition of 19,000 mostly small businesses from throughout the state.

“The Department of Labor, the Internal Revenue Service and Health and Human Services [and other agencies] will need to work overtime to issue the significant amount of guidance employers need to implement these rules.”

Overall, employers are likely relieved that they don’t have to backtrack with the ruling, said Daniel Levin, principal, health and productivity at Buck Consultants Chicago. “In spite of the complexities, the (reform law) initiatives they have on track, they’re still on the correct path.”

National Federation of Independent Business Illinois State Director Kim Clarke Maisch was not pleased with the ruling. She contended the law will not control health care costs, but rather shift costs to small employers and individuals.

“Obviously we’re disappointed,” she said. “And so now our next step is of course the elections. We’ll prepare to fight this in Congress, to repeal part or all of it. That depends on electing folks who agree with us for President and in the Congress.”

Following the ruling, the National Small Business Association called on the Obama administration and Congress to focus on making changes to the law and taking administrative steps to reduce health care costs and improve quality, such as through reimbursing providers based on quality and outcomes, developing evidence-based protocols for health care providers and implementing broad, uniform use of health IT.

Health care costs are among the largest facing small businesses, and absent reforms to the law, those costs will continue to grow at an unsustainable pace, the group said.

“For small business owners, health care is a very personal and very real issue,” association Chair Chris Holman said in a statement. “Something must be done to address skyrocketing costs — not merely more political posturing.”

Illinois AFL-CIO President Michael Carrigan welcomed the ruling. “It’s a very large, lengthy decision,” said Carrigan. “It’s going to take us a while to sort through all the details of the document. But our initial reaction is we’re very pleased. The Court has affirmed allowing people access to health care, and this is a core issue to labor. We’re pleased nobody is going to lose health care because of the decision. It’s an issue of affordable health care for people that can’t afford health care and deserve health care.”

Jeremy A. Lazarus, president of the American Medical Association, said the AMA “has long supported health insurance coverage for all, and we are pleased that this decision means millions of Americans can look forward to the coverage they need to get healthy and stay healthy.”

Contributing: Reporter Steve Metsch



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