House Committee Addresses Costs of the Affordable Care Act

health care cost2.JPGJust days after returning from a week-long recess, Congress has wasted no time in scheduling yet another round of hearings on the new health care law. On Wednesday the House Committee on Energy and Commerce’s Subcommittee on Health conducted a meeting to discuss the Affordable Care Act’s impact on the budget and jobs. As expected, committee members and panelists opposed to the bill traded barbs with those in favor of the measure, who in turn expressed weariness that the year-old law was being debated yet again.

On one side, opponents of the law claimed that its costs far outweigh its benefits. According to a memo (pdf) issued by Republican committee staff members, the law “includes a variety of provisions affecting employers, including a mandate to provide coverage to employees, benefit mandates and requirements on current employer-provided health coverage, disclosure and information obligations, and expansion of tax-filing requirements. These new obligations imposed on employers could have adverse consequences for both the cost of employer-provided health coverage and the labor market.”

Specifically, the memo claimed that the federal subsidies included in the law are larger than the tax benefits provided for employer-provided coverage in many instances, which will give employers an incentive to terminate coverage once the health insurance exchanges are instituted. Other criticisms articulated in the memo and echoed by various business owners and policy experts testifying at the hearing include the prediction that as of 2014 employers will have a disincentive to hire more than 50 full-time equivalent employees, since the 51st worker will trigger the “pay or play” coverage requirements under the law. The memo also claimed that the Affordable Care Act’s definition of full-time employees – generally defined in the law as one who works an average of 30 hours per week – is ambiguous and thus “provides great uncertainty to employers and imposes challenges to industries with large part-time and seasonal workforces in particular.” Speaking on behalf of the National Restaurant Association, panelist Larry Schuler urged Congress to instead base the definition on a 40-hour workweek.

In addition, opponents to the law decried the requirement that employers provide equal health coverage benefits uniformly across their entire workforce. According to the testimony, this requirement imposes high administrative and financial burdens on industries with a low-skill and high-turnover workforce. The expanded 1099 reporting requirements and the limited reach of the small business tax credits were also on the receiving end of the panelists’ ire.

Committee Chairman Fred Upton (R-MI) and Subcommittee Chairman Joe Pitts (R-PA) both cited claims by Director of the Congressional Budget Office (CBO), Doug Elmendorf, that the health care law will result in the loss of 800,000 jobs by 2021 and that by 2016, individual premiums will rise by $2,100. While acknowledging these estimates, Elmendorf explained in his written testimony that “because the legislation will probably affect the average number of hours worked as well, the effect on employment will be somewhat different.” In addition, Elmendorf pointed out that health care premiums for employment-based coverage obtained through large employers will be slightly lower on average under the Affordable Care Act than under prior law, while the effects on the average premiums for employment-based coverage obtained through small employers is more uncertain. Elmendorf acknowledged : “There is clearly a tremendous amount of uncertainty about how employers and employees will respond to PPACA and the Reconciliation Act, and there is little direct evidence on the issue up to now.”

On the other end of the spectrum, ranking committee member Frank Pallone (D-NJ) touted the benefits of the new law, and claimed that opponents have yet to offer a viable alternative. He also noted that the CBO estimates that the Act will reduce the federal deficit by $210 billion by the year 2021. Rep. Lois Capps (D-CA) added that the provisions of the Affordable Care Act that those opposed to the law are trying to repeal or defund are the very provisions that will reduce the deficit. Rep. Henry Waxman (D-CA) echoed this sentiment, claiming that the Affordable Care Act is the largest budget deficit-reducing bill passed in the last decade.

During the hearing, Elmendorf reiterated the CBO’s $210 billion deficit reduction estimate, and said that the law is projected to provide coverage to 32 million currently uninsured individuals by 2016. He also countered claims that the health care bill includes a number of hidden costs, and supported Rep. Pallone’s contention that recent reports of greatly increased costs triggered by the Act are “wildly inflated.”

Similarly, David Cutler, Professor of Applied Economics at Harvard University, estimated that “over the next decade, the Affordable Care Act will reduce national medical spending by over $500 billion, reduce the federal budget deficit by over $400 billion, and lead to the creation of 250,000 to 400,000 jobs annually.”

Members of the business community testifying at the hearing also offered differing assessments of the new law. Speaking on behalf of the U.S. Chamber of Commerce, business owner Phil Kennedy claimed that since his company hovers around the 50-employee mark,

I can either get (and stay) under 50 employees, or I can start forcing employees to part-time status, making them independent contractors, outsourcing certain services, and taking similar efforts to negate the fines. It seems strange that the law would incent [sic] these choices at a time when the economy is struggling to recover from such a terrible recession.

On the other hand, small business owner Rick Poore offered his support for the law, claiming that:

The Patient Protection and Affordable Care Act is finally changing the game on health care and giving small businesses tools and opportunities to control costs and increase value. . . . The argument that the Affordable Care Act will cost our economy jobs ignores reality. It ignores our experience of the last 10 years, where the lack of any concerted response to skyrocketing insurance costs left small businesses in the lurch and undermined our ability to create jobs. The unlevel playing field for small businesses and the near impossibility of getting good, affordable coverage in a small business locked people into jobs with large employers that offered health security for themselves and their families, stifling the American spirit that drives innovation.

A complete list of the panelists as well as links to their testimony and an archived broadcast of the hearing can be found here.

Photo credit:  Andriy Solovyov

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.