Effect on business unclear, small firms under 50 workers exempt, healthcare sector biggest winner
By Jose Fernandez
On June 28, the U.S. Supreme Court upheld the Affordable Care Act including a much debated individual mandate. The mandate, which requires uninsured people to obtain health insurance or face a penalty, has been deemed a tax.
The court also reined in part of the law by striking down the forced expansion of Medicaid. It ruled that the federal government can provide funds allowing states to increase access to health care and dictate how these funds are used, but cannot apply financial penalties to states that choose not to participate. However, it is difficult to believe state governors will choose to deny their constituents these expansions when the federal government will be paying for them for the first few years.
What will the law mean to the state of Kentucky?
First, it will offer much needed relief to the 15 percent of Kentuckians who are now uninsured. Families living below 139 percent of the federal poverty level who previously did not qualify for Medicaid will now get access to care. People previously denied coverage due to a pre-existing condition can now find health insurance.
Second, women will now pay the same premiums as their male counterparts. When maternity coverage is excluded, women have been found to pay 35 percent more than men the same age.
Third, access to preventive care will mitigate the frivolous use of emergency rooms as a point of care for the uninsured. A University of Illinois study found that emergency room visits in Massachusetts dropped by 8 percent after major health care reform was enacted there. Non-urgent visits accounted for nearly all of the decrease.
It’s still unclear whether the law will hike insurance premiums. Expanded services are likely to raise health care expenditures, and the inability to deny people coverage will cause upward pressure on premiums. Even so, an expanding risk pool may offset these increases.
The individual mandate and the rule allowing children to stay on their parents’ insurance policies until age 26 will boost the number of healthy people covered by insurance. Healthy people use fewer services, which lowers the average cost of insurance. On the other hand, healthy people can no longer choose to go without health insurance.
The law’s effect on business is less clear.
Creators of the law have gone to great lengths to protect small businesses. Firms with fewer than 50 employees are exempt from the employer health insurance mandates. Small firms who are not exempt can still receive tax credits up to 35 percent until 2013 and 50 percent until 2016 provided they meet certain criteria.
Large firms will experience virtually no change since most of them are self-insured. But middle sized firms between 50 and 100 employees with average salaries higher than $50,000 a year will see a cost increase to satisfy the mandate. The success of the statewide health insurance exchange market will determine how much higher health insurance costs hinder the growth of businesses.
The largest winners will be companies and people who work in the health sector.
The need for primary care services and health information technology firms will continue to increase. A shortage of primary care providers already exists, with one out of five Americans now reporting they have to wait more than six days to see their doctor when they are sick. Kentucky will be ahead of the game if it can develop and recruit primary care physicians and nurse practitioners to meet this increase in demand.
Another provision in the law could pay off for Kentucky. In an effort to contain costs, the law requires all participating providers to adopt electronic medical record software. Only 20 percent of doctor’s offices and 10 percent of hospitals have so far adopted these systems, according to a recent study in the publication Health Affairs. Many have been awaiting the court’s ruling before switching over. If Kentucky leads efforts to develop this software and attract more health information technology firms to the state, it will boost its economy and create more jobs.
Without doubt, the Affordable Care Act will expand health insurance coverage to most of the uninsured. It remains to be seen, however, if it will hold true to its name and be affordable for most Kentuckians.
Jose Fernandez is a professor of economics in the University of Louisville’s College of Business