Tax and Cost Hikes to Come First in Federal Health Reform

Issues & Policies

History was made this week with the passage in Congress of sweeping federal health care reform. While many, including CBIA, disagree with much of the legislation and the questionable way the House passed it, the reform measure is now the law of the land.

What will this health care reform mean for Connecticut businesses? The law has good and bad provisions, but unfortunately the negative ones will arrive years before the positive effects will be felt.

Tax hikes and other revenue producers in the law go into effect in 2010, while the new federal health insurance programs won’t begin until 2014. That means businesses and individuals will soon see higher taxes and insurance premiums without the promised benefits of the legislation.

In fact, employers’ health care costs will rise in many ways. For example, as the federal and state governments both expand their control of health care under the legislation, the current shifting of costs from public insurance programs to private plans will increase.

Federal Medicare and state Medicaid are already underfunded to such a degree that hospitals are forced to make private payers absorb part of the shortfalls. Businesses are bearing much of that cost, and as government control expands, this burden will only increase.

Also, the costs of various new health care taxes on insurers and medical devices will be transferred immediately to health care payers—again, businesses as well as individuals.

The new law also empowers states to create new organizations (known as “exchanges”) that will act as health insurance marketplaces for consumers. And when these health insurance exchanges are up and running, many businesses will be required to reimburse the federal government for the costs associated with their employees receiving health insurance coverage through those exchanges.

New taxes on high-income individuals will also affect businesses. That’s because many businesses are organized as “pass-through” entities for taxation purposes (LLCs, LPs, LLPs and other types of partnerships) and pay their taxes via the personal income tax rather than the corporate income tax.

Cost reductions? On the positive side, every U.S. citizen will be required eventually to obtain health insurance coverage. This could reduce health care costs for everyone by making the overall insured population relatively younger and healthier.

In addition, there is a tax credit in the legislation for certain small businesses, but the requirements are so tough that only a small proportion of all small businesses (the Congressional Budget Office estimates 12%) will qualify.

What's more, this tax credit  will eventually expire while the new taxes created under the law won’t.

Not over yet

After significant back-room negotiations among Congressional Democrats, the House passed the Senate healthcare bill, which was signed into law by the president on March 24.

The House subsequently passed reconciliation amendments as changed by the Senate. And Congress intends to pass yet another bill that will add back many of the Medicare cuts included to bring the apparent cost of the bill down.

In fact, the true cost of this legislation will not be fully known until these cuts are added back—which will balloon the current price tag to nearly $1 trillion.

It is likely that various groups will challenge the new law in court for several reasons. As a result, the ultimate outcome of the law may not be fully known for years to come.


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