Businesses will pay new costs for health care reform, but they also stand to benefit

In an opinion piece published by Inside Business this week, Rutgers Business School professor Michael Santoro explores the implications of the Affordable Care Act on U.S. businesses as they prepare to comply with the complex new law.

By Michael Santoro

For every business, large or small, the coming year will be spent preparing a strategy for complying with the Affordable Care Act.

As soon as it was signed, the Affordable Care Act became a political lightning rod. The law inspired vehement debate and its constitutionality was challenged. There was concern that if even one part of the act were to be declared unconstitutional, all of it might be declared unconstitutional. In June, the Supreme Court upheld the law by a 5-4 vote.

Now that the Supreme Court has ruled and President Obama has been re-elected, the cloud of uncertainty has lifted. Companies can be assured that the act’s requirements will be going forward.

America has chosen to move closer to providing universal health care by creating a series of incentives and penalties to encourage employers to provide health care to their employees. The law is highly complex and parts of the act already are in force. Various other provisions will be phased in over the next five years.

Beginning in 2014, companies with 50 or more full-time employees are required to provide adequate and affordable health insurance coverage or face $2,000 in penalties per employee. Smaller businesses, with fewer than 50 full-time employees are eligible for tax incentives that encourage them to provide coverage.

Each state is charged with setting up an insurance pool to provide health care coverage for the uninsured. Employees who are not provided health insurance by their employers will be eligible to obtain insurance through these pools and, in the case of low-income employees, the rates could be subsidized. The act contemplates that companies with up to 100 full-time employees might participate in these pools by providing vouchers to their employees.

From a public policy perspective, one big question is whether the incentives for small business and the penalties for larger businesses are big enough to encourage expansion of health care provided by employers. The situation is dynamic in the sense that more employers will want to provide insurance if the other provisions of the act are successful in bringing down the costs of health care and health insurance.

If the act is not successful in reducing health care costs, the fines will look like a better alternative to some larger companies and the incentives won’t be enough to encourage smaller companies to provide insurance. That would be a doomsday fiscal scenario for the act —unchecked health care costs combined with increasing reliance on state-administered and subsidized health care insurance programs.

For many companies compliance with the Affordable Care Act will be a simple matter of dollars and cents. Are the penalties for not providing insurance greater than the costs of providing adequate and affordable coverage? Since the government will be an insurer of last resort many businesses may just prefer to pay the fines or forgo the incentives and still have the benefit of a productive and healthy workforce.

For other companies, however, the requirements of the act will provide a baseline minimum of coverage. Companies that want to attract and retain the highest skilled and most dedicated workers will continue to offer health care coverage that goes beyond the minimum standards in the act.

While there are potential pitfalls and bumps in the road ahead, in the big picture the Affordable Care Act is about the future. It’s a once-in-a-generation attempt to put us on a better economic path by controlling health care costs and simultaneously helping to create a healthier citizenry. Ultimately, if government doesn’t improve society, businesses won’t prosper.

Businesses are being asked to pay a significant cost in financing this bold initiative. But the payoff for the business community is potentially very large – a dedicated, healthy, skilled workforce and an economic environment that has greater productivity, greater consumer spending power and greater prosperity.

Michael Santoro is a professor in the Department of Management and Global Business at Rutgers Business School teaching ethics, government regulation and law. He can be reached at msantoro@business.rutgers.edu.