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Employer impact of reforms weighed

Employer impact of reforms weighed

WASHINGTON—As Congress was nearing a final vote on sweeping health care reform, the historic legislation would, if approved, likely have the biggest impact on employers that impose hefty premium contribution requirements on employees and those offering generous retiree prescription drug coverage.

The House of Representatives was poised over the weekend to vote on a reform package to revamp the nation's health care delivery and financing system, based in large part on a measure passed by the Senate in December and incorporating many of changes that President Barack Obama suggested last month.

With House approval, the Senate this week would take its vote and, if approved, send the bill, H.R. 4872, to President Obama for his signature.

While Congress has passed many measures during recent decades to expand health care coverage, none comes close in impact to the current reform legislation. The last major initiative was a 2003 law that added a prescription drug benefit to the Medicare program.

At a cost estimated by the Congressional Budget Office at $940 billion over 10 years, the plan would extend health insurance coverage to 32 million uninsured U.S. residents, chiefly by expanding Medicaid and establishing federal health insurance premium subsidies to those with moderate incomes.

That expansion of coverage would make a huge dent in the number of uninsured. In 2008—the most recent data available—46 million U.S. residents lacked health insurance coverage, according to the U.S. Census Bureau. That figure looks to rise as the recession led to severe job cuts since 2008.

Expanding coverage should mean a huge reduction over time in the amount of uncompensated care. This cost now is shifted by providers to insured patients when possible.

On the other hand, employers that don't bring health care plan costs under control eventually would be exposed to a new 40% federal excise tax on health insurance premiums that exceed certain levels.

In addition, employers could face assessments of $3,000 a year per employee if employees' share of health care premiums fails a new affordability test.

Employers most likely to be affected by the health reform changes will be those whose workforces are comprised largely of lower-wage workers paying premiums that exceed what the legislation defines as affordable, experts say.

“Employers with low-paid workforces could have some big costs ahead,” said Steve Raetzman, a senior consultant with Towers Watson & Co. in Arlington, Va.

In addition, starting in 2013 the legislation would erode the value of a tax break for employers that offer prescription drug coverage to their Medicare-eligible retirees, decreasing the likelihood that employers will continue to provide that coverage, consultants say. That tax break, in which employers that provide coverage equal to the value of Medicare Part D receive tax-free federal subsidies that partially offset their drug costs, is worth tens of millions of dollars each year to some major corporations, experts say.

Also in 2013, the value of flexible spending accounts—a program that has made it easier for employers to shift more costs to employees—would be cut when a new $2,500 annual limit would kick in on the maximum pretax contributions employees can make to the accounts.

Frank McArdle, a consultant with Hewitt Associates Inc. in Washington, said the federal health care reform effort's effect on employers will vary depending on the employer's situation.

“Some will see opportunities and some will see higher costs,” Mr. McArdle said. “The impact will be very company-specific.”

For the most part, it would be years before many provisions in the legislation go into effect, giving employers time to prepare. For example, the 40% excise tax on the highest-priced plans would not begin until 2018.

On the other hand, some provisions would take effect almost immediately. For example, one late change to the legislation would require employers to extend coverage to employees' adult children up to age 26 so long as those individuals do not have access to other group coverage. The proposal calls for covering adult children within six months of enacting the legislation.

“There are some things you will need to do right away,” Mr. Raetzman said.

If the legislation wins final passage, not only will President Obama have secured victory for his signature domestic policy issue, he also will have succeeded where President Bill Clinton, the last Democratic president to battle for sweeping reform legislation, failed dramatically.

Experts say there are several reasons why the latest reform drive may succeed. One reason is that President Obama initially left drafting of the legislation to Congress, giving members ownership in the reform drive. By contrast, the Clinton administration drafted its own bill that lawmakers discarded promptly.

On the other hand, President Obama intervened in the legislative battle at key moments, noted Helen Darling, president of the National Business Group on Health in Washington.

When reform momentum seemed to slip last August, when opponents at numerous town hall meetings denounced the legislation, President Obama spoke before a rare joint session of Congress in September to refute opponents' charges.

“He had a real sense of when to get directly involved,” Ms. Darling said.

While not viewed positively at the time in January, the loss of Democrats' filibuster-proof majority in the Senate with the election of Massachusetts Republican Scott Brown may have actually aided the reform drive, some say.

“It forced Democrats to move to a more centrist position. If a Republican could win in Massachusetts, it was a reminder to Democrats that a more centrist direction was necessary. The bill became more centrist and that is why it is likely to pass “ Ms. Darling said.

In addition, as congressional Democrats battled internal divisions in trying to iron out a final compromise package, the president presented his own recommendations in February, many of which were incorporated in the final agreement.

“He reached out and personally lobbied. He would not give up,” Mr. McArdle said.

Perhaps the most important reason that health care reform may succeed this time around is the ongoing rise in health care costs and growing fears that the system could unravel without dramatic action, Ms. Darling and others said.

“The growing cost burden and the rising number of uninsured” was a big motivator for legislators, Ms. Darling said.