Businesses Find Costs of Affordable Care Act No Big Deal

By and | February 19, 2015

The biggest entitlement legislation in a generation is causing barely a ripple in corporate America.

The Patient Protection and Affordable Care Act — otherwise known as Obamacare — is putting such a small dent in the profits of U.S. companies that many refer to its impact as “not material” or “not significant,” according to a Bloomberg review of conference-call transcripts and interviews with major U.S. employers.

That’s even after a provision went into effect this year requiring companies with 50 or more full-time workers to provide coverage, and after more workers are choosing to enroll in existing company coverage because of another requirement that all Americans get insured.

“It’s just part of doing business,” said Bob Shearer, chief financial officer of VF Corp., which owns the North Face and Vans apparel brands. “Obamacare has added costs, but not so much that we felt we had to talk about it specifically.”

The collective shrug from the nation’s biggest employers undermines the arguments of Republicans, who call the law a job- killer as they seek its repeal.

While U.S. healthcare costs continued to rise faster than inflation in the five years since the law was passed, their rate of growth has slowed. Employers spent an average of $11,204 per worker for health benefits in 2014, up 4.6 percent from a year earlier, according to Mercer LLC. That growth rate was 6.1 percent or more each year from 1998 to 2011.

Health Costs

VF has seen healthcare costs accelerate slightly in the last two years, though the added expense hasn’t changed the number of employees covered, Shearer said. That puts the Greensboro, North Carolina-based company in line with other employers, according to the Kaiser Family Foundation.

The average premium for covered workers in 2014 was $6,025 a year for an individual, up 2 percent from 2013, and $16,834 for a family, a 3 percent increase. Some companies are using higher co-payments and deductibles to require workers to share more costs.

“We have done some things we think are positive for employees and the company, including putting out more options like high-deductible plans and plans with health savings accounts,” said Jeff Huebschen, a spokesman for G&K Services Inc., a uniform-rental company in Minnetonka, Minnesota. “More choices, and it kept our company’s cost in check.”

Some provisions of Obamacare are still being implemented and could drive costs higher in the future. For example, the so- called Cadillac tax on the most generous insurance plans takes effect in 2018.

Burrito Chain

For now, the additional costs of Obamacare are coming in the form of requirements to cover more workers. Chipotle Mexican Grill Inc. said this month that the cost of covering more than 1,000 employees who work 30 hours a week or more — a key requirement of Obamacare — will add as much as $8 million to health insurance expenses in 2015. That’s less than 1 percent of its projected operating profit for this year, based on the average estimate of analysts compiled by Bloomberg.

Wal-Mart Stores Inc., the biggest U.S. employer, had bigger healthcare costs this year than it anticipated, with more workers enrolling and costs rising faster than it expected, Greg Foran, chief executive officer of the company’s U.S. unit, said in August. The retailer estimated then that its healthcare expenses would rise by about $500 million last year. That’s about 0.1 percent of its annual revenue, or 1.8 percent of operating profit.

“While enrollment was higher than anticipated, we are pleased our associates and their families continue to take advantage of our affordable health-care opportunities,” Foran said. Wal-Mart spokesman Randy Hargrove did not respond to multiple requests for comment.

Nonfinancial Challenges

A smaller retailer, Casey’s General Stores Inc., said employee health insurance enrollment climbed 19 percent for this year. That was partially because the company has been growing, Chief Financial Officer Bill Walljasper said in an e-mail. The higher enrollment will lead to an increase of as much as $6 million in health-care expenses, he said. That’s about 2 percent of annual operating profit.

For large employers, the biggest challenge from the law may have been reworking their benefits structure rather than any major financial impact, said Paul Fronstin, director of health research at the Washington-based Employee Benefit Research Institute, an industry group.

“They had to do the work to come into compliance; for a lot of employers, that was a big headache and a distraction,” he said in a telephone interview. “Maybe the effect wasn’t as large as what was originally anticipated, but there was an effect.”

–With assistance from Renee Dudley in Boston and Lauren Coleman-Lochner and Lindsey Rupp in New York.

Topics USA

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