White Castle to Gadget Maker See Risks in Health Law
White Castle System Inc. began offering health coverage when Calvin Coolidge was president. That 88-year history didn’t make last week’s U.S. Supreme Court ruling any more palatable to the seller of hamburger sliders.
In upholding the core of President Barack Obama’s health- care overhaul, justices still left U.S. businesses wondering what they will have to spend to comply, said Jamie Richardson, vice president of Columbus, Ohio-based White Castle.
“Just because something is constitutional to us doesn’t necessarily make it a good idea,” Richardson said in an interview. “There are so many different rules and regulations that still need to be finalized. It’s really difficult to predict what costs are actually going to be.”
Preserving the health law may boost employers’ bills, in the form of higher premiums or penalties if plans don’t meet standards, said executives of companies where providing insurance is less common, such as retailers, restaurant chains and small businesses. Companies may have to respond by curbing hiring or charging more for products, the executives said in interviews.
“There’s still a concern that prices are going to go up” for premiums, said John Nottingham, a co-founder of product- innovation firm Nottingham Spirk. The increases extended into 2012, he said, with a boost of as much as 15 percent that his insurer told him was in preparation for Obama’s health plan.
Health care consumes “hundreds of thousands” of dollars in annual spending at the Cleveland-based company, Nottingham said. Its design credits include the disposable SpinBrush electric toothbrush and the Scotts Snap System, a lawn-care spreader that takes fertilizer from a bag without pouring.
The Affordable Care Act seeks to provide coverage to 32 million uninsured Americans. It sets minimum benefit rules and, in new government-run health exchanges, will offer plans with different costs and benefits. Out-of-pocket costs will be capped and there will be no limit on lifetime benefits.
While employers aren’t required to offer insurance, penalties will be imposed starting in 2014 for companies with more than 50 workers that don’t meet government standards for affordable coverage. Businesses with fewer than 25 full-time workers are eligible for tax credits to help pay for insurance.
The Congressional Budget Office estimated in 2009 that the proposed overhaul would lower costs as much as 59 percent for the 18 million people who buy their own insurance. For 159 million Americans covered through employers, the law is likely to have little effect on premiums, the CBO found.
Some provisions have taken effect, such as rules that allow adult children to remain on their parents’ health insurance until age 26. Starting in 2014, insurers will be banned from turning down people with pre-existing medical conditions.
Even with many of the details about the government-run health exchanges still to be worked out, last week’s decision adds “another chapter of clarity,” said David Cordani, chief executive officer of Cigna Corp. (CI), a Bloomfield, Connecticut- based health insurer. “And what I wanted more than anything was clarity.”
A court decision to junk the law would have created even more uncertainty, according to Bill Merritt, CEO of InterDigital Inc., which develops telecommunications technologies, and licenses and sells patents. The King of Prussia, Pennsylvania- based company has 320 employees.
“We have been operating under the health-care law for several years,” Merritt said. “At least we know what it is, what it is going to do, and we can prepare.”
Lobbyists including the National Retail Federation renewed denunciations of the law as a drag on the economy. In corporate offices outside Washington, executives cast doubt on whether the benefits promised to business, such as curbs on insurance premiums, would ever be realized.
Foot Locker Inc. (FL), which offers benefits to all full- and part-time employees, had assumed the law would be upheld, CEO Ken Hicks said. There’s still a chance of fallout for the world’s largest athletic-footwear chain, he said, because the measure requires individuals to buy insurance, possibly paring disposable incomes. Most customers of New York-based Foot Locker are young adults, many lacking insurance coverage, Hicks said.
“It’s money they won’t be spending on shoes, apparel or food,” he said.
U.S. health spending almost doubled in the last decade, to $2.6 trillion in 2010, federal statistics show. Even so, the growth in employers’ medical bills has slowed, falling to 3.3 percent in 2010, according to a May report from the Health Care Cost Institute, a Washington group that studies insurance data.
That has fueled a policy debate about whether the slowdown is a temporary result of a weak economy or a more permanent change brought on by pressure from insurers and businesses to trim spending and shift more costs to employees.
“The more they spend on health care, the less they have for general consumer goods,” said Dennis Hernreich, chief financial officer of Casual Male Retail Group Inc. (CMRG), the largest U.S. big-and-tall men’s clothier. “The court erasing the law would have added some clarity. Whatever cloudiness that existed before the court ruled, it still exists.”
Partisan sparring has obscured the law’s benefits for business owners, said John Arensmeyer, CEO at the Small Business Majority, a Washington-based group that supported Obama’s plan.
Cost pressures will ease because of caps on the amount of premiums insurers can keep for profit, and insurance exchanges will give small employers more negotiating power and lower administrative expenses, according to Arensmeyer, who said the group represents a network of about 8,000 businesses.
“We have a long way to go beyond what is even in this law, but you take some of these provisions and you’re starting to chip away at a bloated cost structure,” he said. “A lot of the political noise around the law is that it’s going to cause costs to go through the roof and there’s really no evidence of that.”
CEO Tilman J. Fertitta of Landry’s Inc., the Houston-based operator of more than 400 restaurant, hotel and casino properties, isn’t so sure.
“It’s just going to be a lot more expensive for people to eat out,” Fertitta said. “It’s going to be more expensive for people to buy groceries at the grocery store.”
Fertitta wouldn’t give an estimate for how much the health law might boost costs at Landry’s, which he took private in 2010 for $1.4 billion.
William Underriner, president of Underriner Motors in Billings, Montana, knows what he spent for his 65 employees in 2011 at his group of Buick, Volvo, Honda and Hyundai franchises: more than $300,000.
Notwithstanding the Obama administration’s pledges of cost containment, bills will keep rising, said Underriner, who watched news coverage of the court ruling from his glass-walled office in the showroom, surrounded by Honda Crosstour and Pilot sport-utility vehicles, an Accord sedan and an Odyssey minivan.
“Each year, it’s getting harder and harder” to continue paying 100 percent of employees’ premiums, he said. Underriner wears a second hat as well, as chairman of the National Automobile Dealers Association, the trade group for about 16,000 new-vehicle retailers in the U.S. NADA said in a statement that the Obama measure “remains a flawed law.”
Large businesses with expansive human-resources departments probably were better able to prepare for the Obama law than small firms, said Micah Weinberg, a senior policy adviser to the Bay Area Council, which represents business interests near San Francisco that include Google Inc. (GOOG) and Dolby Laboratories Inc.
The court’s decision probably will spur smaller businesses to take a look at available tax credits, and start planning for a rule that requires them to show on employees’ tax forms how much the company is paying in health benefits, Weinberg said.
“For those companies that rely heavily on part-time employees and contractors, costs will go up,” said Luke Kanies, CEO of Portland, Oregon-based Puppet Labs, a seller of server- management software. “That’s reasonable -- they have been short-changing people. People who short-changed their employee compensation, their costs will go up.”
Puppet, which has 78 employees and 12 interns, already provides health benefits to its workforce, Kanies said.
Cartera Commerce Inc. in Lexington, Massachusetts, which has more than 200 employees, also sees little effect from last week’s decision, because the provider of customer loyalty technology already had to meet state requirements for health- care coverage, CEO Tom Beecher said.
Now, he’s waiting to see whether the law delivers as promised on curbing the “the runaway cost” of care for employers.
“As a business person, the cost of health insurance we buy for our employees goes up by double digits every year,” Beecher said. That’s what can affect our hiring. That’s a bigger issue.’’