The ACA and Its Impact on IT

July 20, 2012 5 Comments »
The ACA and Its Impact on IT

With the passage—and now the Supreme Court go-ahead—for the Affordable Care Act (known colloquially as Obamacare), many companies are wondering what the effect will be on their business. For IT, the ACA may be a double-edged sword, even ignoring the political implications the legislation, which the U.S. high court justified in its majority opinion by essentially establishing Congress’s right to tax any behavior (or lack thereof) under the sun. The ACA may be yet another drag on employment, even in the relatively strong IT sector, but it may also expand markets for IT services—particularly in the health-care sector.

The ACA Will Harm Employment All Around

The current U.S. unemployment rate resides at 8.2%—a number that likely fails to capture the current employment situation, with many having given up searching for jobs and with burgeoning disability and unemployment rolls. The unemployment rate in the IT sector is far lower, however, at around 4.4% (“IT Unemployment Rate Half the National Average”), reflecting the strength of this sector compared with the broader economy. Despite the dismal economic situation, already astronomical health-care costs continue to rise, partly motivating passage of the ACA legislation. The question for many employers, particularly those in IT, is how this legislation will affect them—and what advantages it might afford.

Economics is a complicated topic, but the simple idea that subsidies yield more of what is subsidized and taxes yield less of what is taxed provides a good rule of thumb for the effect of government action. From an employer’s perspective, higher cost of labor without a commensurate increase in return reduces the ability to hire or to maintain current employee rolls. In other words, taxes on employment reduces employment—a simple application of the above-mentioned economic maxim. The ACA, although it may not effectively be a tax in all situations, nevertheless increases employment costs for some companies by mandating health insurance coverage for full-time employees.

According to Reuters (“How Obamacare’s Employer Mandate Affects Small Biz”), companies with at least 50 full-time employees must provide health insurance up to government-mandated levels or pay a penalty (or is it a tax?) of $2,000 per employee, with a 30-employee exemption. Depending on how “minimum coverage” is defined as the legislation rolls out, the penalty may well be less expensive than providing insurance. Regardless of the numbers, however, the legislation effectively makes employment more expensive for some businesses, meaning lower employment. Some companies, of course, already offer health insurance to employees, meaning they may see little effect from the law. But as costs continue to rise, some of these companies may be forced to either drop insurance benefits or drop employees.

The effect on employment will, of course, vary from business to business, and IT probably won’t see any greater or lesser harm from this aspect of the legislation than will companies in other markets.

The ACA Cannot Contain Costs

The question for many businesses, then, is whether health insurance costs will be contained—one of the ostensible goals of the far-reaching ACA. The answer on a simple analysis is no, short of health-care rationing. Most people who purchase something want to get the most for their money—insurance is no different. Health insurance essentially creates an incentive for going to the doctor and to specialists (you might as well get your insurance dollars’ worth), even despite deductibles. As more people are forced to buy insurance, they will also want to take advantage of the services provided, meaning more demand on existing health infrastructure. The only solution, short of establishing more infrastructure, is to raise prices (meaning ever-higher insurance premiums). The less savory alternative is rationing, which leads to fears of so-called death panels that determine who is and is not eligible for potentially life-saving services.

The result is that businesses under the ACA will see no remedy for the problem of the expanding health insurance costs that will become a legally required part of employment. Subsidies for individuals to buy health insurance will do nothing to aid the employment situation: they will simply expand the insurance rolls, putting upward prices on care and thus premiums. Again, IT will not necessarily see any greater harm from these dynamics than will other companies, but some may see opportunities arise.

Health IT

The Wall Street Journal notes that the ACA provides incentives for electronic medical records (“Health-Care Technology Will Survive if ObamaCare is Overturned”): “‘In order to participate in some of the [ACA] programs, having electronic health records would be advantageous,’ said Judy Hanover, research director of IDC Health Insights.” The article goes on to note, “The initiatives funded in the ACA, such as the bundled payments initiative, do contain a significant technology component. Under that initiative, Medicare will pay for services delivered across an episode of care such as heart bypass or hip replacement. The idea is to give doctors and hospitals new incentives to coordinate care, eliminate duplication of services, lower preventable medical errors and lower costs.” Again applying the simple economic maxim, this means that because the ACA is effectively subsidizing activity that requires IT, demand for IT services will increase. The need for doctors and health-care institutions to coordinate information provides ample opportunity for cloud-service providers that are able and willing to comply with a variety of government regulations.

The need to maintain infrastructure both for electronic medical records and for the kinds of communications that will become increasingly integral to delivering health-care services will provide at least some boost to the business of vendors of storage and other IT equipment. According to the Wall Street Journal, “In 2011, only about 57% of office-based physicians used electronic health records, although the government has shelled out an estimated $5.58 billion to encourage providers to use them.” In other words, a large potential market remains untapped, and this market could expand significantly as the ACA mandates (or, at a minimum, subsidizes) expanded IT infrastructure. Beyond equipment vendors, these benefits may not touch the average data center service provider or company simply operating a data center, but opportunities may arise for some cloud-service providers and other IT companies.

Overall Effect: Negative

As the Data Center Journal noted previously (“Emergency Federal Control of Communications Networks”), the political ramifications of the ACA—and, in particular, the Supreme Court decision upholding it—are a definite negative for IT, and anyone interested in preserving a free society. The economic implications of the ACA may not seem as dire, but the legislation has yet to roll out fully. The forced expansion of the customer pool for insurance companies means continued rising costs of insurance, and the effect on employers forced to provide insurance will almost certainly be a reduced ability to employ. Because so many factors affect employment, the precise effect in terms of solid numbers may never be clear, but the simple economic maxim discussed above suggests that unemployment will increase. For IT companies specifically, the ACA also expands potential markets through regulations and subsidies, which could benefit in particular cloud-based service providers, as well as vendors of IT equipment. But these benefits may well be outweighed by the additional regulatory burden that the ACA imposes. On an individual basis, some companies may do well from the legislation, but arguably, most will be affected negatively.

Photo courtesy of tedeytan

About Jeff Clark

Jeff Clark is editor for the Data Center Journal. He holds a bachelor’s degree in physics from the University of Richmond, as well as master’s and doctorate degrees in electrical engineering from Virginia Tech. An author and aspiring renaissance man, his interests range from quantum mechanics and processor technology to drawing and philosophy.

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