Nearly Half of Private Company CEOs Believe Healthcare Reform May Have a Notable Financial Impact on Their Business

Oct 14, 2010, 09:16 ET from PwC

PwC's Private Company Trendsetter Barometer tracks the business issues and standard industry practices of leading privately held US businesses. It incorporates the views of 224 CEOs/CFOs: 125 from companies in the product sector and 99 in the service sector, averaging $256.7 million in enterprise revenue/sales, and including large, $300 million-plus private companies.

NEW YORK, Oct. 14 /PRNewswire-USNewswire/ -- As private company CEOs review the provisions of the federal Patient Protection and Affordable Care Act (the "Act"), nearly half (47%) of executives surveyed for PwC's Private Company Trendsetter Barometer say the Act may have a notable financial impact on their business. However, nearly one-third (31%) of respondents believe it's "too soon to tell" how the Act's provisions will impact their companies. Twenty percent don't anticipate a notable financial impact; 2% were unreported. Companies that don't anticipate a notable financial impact are forecasting above-average revenue growth, compared with the other companies surveyed.

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Although the majority of Trendsetter CEOs (70%) have begun reviewing their healthcare benefit plans in light of the Act, 55% have not yet determined what changes need to be made to their companies' plans. Only 15% have started to take action.

"In helping our clients assess the effect that healthcare reform will have on their organizations, we've been looking at their overall healthcare benefit packages to evaluate whether they're in compliance with the Act, as well as considering strategies for managing the expected increase in healthcare costs," says Ken Esch, a partner in PwC's Private Company Services practice. "In light of current economic conditions, it's imperative that companies begin assessing their healthcare plans and cost-containment strategies soon rather than later."

Overall Impact Unclear

When asked which of the Act's provisions were likely to have a moderate or significant overall impact on their company (including an impact on costs, benefits, strategy, operations, systems, employee recruitment, wellness programs, etc.), Trendsetter CEOs' responses varied a good deal. "Although we're seeing CEOs begin to review their options and healthcare strategy, on the whole they're uncertain about how significant an impact the provisions will have on their organization," says Esch.

This is evident, for instance, in the Trendsetter CEOs' response to the Act's tax provisions. Although a fair number of private companies expect the tax provisions (starting in 2013) to have a moderate to significant effect on their business (31 percent say this about the Medicare tax increase and 26 percent about the net investment income tax), the overall response to those provisions was mixed.

"This is an interesting time for Trendsetter CEOs, when you consider they'll be implementing new healthcare requirements in tandem with increasing tax rates," says Esch. "It's possible this could create a cash flow issue as CEOs look to continue reinvesting in their business. Every company is different, of course, but we're seeing clients consider accelerating income or deferring deductions now at the lower tax rate, which should provide a permanent tax benefit when rates go up."

Table 1: Significant Overall Impact on Business


Moderate or





Significant

Slight

No

Not certain/

First Plan Year Provisions

Impact

Impact

Impact

Not reported

  • No "pre-existing condition" exclusions for children or others

28%

25%

26%

21%

  • Coverage of dependents until age 26

21%

22%

29%

28%

  • Removal of lifetime limits on benefits

21%

20%

32%

27%

  • Elimination of "unreasonable" annual limits on benefits

15%

19%

38%

28%

Near-Term Provisions





  • Reporting on employees’ W-2s the value of health benefits (starting in 2011)

22%

31%

29%

18%

  • Auto-enrollment of employees in healthcare coverage (effective date not yet certain)

17%

20%

39%

24%

  • Option to auto-enroll employees in long-term healthcare plans per the CLASS Act provisions (employees can opt out)

14%

21%

32%

33%

Provisions between 2012 and 2018





  • Increase in Medicare tax on high-income individuals

31%

26%

27%

16%

  • Tax on certain net investment income

26%

17%

30%

27%

  • “Cadillac” plan excise tax

20%

12%

45%

23%

  • Elimination of waiting periods more than 90 days

16%

15%

51%

18%

  • Penalties for companies (with 50+ employees) that fail to provide coverage or do not provide minimal affordable coverage

9%

10%

66%

15%



Despite Uncertainty, CEOs Plan for Change

Despite uncertainty about the impact of the Act, many Trendsetter CEOs say they intend to change current processes and plan structures: 70% of respondents plan to re-evaluate their companies' overall benefits strategy; 60% plan to change their benefits; 52% are likely to significantly change employee contributions for medical coverage; and 42% are likely to increase their companies' investments in wellness programs.

"That a considerable number of CEOs are looking to up their investment in wellness programs signals a shift in thinking," says Esch, "with greater focus on a long-term approach to the health of employees - one that emphasizes preventive measures. This, in turn, should help companies contain healthcare costs in the long run."




Not certain/

Likely Company Actions

Likely

Unlikely

Not reported

  • Re-evaluate your overall benefits strategy

70%

25%

5%

  • Change your company's benefits to comply with the Act

60%

28%

12%

  • Significantly change employee contributions for medical coverage

52%

31%

17%

  • Increase your company's investments in Wellness programs

42%

44%

14%

  • Cover employees through state-run health insurance exchanges (available in 2014 for small employers, and in 2017 for large ones)

17%

49%

34%

  • Set up or significantly change retiree medical benefits

7%

52%

41%



Interestingly, of the 11% of respondents whose healthcare plans cover retirees, nearly half (46%) are likely to significantly change their current retiree programs; 37% are unlikely, and 17% are uncertain.

"The potential business impact of health reform is just one among a host of issues - regulatory, legislative, economic - that's creating uncertainty for CEOs right now," concludes Esch. "We're advising our clients that with proper planning and a big-picture perspective, they can effectively navigate through these challenges and emerge a stronger, more efficient business."

PwC works with a majority of the leading private companies in the US. Our 2,000 private company individuals focus on understanding the strategy and business objectives of private companies and their owners, working together to add value while reducing risk. Our professionals are provided with cross-training to enable them to connect the dots across a number of private company issues such as compliance, controls, access to cash flow, expansion, exit strategies, succession, wealth management and the many areas that can help build or diminish long-term success and value. For more information about PwC's private companies services please visit www.pwc.com/pcs.

PwC (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

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SOURCE PwC



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