Companies reveal new health law's financial impact
Dozens of firms weighed in on the ACA during earnings reports, and the results are mixed.
By Noelle Knox, The Wall Street Journal
The Affordable Care Act's impact on the bottom line is starting to ripple across corporate America.
More than 80 public companies told investors the new health-care rules were, or could be, a financial boost or drag on their quarterly earnings, though they were often uncertain of the magnitude, according to a Wall Street Journal search of earnings-call transcripts for the most recent quarter provided by FactSet.
The Congressional Budget Office's most recent estimate of the ACA's budgetary impact is $1.36 trillion between 2014 and 2023. The financial effects on businesses are evolving as changes are made to the legislation, including a decision this month to again delay when many smaller companies will face a fine if they fail to offer health insurance.
But some trends are emerging.
In general, media and advertising companies and staffing and outsourcing firms are clocking gains. Insurance providers are investing heavily now in technology and staffing—and taking a hit to earnings — in anticipation of future gains.
And many large employers across industries are spending more on insurance benefits for full-time employees or on training for new, part-time employees who won't necessarily be entitled to company-sponsored coverage.
Several advertising and communications companies, including Emmis Communications (EMMS) and LIN Media (LIN), said they will register increases in spending on advertising and outreach campaigns to encourage enrollment through the new state and federal insurance exchanges.
Emmis is forecasting a 12 percent to 15 percent increase in health-care advertising this year, and up to 20 percent of that is expected to come from ACA-related advertising from insurers, hospitals and state-government agencies, Patrick Walsh, chief financial officer at Emmis, said in an interview.
The Indianapolis-based company's two biggest markets are New York and California, both states that have rolled out health exchanges. Mr. Walsh said Emmis's biggest radio stations are the hip-hop-music Power 106 and Hot 97, which target young, urban minorities. "Our audience is an attractive target for the exchanges," he noted.
Oscar Insurance, for example, ran radio ads on Emmis's New York City Hot 97 radio station in conjunction with a Twitter and Facebook campaign to attract customers.
"Right now, the ACA-related spending is showing up in two places, as political advertising or as health-care advertising. But I foresee it becoming a completely new category as the space develops," said Edward Atorino, a media analyst at Benchmark. "The bigger markets have national TV covering them, but for the smaller ones, there is a real need to get the information about exchanges out there by telling people about the locations and phone numbers."
Virtusa, an IT consulting and outsourcing company based in Westborough, Mass., said that increased spending from health-care clients helped boost its fiscal-third-quarter operating profit 14 percent from the previous quarter.
Insurers and health-care providers are streamlining their IT infrastructures and revamping websites to provide more data to customers, said Ranjan Kalia, the company's CFO, adding, "We believe that this is a market driver."
However, he said Virtusa has also had to spend more to bring its own benefit plans for employees into compliance with ACA demands. He estimated Virtusa could spend "a few hundred thousand dollars" more on health care for its 900 U.S. employees when it renews its plans this summer.
Dozens of other large employers also warned investors that the cost of complying with the ACA will be sizable. United Parcel Service (UPS), Pantry (PTRY) and J&J Snack Foods (JJSF) are among the companies that detailed the likely financial hit for broadening benefits coverage.
Pantry, which operates Kangaroo Express convenience stores, said the company hired 800 part-time employees late last year and spent an additional $700,000 on training. The new employees won't be eligible for company-sponsored health-care benefits.
Nevertheless, Pantry will spend up to $8 million more a year on health-insurance costs related to the ACA for its 6,600 full-time employees, said CFO B. Clyde Preslar.
J&J Snack Foods, maker of Super Pretzels and Icee frozen drinks, cautioned shareholders it will spend an additional $600,000, or $0.02 a share, this year on health-insurance coverage for its 3,300 employees.
But repeated changes in the law have made CFO Dennis Moore cautious about the financial impact. "The law keeps changing. That's another unknown. Who knows how many times it's going to change?"
Last week, Wal-Mart Stores (WMT) said health-care expenses were a "headwind" last year and will continue to be this year. The company said "higher than anticipated" enrollment in its health-insurance program put "pressure on our benefits expense."
Widespread technical problems late last year with the health law's new online marketplaces helped push down enrollment for health-insurance companies offering plans on the government-backed websites, including Cigna (CI) and WellPoint (WLP).
In addition, the risk profile of the new enrollees has been skewing toward somewhat older, potentially higher-cost people, which could be a concern for the health plans' future earnings. Indeed, Cigna, Humana and Aetna (AET) have all said that they expect to lose money this year on their public-exchange business.
WellPoint said the ACA would have a $100 million "unfavorable impact" on its earnings this year.
It said it would spend $300 million upgrading its computer systems, hiring 1,000 full-time employees and paying for advertising and outreach. Most of that money was spent in the fourth quarter, but the insurer held back some marketing dollars because of the slow launch of the federal health-care website.
— Vipal Monga, Saranya Kapur and Anna Mathews contributed to this article.
More from The Wall Street Journal
Here I will sum up the truth behind ObamaCare:
-millions lost their policy and did not sign up
-will cost about 500,000 people their jobs
-created a monopoly and made Obama's friend rich
-let Obama's friend design the website and made him rich
-first time ever tax for not buying something (broke law)
-made the nation more divided than ever
-made some democrats turn on Obama
-will make Obama go down as worst president ever.
Oh yah I forgot this story will make BRENT or what ever account he is using to post 40 worthless post supporting his false god.
YEP! Sounds about right for the educated minds of TODAY? "Could be a boost, or drag on earnings"? REALLY! And how much did mom & dad spend to send you to school to get educated? I would say they got their moneys worth!
Is everybody NOW seeing clearly that it was NEVER about making healthcare "more affordable"? MEANING COST LESS! No it was all about putting more money WHERE THEY WANTED IT TO GO, and having someone else pay most of it for you for it for you. THE GOV'S DREAM! CONTROL EVERYTHING AND EVERYONE!
Mexico is knocking! Are you going to open the door? I LOVE THE USA!
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