With every ambitious new law come high hopes and often false expectations. Witness the newly enacted federal healthcare reform.

The Patient Protection and Affordable Care Act (PPACA) is one of the nation’s most far-reaching and controversial domestic policy changes in decades.

Advocates say the PPACA is the panacea that we’ve all been looking for--one that will provide health insurance for nearly every American and cost less in the process.

However, that’s not the opinion of experts whose job it is to analyze such laws. The Centers for Medicare and Medicaid Services (CMS) say that while many things are still unclear, two things are relatively certain: PPACA will result in more people being covered by health insurance, and health care costs will increase.

Big Picture

Health care spending will increase by $311 billion from 2010 to 2019 under PPACA, says CMS, mostly due to greater utilization of services, lower Medicaid reimbursement rates paid to providers and lower payments for Medicare services.

According to CMS, about 15% of providers will become unprofitable and may find it necessary to stop participating in Medicare. Since Medicare and Medicaid are already underfunded, more payment reductions will force providers to increase what they charge to private payers.

Businesses should bewaresince the private sector already picks up much of the current underfunding of Medicare and Medicaid, cost-shifting will likely get worse under PPACA and drive their costs even higher.

Business Impact: Fees and Taxes

New taxes and fees packed into the PPACA will increase costs for many individuals and businesses. Some of these take effect before the new federal health insurance programs begin in 2014.

Many businesses will see higher taxes as a result of the increases in the Medicare Hospital Insurance tax, including LLCs, LPs, LLPs and others that pay their taxes through the personal income tax rather than the corporate income tax.

Then there are the fees on health insurers and prescription drug manufacturers and importers, additional costs that will likely be passed onto businesses and other consumers.

PPACA also imposes a 2.3% excise tax on medical device manufacturers and importers.

Employer Penalties

PPACA imposes a “play-or-pay” mandate on employers with 50 or more employees who work 30 hours or more per week. CMS estimates that employer penalties will total $87 billion from 2014 to 2019.

Beginning in 2014, employers with 50 or more full-time employees will be penalized if: They do not offer their employees “affordable” health coverage, and at least one of their employees purchases government-subsidized insurance coverage through one of the new state-based health insurance exchanges that will be created under the new law.

An affordable health plan is defined as one where an employee’s contribution doesn’t exceed 9.8% of his or her household income and pays for at least 60% of covered health care expenses.

Employers with 50 or more full-time employees who do not offer health insurance and have at least one employee who purchases coverage from an exchange will be assessed an annual penalty of $2,000 per full-time employee minus the first 30 employees.

Employers who do offer insurance but whose plans do not meet the minimum requirements for affordability or coverage will also be penalized, though not as steeply as those who offer no health insurance.

How Effective Are Tax Credits?

Advocates say PPACA’s small-employer tax credits in the law will help lower costs. Effective tax credits are a good way to make health care more affordable, but the law is so restrictive that very few small employers will be able to benefit from its credits.

The credit will apply only to companies with no more than 25 employees whose average salary is less than $50,000. The Congressional Budget Office estimates that only about 12% of all small companies nationwide will qualify. Since salaries tend to be higher in Connecticut than the rest of the U.S., our experience will likely be less.

Where does that leave us? PPACA has both advantages (fewer uninsured) and drawbacks (higher costs). Ultimately, it is unlikely to be the panacea many have anticipated.