BTerrell Group Blog

Impact of Health Insurance Law on Business: What We Can Do

Posted by Brian Terrell on Wed, Feb 26, 2014

Often, I remind myself that the contention in Congress reflects the diverse opinions of those Congress represents.  That’s me and you.  When it is all said and done, we are responsible for their failure to compromise and lead the country forward.  We are the ones who put them there, and we are the ones that can make the change.  Should I complain or just work to affect change?


Nowhere is this public opinion divide more obvious than in the debate over the Affordable Care Act (ACA).  News and social media bombard us daily one way or the other in an attempt to proclaim or disclaim the merits of this new law.  I've become dull to this over time in part because it wears me out, but also because my opinion is by now well-formed and unlikely to be persuaded.  However, a first person account shared with me by someone I respect catches my attention, and I had one the other day that I’d like to share.

A prospective manufacturing client company executive met with me over lunch, and our conversation eventually turned to, among other things, the 2.3% medical device excise tax which the law assesses against the gross sales of applicable products.  This tax, which has been collected since the beginning of the 2013, distinguishes itself because it does not take profitability into account.  Manufacturers and importers pay the tax regardless of its impact on the taxpayer’s net income.

What impact does this have and how may my prospective customer react?  His business achieves a modest but not uncommon 5% net profit margin.  That means he ends up, after collecting all his revenue, paying all his employees and suppliers, and covering all his overhead, with 5 cents on the dollar.  So, a 2.3% excise tax reduces that 5 cent profit margin by half unless other adjustments are made.  As he shared with me yesterday, my prospect will search for other adjustments to be made.

First, he considers sending work to an outsourced manufacturing plant in the Dominican Republic.  By doing so, the $11 per hour average labor he pays in the United States can be reduced to that country's labor rate of 70 cents per hour.  Even with the additional costs of freight incurred to get the product back into Texas for distribution to U.S. customers, my prospect believes he will reduce his overall production costs by 40%.

In addition, my prospect is considering other strategies to maintain his company’s profitability.  These include emphasizing technology as a way to reduce labor costs as well as raising prices to customers.  Because my job is to help client companies do more work with less effort, I participated in the conversation around technology.  Our technology proposals will help close the gap, and we’ll do all we can to help.  Raising prices to customers carries the obvious risks of making it easier for those customers to shop around for a lower price.  With more consideration, my prospect may very well discover additional ways to maintain his profit margin.

Firsthand accounts impress me more than what I read in the paper or hear on the news.  I realize I may also soon hear firsthand accounts from those greatly benefiting from greater access to healthcare.  These views will impact how I exercise my right to be responsible for the direction in which our country’s politicians lead us.  Regardless of your opinion, please join me in our very next local opportunity to be responsible by participating in the Texas 2014 Primary Election on March 4th.

Vote Texas

Tags: Affordable Care Act