Most employers will make necessary healthcare benefit changes to avoid penalties due to the Cadillac healthcare tax (C-tax), and hence, IT and Payments Solutions Providers should be favorably impacted, states Goldman Sachs.
James Schneider and team at Goldman Sachs in their April 13 research note titled: “Impact of Cadillac healthcare tax; EMV and Apple Pay data points” point out that VeriFone Systems, Inc. would benefit from the EMV upgrade cycle in the U.S.
Beneficiaries of C-Tax provision
The Goldman Sachs analysts note that the C-tax is an ACA provision which imposes a 40% excise tax on expensive healthcare plans. They note the C-tax aims to reduce overall healthcare usage and costs by encouraging employers to offer plans which are most cost-effective and engage employees in sharing the cost of care. Though the C-tax is not scheduled to take effect until 2018, Goldman Sachs’ healthcare services analyst Matt Borsch believes there is widespread awareness of the tax among large employers and expects potential changes to health benefit programs by employers in this regard.
James Schneider and team believe as most employers make the necessary healthcare benefit changes, Cognizant Technology Solutions, Paychex, Automatic Data Processing and WEX will also benefit. As set forth in the following graph, the Goldman Sachs’ healthcare analysts anticipate nearly 60 million lives in exchanges by 2019:
With the C-tax as a potential catalyst for the greater adoption of private healthcare exchanges, the analysts believe Cognizant is exposed to a strong uptick in demand in its integrated health management solutions over the next four years. Moreover, Cognizant’s management has already highlighted a recent uptick in revenue from new healthcare customers, partly driven by implementations of direct-to-customer programs through mobile platforms:
The Goldman Sachs analysts point out that with employers becoming increasingly focused on healthcare regulations, they anticipate Paychex and ADP will continue to witness enhanced traction for their ACA-related offerings:
As depicted in the following graph, currently 20% of workers are enrolled in high-deductible health plans as against only 8% in 2009:
Ongoing battle on EMV deadline
James Schneider and team at Goldman Sachs also touched upon the looming EMV deadline. They note as the deadline for the EMV liability shift in October 2015 nears, retailers are pushing for a delay in the timeline. They note that while retail associates like Food Marketing Institute (FMI) are pushing for the EMV deadline to be pushed back to 2016, the National Association of Federal Credit Unions (NAFCU), the SmartCard Alliance and EMV groups are insisting on no changes being made to the deadline.
Considering the heightened security concerns following major data breaches at retailers in 2014, the analysts anticipate EMV momentum in the U.S. to continue. They believe VeriFone Systems, Inc. will be a key beneficiary of the EMV upgrade cycle in U.S.
Commenting on Apply Pay’s compliance with the Durbin Amendment, the Goldman Sachs analysts believe this is a timing issue and don’t envisage any regulatory or technical concerns for Apple Pay.
James Schneider and team at Goldman Sachs remain Neutral-rated on NCR despite Wincor Nixdorf’s negative preannouncement. They note FX headwinds have worsened since NCR gave its FY 15 guidance in mid-February, and current FX rates imply an incremental FX of headwind of 2% for FY15.
