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Health care reform needs reform

Jerry Cirino is no fan of the health care reform. Cirino, the chairman of Depew optical products manufacturer Reichert Inc., fears that the legislation, signed into law last week, will drive up health insurance costs for employers. And he is unhappy with a 2.3 percent tax that the new law will impose on most medical devices, including the diagnostic equipment that Reichert makes for optometrists and ophthalmologists.

Cirino elaborated on those concerns in an interview with News business reporter David Robinson:

Q: What do you think of health care reform?

A: I have issues at several levels. As a businessman managing a company, I think it's a return to Voodoo economics. This just does not stand the test of intelligent economics.

I'm for health care reform. I'm for cost reducing and expanding benefits. I wouldn't mind paying a little bit more in taxes, personally, to get more people covered, but not in a massive giveaway.

Q: What don't you like about it?

A: First of all, the plans really do not address cost reductions. It's throwing more money at more things to be able to cover more people and penalize others to be able to do that.

There's really nothing that specifically addresses increased competition to lower costs, interstate competition among providers. It doesn't do anything new to address fraud, which everyone agrees Medicare fraud, particularly, is huge. And it doesn't address the issue of tort reform.

How you can have health care reform that doesn't address these significant and substantial issues is beyond my understanding.

Q: How do you see health

care reform affecting Reichert?

A: On a macro level, Reichert operates within the economy. Just as we felt an impact during the recession of 2009, if this hurts the economy, which I believe it will, then Reichert, along with other companies, will feel the pinch.

Q: Part of the package is a 2.3 percent tax on medical devices, excluding things like eye glasses, contact lenses and other devices consumers purchase over the counter, beginning in 2013.How do you see that impacting Reichert?

A: It's a big negative. They had to go someplace to find a way to pay for this debacle. Medical devices of all kinds are going to be taxed. And it's not on your profit from selling those devices. It's on your sales.

That's got to be covered somehow. We have the option of trying to pass on some to our distributors and our end-user customers—ophthalmologists and optometrists. That's always a difficult thing to do. Will it impact what we're able to provide to our employees and reinvest in the company for development?

Q: Would it make you think longer and harder about hiring new employees?

A: I just think this is crazy economics. It makes no sense.

Q: At less than 3 percent, how much would the tax add to the cost of a typical product Reichert makes?

A: We're estimating our 2010 revenue would be $50 million. Virtually all of our products would fall into the category of being taxed. You can do the math. It's a big number ($1.15 million). It comes out to be close to 20 percent—20 to 25 percent—of our total profits before taxes. It's arbitrary. It's punitive and it's a job killer.

It hasn't gotten much talk, unfortunately, because it only affects a limited number of companies, but the state of New York has a lot of medical device companies. There have got to be some unhappy campers. I can't be the only one.

Q: Is there anything you like about the health care package?

A: I like the idea of covering people who can not afford it or are unable to have it. Mandating people to have insurance is, in my opinion, unconstitutional, and hopefully that will be challenged by many states.

Q: Will health care reform lead to any changes in how Reichert treats its employees?

A: We offer a very good health care coverage plan to our employees. I think the places we go to for our coverage, I believe pricing is going to go up. There's no way it can go down. We're going to be dealing with higher premiums.

I think companies all around America are going to be looking at whether employees will have to pay more as their contribution. If you take 20 percent of our profit away through this sales tax, that profitability has to get made up someplace.

I just question whether, in the long run, companies are going to be able to continue to offer such good health care coverage.

Q: Should workers be worried?

A: I don't want it to come across to our employees that this is going to mean a cut in benefits that we offer because of the tax.

It's really a generic thing. Companies all around are going to look at balancing how much they can afford to pay, in total, for benefits.

So we'll be covering more people, but it may put at risk the quality and breadth of coverage that companies will be able to afford.

Q: Because many of the provisions will be phased in over a number of years—the medical device tax doesn't kick in until 2013—does this give Reichert enough time to prepare for the changes that are coming?

A: I think there are a number of things we can spend time on either preparing for or look to repudiate.

I'm going to be putting my personal assets on the line to change a lot of this. I'm not treating this as a given. That will range from supporting candidates who see this as the debacle that it is to supporting candidates who want to do real health care reform, which is real cost containment as well as expanded coverage.

My expectation and my hope is that we can get this medical device tax removed.

MONDAY: Check out a helpful guide to what something costs and how our frugal readers can save even more, in the new feature "Do the Math" in Money- Smart.

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