Published on 12 March 2013
Health Costs and ACA Uncertainty Affecting Employment, Business Spending: Federal Reserve Beige Book

The Federal Reserve Beige Book is the central bank’s version of a routine check-up from a physician. Published eight times each year, the Beige Book compiles reports about how the economy is doing from Fed staff across the country and interviews with business leaders, economists, and other market experts across the country.  It provides a wealth of fascinating intelligence on the affects of health care on the employment and spending decisions of companies.

The latest Beige Book shows health care policy changes, mostly from health reform, are causing a great deal of uncertainty in hiring, wages, and consumer spending. Next year, a slew of provisions in the Affordable Care Act (ACA) take effect, including the employer mandate, individual mandate, a dramatically new regulatory framework for health insurance, significant reimbursement cuts, numerous new federal taxes, optional Medicaid expansion, new federally subsidized health coverage, and the option for individuals and small employers to buy health insurance from Qualified Health Plans (QHP) on the Health Insurance Exchanges (HIX).

The sections below pull health care related findings from the Fed’s Beige Book for March 2013.

Effect of the ACA on Employment and Business Spending:
  • Employers in several Federal Reserve Districts cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff.
  • Many district contacts commented on the expired payroll tax holiday and the Affordable Care Act as having restrained sales growth.
  • Employers across the Fifth Federal Reserve District continued to cite the Affordable Care Act and its unknown impacts as reasons for planned layoffs and reluctance to hire more staff. The Fifth District, governed by the Federal Reserve Bank of Richmond, includes the District of Columbia, and the states of Maryland, Virginia, North Carolina, South Carolina and most of West Virginia.
  • Some contacts in the 11th District noted concern that companies are hiring the absolute minimum to get by due to uncertainty about the federal health reform law. The Federal Reserve Bank of Dallas governs the 11th District, which covers Texas, southern New Mexico, and northern Louisiana.
  • Current demand in the 12th district for health care services remained relatively weak, but contacts projected rising demand as additional components of the Affordable Care Act are implemented. See here for a timeline for ACA implementation. The Federal Reserve Bank of San Francisco covers the western states that make up the 12th district: Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, and Washington.
  • 10th-district firms continued to report changes in health care policy and fiscal uncertainty as reasons for delayed hiring. The Federal Reserve Bank of Kansas City serves the 10th district states of western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado, and northern New Mexico.
Provider and Health Care Services Impact on the Economy:
  • In the Federal Reserve seventh district – which includes Iowa and northern Illinois, northern Indiana, Michigan and southern Wisconsin – construction of private-practice facilities close to affiliated hospitals is an area of strength.
  • Eighth district firms in health care services and information services announced plans to reduce employment. The district’s Federal Reserve Bank of St. Louis serves Arkansas and parts of six other states: Missouri, Mississippi, Tennessee, Kentucky, Indiana, and Illinois.
  • Reports from the sixth district’s Federal Reserve Bank of Atlanta noted that firms providing accounting and consulting services to health care providers reported much-increased demand because of regulatory changes, resulting in shortages of compliance specialists.
  • Pharmaceutical goods producers experienced modest gains in demand in the 12th district.
  • Fifth-district survey respondents in pharmaceutical retailpharmacies, in other words – reported higher revenues in February 2013.
Cost of Health Care and Health Benefits:
  • In the seventh district, wage pressures remained moderate. The cost of employee health care and other benefits continued to increase; some contacts noted that they were passing along the higher costs to employees. More generally, higher compensation costs were not being passed on to customers.
  • Contacts in the Federal Reserve third district – eastern Pennsylvania, southern New Jersey, and Delaware – from most sectors continued to report that wages rose only a little, if at all. Health insurance costs were mixed, ranging from very high increases to no change.
  • In the fourth district, rising health insurance premiums for manufacturing firms remain a challenge. The fourth district’s Federal Reserve Bank of Cleveland serves Ohio, western Pennsylvania, eastern Kentucky, and northern West Virginia.
  • Fourth-district energy producer contacts pointed to rising health insurance premiums as a concern.
  • Reports from the sixth district indicated that expectations of higher health costs and gasoline prices have contributed to a modest decline in consumer confidence. Health care costs remained a source of uncertainty going into 2013.

About Author

An expert on Medicaid, Medicare, and health reform, Kip Piper, MA, FACHE, is a consultant, speaker, and author. Kip Piper advises health plans, hospitals and health systems, states, and pharma, biotech, medical device, HIT, and investment firms. With 30 years’ experience, Kip is a senior consultant with Sellers Dorsey, top specialists in Medicaid and health reform. He is also a senior advisor with Fleishman-Hillard and TogoRun. For more, visit KipPiper.com. Follow on Twitter @KipPiper, Google +, Facebook and connect on LinkedIn.

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