USA Truck, Baldor expect higher costs from new health care law

While the debate rages as to how much the newly signed federal health care law will cost the U.S. business community, at least two publicly held companies important to the Fort Smith metro area economy say the new law will raise their cost of doing business.

Several stockholder-owned corporations have reported in recent days the accounting charge or expected cost related to implementing the new federal health care law. Caterpillar said the new law will cost the company $100 million in the first year. Deere & Co. said their first year implementation costs could total $150 million. Telecom giant AT&T said their early implementation costs could total $1 billion.

The losses — primarily non-cash charges initially, but eventually real dollars — stem from federal subsidies that were offered to more than 3,500 companies as part of the Medicare-D restructuring that extended drug benefits to retirees. The subsidies helped cover some of the added cost to extend the drug benefits. Adding to those losses is a provision under the new federal health care law that extends coverage to the employees’ and retirees’ dependent children up to age 26.

A report from Towers Watson indicates a company with 25,000 retirees could see their 2010 earnings drop by $70 million. (Possibly one of the best non-partisan summaries of the new health care bill was produced by Towers Watson and can be found at this link.)

LOCAL IMPACT
Cliff Beckham, president and CEO of Van Buren-based USA Truck Inc., said the trucking and logistics company does not extend benefits to retirees and will avoid some of the extra costs on that front. Beckham said the company is in the midst of reviewing what the new law will mean for the trucking company that has financially struggled to survive a national freight recession that began in October 2006.

“There is little doubt in my mind that it will raise costs, but we are not familiar enough with the details yet to speculate as to how and how much,” Beckham said in an e-mail interview.

USA Truck Inc., which reported a 2009 net income loss of $7.177 million compared to a gain of $3.14 million in 2008. The company employs between 2,500-3,000 nationwide.

The long-haul trucking company posted 2009 revenue of $382.36 million, down 28.6% compared to the $535.62 million in 2008.

David Humphrey, vice president-investor relations and corporate communications for Fort Smith-based Arkansas Best Corp., said the national less-than-truckload carrier has not yet evaluated the cost, if any. Arkansas Best, through its primary subsidiary ABF Freight System, employs more than 9,500. The company also has struggled through the freight recession. In 2009, the company posted a net income loss of $127.52 million, compared to a $29.168 million gain in 2008. However, the 2009 income loss includes a non-cash accounting charge of $64 million for the impairment of goodwill. Total revenue in 2009 was $1.472 billion, a 19.6% dip from 2008 revenue of $1.833 billion.

Officials at Fort Smith-based Baldor Electric Co. also have not determined the financial impact of the new bill, although they anticipate it will add costs for the company.

“We do know, however, that the legislation which passed last week will have a negative effect on our overall health care costs. Health care costs for our company and our employees will increase next year as a result of the new provisions required by the law,” said Tracy Long, Baldor’s vice president-investor relations.

Baldor, a maker, designer and marketer of industrial electric motors, motor drives, power transmissions and generators, posted sales in 2009 of $1.52 billion. The company employs between 7,000 and 7.500 in 26 plants in five countries and sales offices serving more than 80 countries. About 2,000 are employed in the Fort Smith area.

The impact of the new legislation is also under review with Benton Harbor, Mich.-based Whirlpool Corp., one of the largest employers in the Fort Smith area.

“We continue to study the situation, and as such are not offering comment at this time,” Jill Saletta, director of external communications for Whirlpool, noted in an e-mail to The City Wire.

Whirlpool’s Fort Smith plant employs between 1,300-1,500, but employed about 4,600 in early 2006.

ACADEMIC VIEW
With the cost of the new bill to the U.S. economy a point of debate, the Harvard Business School recently released opinions on the matter from several faculty.

Regina Herzlinger, the Nancy R. McPherson Professor of Business Administration and author of "Who Killed Health Care?" offered this assessment: “The costs of this legislation, more than $900 billion, will put another nail in the coffin of the U.S. economy and open the door to a government-controlled health care system that gravely injures the sick and the entrepreneurs who could help them, along the way.

“The problem? The absence of a way to control the costs that already cripple U.S. global competitiveness. As a percentage of gross domestic product, this country spends roughly 70 percent more on health care than other developed nations; yet we cannot point to commensurate superiority in value, other than in biotechnology and genomics. And these official numbers fail to include the $38 trillion in unfunded Medicare liabilities-the dubious gift we leave to our progeny.”

Link here to the complete Herzlinger comment.

Bill George, professor of management practice, former chair and CEO of Medtronic, and author of four best-selling books, including "7 Lessons for Leading in Crisis,” said the bill won’t necessarily address rising costs of healthcare.

“Passing this bill is a momentous step in granting health care insurance to 32 million Americans who lack access, something we can finally take pride in. But it certainly doesn’t end the urgent need for health care reform. Rather, this is the end of the beginning. Now the hard work must begin in earnest. The bill addresses only one of the four essential elements of health care. Beyond insuring the uninsured,cost, quality, and lifestyles are not addressed. Unless we focus on all four, we will continue to have a dysfunctional system with unaffordable costs.”

Link here to full statement from George.