Study: New Healthcare Law To Have 'Negative Impact' on Bottom Line of Even Small Firms

Gene J. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A new, general market survey confirms the dire predictions made by health insurance analysts: the new federal health care law will "negatively impact the bottom line" of many U.S. firms.

This adverse impact will harm not just profitability, and dividends, but new capital equipment investment, in computers and networking technology, as well will be a drain on “general market conditions,” according to the survey of CEOs by Cbeyond (NASDAQ: CBEY).

The findings on the possible impact of the health reform law cited above stem from the Winter 2012 Cbeyond Business Leader Snapshot, a survey of 435 executives who own or manage a small to medium sized business with 10 or more employees. 

Cbeyond, a technology consultant to more than 60,000 small businesses, prepares this survey to dive into the current and future state of technology and business outlook among small and medium-sized business decision makers in the U.S. This firm provides computing services to many health care firms, and may well profit from increased federal and state regulation of healthcare, especially mandates to compel implementation of electronic health records (EHR) at doctors' offices and hospitals.

Cbeyond, itself, seems to be in the same boat as the other, small, publicly traded firms. It will face the same general market conditions, in part created by the new healthcare law, and will face increasing costs due to increased premiums for its employees. The company remains a cautious buy, however, in my analysis, as it is ahead of the curve in addressing these coming cost increases.

Healthcare Headache

Per the firm’s survey, while the plurality of small-and-medium-sized U.S. business leaders said healthcare reform had no impact (42%) on their bottom-line in 2012, they now complain the same will not hold true for 2013.

Thirty-eight percent of business leaders anticipate a “negative bottom-line impact” from the Patient Protection and Affordable Care Act in the New Year. When asked about the potential bottom-line impact in 2013, they say,

•        38%: “Yes, a negative impact.”

•        32%: “No impact.”

•        15%: “Yes, a positive impact”

•        15%: ”Not sure.”

“Cbeyond takes great steps to understand our customers’ needs and the trends and economic conditions that are impacting their businesses and technology decisions,” Paul Carmody, senior vice president and chief marketing officer at Cbeyond, said in an e-mail to the Motley Fool. “This study showed there are still concerns about market conditions and the impact of healthcare costs. As small and medium-sized businesses seek to cope with macro factors affecting their companies, leaders increasingly view technology as a way to help them drive productivity. They also are starting to see the proverbial light at the end of the tunnel - a collective sentiment which we hope is indicative of the overall U.S. economy moving forward in the coming months.”   

The survey was conducted in November 2012 and includes opinions from a total of 435 leaders of small-and medium-sized businesses participated in this nationwide online survey of organizations with 10 or more employees.

Company size of the firms surveyed ranged from less than $250,000 in revenue to more than $5 million, with 21 percent having more than $5 million in annual sales and 32 percent having more than 100 employees; 70 percent have been in business for five years or more. Industries were represented as follows: 38 percent business services, 36 percent retail and manufacturing, 19 percent personal services and 7 percent non-profit.

John Schnatter, the founder of Papa John's International (NASDAQ: PZZA), the Louisville-based fast food chain, and executives at a small number of other publicly traded firms have publicly complained about the possibility of increased healthcare costs on his company’s bottom line.  

Papa Johns faced pushback for this speculation, and the CEO tempered his remarks, somewhat, subsequently, according to Forbes Magazine.

Recent reports have indicated that it will cost companies which employ 50 or more workers approximately $17,000 per employee to comply with the new federal healthcare law. This costs includes not only the expense of increased premiums for health insurance, but also the legal and regulatory costs associated with complying with the law.

I still rate Papa John's a cautious buy, however, due to its savvy management and seeming ability to adapt to these changes coming from Washington D.C.

Increased insurance premiums may be bad news for Papa John's and other fast food firms, but it may be good news for other public firms, in my analysis. 

Aetna (NYSE: AET), and other providers, like WellPoint (NYSE: WLP), are increasing their respective premiums in order to offer new health service coverage mandated by the federal law, passed in Congress in 2009.

These insurance companies are looking like a great investment bet, for the short-term, as their profits are likely to continue to rise, according to a recent report. In my analysis, I definitely recommend that you buy WLP and AET, and hold, until further health reform laws are passed.

-- Gene J Koprowski is an Emmy Award Nominated (2009) business journalist and author of Nanotechnology in Medicine: Emerging Applications (Momentum Press, 2012), The Encyclopedia of Health Services Research (Sage Publishing, 2009), among other books. He has written extensively for The Wall Street Journal, Investor's Business Daily, and FoxNews.com.

 


Gene J. Koprowski has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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