You tell me what the impact of the Affordable Care Act will be; I can’t tell. Experts, quoted recently in a Wall Street Journal article, were throwing around figures ranging between 25 and 50% cost increases. That’s a large percentage on top of an already large expense for many firms. A Kaiser Family Foundation study found these costs have doubled since 2002.
Of course, this discussion assumes the business is already paying for healthcare benefits. Some firms that have not historically paid for this type of benefit may find themselves in a completely new world.
The one thing I’m sure of is that you’ll be engaging benefits consultants over the next several months to figure out how to make it closer to the low end than the high end of the range.
But is that enough? Probably not. The pundits are projecting a 25-50% increase in roughly 31% of your labor costs accounted for by benefits, according to another WSJ article. If you are in a service business and most of your direct and indirect costs are labor, you could be looking at a 7 or 8% increase in costs overall. I know clients in competitive, labor heavy businesses and this increase would take most of their profits… and that’s the low end of the impact range. If the high end predictions are true, it is only the very low labor businesses that may avoid a huge burden.
My point here is not to ruin your day (too late, I know), but to focus your attention on other areas of the business. To stay even, firms will need to manage the costs of the new benefit mandates. But most firms will need to go beyond that as well and challenge their businesses to increase efficiencies in other areas in order to rebalance the system, so-to-speak. Whether it’s increasing prices, gaining market share, introducing new products, becoming leaner or some combination, I encourage you to begin these efforts immediately. Don’t wait until you know the impact of the Affordable Care Act. By then it will be too late to avoid the initial cost impact. Not only that, but if you start these efforts early, you will get the improved profits early. Maybe even before the act kicks in.