PPACA: Panel Eyes Effects on Employers

"All in all, the short-term economic effects of health reform will be quite small," Van de Water said, according to a written version of his remarks posted on the committee website. "Moody's Analytics terms the law's economic impact 'minor' and says that any disincentives from higher taxes and fees 'will hardly make a difference.'"

The Congressional Budget Office says PPACA could reduce the labor supply slightly, by encouraging some people who now work mainly to get health insurance to retire earlier, Van de Water said.

In the long run, Van de Water said, PPACA could reduce the deficit and improve labor productivity by helping workers and children get better health care.

THE PPACA CRITICS

Paul Howard, a senior fellow at the Manhattan Institute for Policy Research, New York, who is critical of PPACA, said many provisions will work differently than supporters might believe.

The act, for example, includes some tax breaks for employers that offer group health coverage and penalties for employers that fail to provide coverage, but it also calls for insurers to sell subsidized individual and small group coverage through a new system of health insurance exchanges, Howard said.

For households earning less than 250% of the federal poverty level, the subsidies available through the exchanges will be much more generous than the current insurance tax exemption for group health coverage, Howard said.

PPACA does contain a tax credit to help small employers pay for coverage, but the credit

phases out for firms with 10 to 25 employees and as average wages approach $50,000, Howard said.

"Proprietors and their family members are also excluded from claiming the credit, even though many small firms are family-run," Howard said.

The rules mean that only 35% of firms with fewer than 25 employees will be able to qualify for the credit, and the credit will be available for only 6 years, Howard said.

Gail Johnson, the owner of Rainbow Station Inc., Richmond, Va., a preschool and backup care company that serves about 1,000 children at three sites, testified at the hearing on behalf of the International Franchise Association, Washington.

Rainbow Station has been paying 70% of the insurance premiums for 84 teachers and staffers, and, traditionally, the plan has had no deductible, Johnson said.

This year, Johnson said, she found that her rates would go up about 18% if she kept the plan design the same.

The insurance broker said PPACA requirements accounted for about 3 percentage points to 5 percentage points of the increase, Johnson said.

Johnson decided that should not afford the increase and instead shifted to a plan with a $500 deductible.

Because the plan now has a deductible, Rainbow Station sacrificed "grandfather" status and now faces the full brunt of PPACA requirements, Johnson said.

"In January 2014, I will have a very difficult decision to make," Johnson said. "Do I continue to provide insurance coverage to my teachers and staff or drop coverage altogether and pay the penalty?"

The penalty cost from $168,000 to $252,000 per year but could save Rainbow Station as much as $300,000 per year, Johnson said.

Neil Trautwein, a vice president at the National Retail Federation, Washington, said the federation has been startled by estimates of the possible effects of the new rules on employers.

An employer with 52 full-time employees might pay $44,000 in penalties for failing to provide health coverage and save $520,000 to $780,000 on health coverage costs, Trautwein said.

A restaurant chain has estimated that the new rules could cost $10,000 to $15,000 per restaurant and eat up about one-third of profits, Trautwein said.

Employers also are disturbed by rules that will provide "free choice" vouchers that some low-income workers can use to opt out of their employers' plans, Trautwein said.

"Employer costs could greatly increase as younger, healthier entry level employees opt out," Trautwein said.