When Congressional Democrats were selling the Patient Protection and Affordable Care Act – “ObamaCare,” in 2010, they ballyhooed it as a great job creator. Rep. Nancy Pelosi (D – CA), then the Speaker of the House, even as she was arguing that we would have to pass the bill to see what was in it, was also arguing that the bill would create 4 million jobs over its life (the CBO and most Democrat projections looked forward 10 years), and 400,000 jobs “almost immediately.”
There was at least some theoretical basis for the hope. Proponents of the bill note that American manufacturers and other global industries are always in competition with companies from other countries – many of which have government-provided or heavily subsidized universal health care. Foreign companies don’t have to account for the costs of medical coverage for employees, argued ObamaCare supporters. American firms have to adjust the price of labor inputs to account for the cost of health care, and some companies were staggering under the burden of contractually-obligated “Cadillac” health plans awarded to retirees who were no longer even on the assembly line, contributing to production.
Alas, the Democrats’ rosy scenario did not blossom as they had hoped. In testimony before Congress, Congressional Budget Office chief Douglas Elmendorf projected a net loss of 800,000 butts in jobs as a result of the bill – thanks to a combination of reduction in demand for labor and increased incentives for workers to leave the work force and join the greatly expanded Medicaid rolls—crippling state budgets and resulting in higher taxation across the board.
That was in February of 2011. The skies have been darkening since then: If the Affordable Care Act survives the Supreme Court (as of this writing, Intrade was recently forecasting a 63.4 percent chance that the Supreme Court would strike it down), the Congressional Budget Office projected that the law would cause the Treasury to hemorrhage red ink: The cost over the next ten years would soar from a projected $900 billion to a whopping $1.76 trillion – nearly double the original estimate.
Among the laws most curious provisions: The 50 employee mandate. The law requires employers with over 50 employees to provide health insurance for all their employees – or face a healthy fine. This mandate threatens to have a crippling effect upon the job creation power of tens of thousands of smaller businesses, struggling to reach the next level.
Especially if these businesses rely on a relatively unskilled or uneducated work force: The law provides a substantial disincentive to businesses to hire that 51rst employee. The second they do, marginal costs on the first 50 employees explode. They must either provide coverage (the law also prohibits plans with high deductibles and other cost saving measures, maximizing the damage to the economy), or send those employees to the “exchanges” to buy their own coverage. The businesses must then pay a fine of $2,000 per uncovered employee, excluding the first 30. That translates to $40,000 and up.
This is not going to just affect a few businesses at the margins. This will affect thousands of businesses across the country. The Congressional Budget Office has projected that it will take in close to $10 billion in revenue from this penalty alone.
And that’s not counting businesses that choose not to hire beyond 50 people.
Large, connected businesses with substantial reach into Washington, such as McDonald’s, have been successful in obtaining a waiver from the federal Department of Health and Human Services, exempting them from the more onerous aspects of the law.
But smaller employers – restaurants, retailers, chain stores, good sized auto shops, and many others, don’t have that option.
Seasonal businesses will be especially hurt – as will communities with seasonal industries: It is simply not cost effective for businesses to hire a full time employee and provide health insurance benefits when the employee will only be on board for a few months out of the year.
A Perverse Incentive
On top of the 50 employee mandate, businesses will also pay an additional penalty if any of their employees qualifies for subsidized coverage on the exchanges because of their low household income, thanks to the so-called “free rider” provision.
Businesses will have an incentive to hire from relatively affluent communities – disadvantaged or minority candidates are statistically more likely to qualify for a federal subsidy on the exchanges – generating a potential liability for the business of $2,000 to $3,000 per hire for creating a job, depending on the circumstances: A deal-killer for low-margin businesses.
With any luck, Justice Anthony Kennedy, the Human Magic 8-Ball, will cast a vote striking down the health care mandate, joining with his likely votes against – Scalia, Thomas, Alito and Roberts, and send the law back to Congress in a 5-4 vote.