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ObamaCare: Job-Killer?

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.

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10 Responses to ObamaCare: Job-Killer?

  1. david says:

    This right here:

    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.

    See, it’s not “many” other countries. It is virtually *all* other countries. We are the ONLY developed country not to provide universal coverage. And the fact that we don’t causes our costs to be roughly 5 times higher than other countries — someone has to pay for all those folks that don’t have insurance and use the ER for medical care, or have to file for medical bankruptcy after all.

  2. david says:

    Please explain why making sure that every citizen has access to basic healthcare is such a bad thing. Let’s also keep in mind that for the cost of the Iraq and Afghanistan wars we could have provided healthcare to all our citizens for 20 years. And that Dubya made sure that we provided a national healthcare system to the Iraqi’s at our expense. Why not US?

    • Jason Van Steenwyk says:

      I did explain precisely why the law, as currently written, is a bad thing: It will cost 800,000 jobs, according to the federal government’s chief actuary’s own projections. It will also cause the Treasury to hemmorhage red ink.

      It will also gut Medicare as we know it, it has already caused tens of thousands of seniors to lose Medicare Part C.

      Additionally, the mandate constitutes an astonishing encroachment on individual liberties, and makes a mockery of the 10th Amendment to the Constitution.

  3. Agnes Meo says:

    Why would healthcare be a job killer? Don’t understand how it could be when it is designed to “care”. Wait, oh I get it! The watered down version that was gutted by special interest groups like insurance, pharmaceutical & the AMA took out what they wanted so there is nothing left for workers and patients to benefit!!!!!! Corporate greed—man’s inhumanity to man in the name of profits in this here United Corporate States!!!!!

  4. Andrew Karpie says:

    I would be naturally skeptical of such types of forecasts. I do wonder what effect the law might have on healthcare staffing. Even more so, I am always wondering about whether the advent of “exchanges” would lead to more contingent work arrangements.

  5. Dennis Buckmaster•Consultant 206•250•4353 says:

    Nancy Pelosi is the nuttiest legislator we’ve ever had, period. GMAB 400,000 “almost immediately?” Is that transfers or net new jobs? That’s an average of 8000 per state, “Almost immediately?” What does Ms Pelosi smoke? Who can believe this BS? I better not go on! My Tourette syndrome will kick-in.

  6. Stuart Phillips says:

    Interesting article but it only scratched the surface.

    The claims ratio requirement means providers must reduce non-claims expenses. Since headcount is a major expense many will (and some already have) outsource clerical and customer service jobs offshore. Cheaper labor means getting closer to those arbitrary claims ratio numbers.

    As was pointed out in the article, employers will be subject to penalties if ANY family member qualifies for a subsidy. File under the law of unintended consequences, employers favoring single persons over married. That way if they provide coverage for the EE,no penalty. If the do not (and most companies today do NOT) pay for spouses and children’s coverage, they get hit with a penalty if that spouse of children get any subsidy. Just avoid the whole thing and fight to hire unmarried EEs. If forced to pay for dependent coverage, expenses go up then please remember this: Every time you take more money from an employer, a job is in jeopardy.

    On top of all this, any actuary will tell you the plan as constructed is unsustainable. That will mean rising costs (aka rising taxes and/or penalties). Every time you take more money from an employer, a job is in jeopardy.

  7. Well, Obamacare survived SCOTUS by one vote, which apparently flipped midway (minding more about their institution reputation than the Constitution?) but we don’t want people to die for lack of medical care, do we? As is, is not working. Having most people die broke (often leaving surviving members also broke) because of medical bills, is not right. Can ideology or ‘feeling good about oneself’ trump the Constitution? No!

    America is a very strange phenomena, and a new one in the history of the world. America created in record time the most prosperous and free society the world has even known. I would be remiss to alter the ‘ingredients’, the ‘formula’ that made America possible: the US Constitution.

    By a vote of one, this was decided constitutional, although the self proclaimed impartial umpire, instead of calling it as it was, changed the game: is not the Commerce Clause, but a tax… an argument the Obamacare proponents repudiated all along. He did not like the monkey dressed as a monkey, so he put it on a sheep costume.

    By making employment more expensive (employers need to provide care of pay a fine), it would not have an effect on unemployment under ideal conditions, but we are competing with China, Mexico, Turkey, and the rest of the world, for jobs. One can employ people here… or elsewhere where there is less regulation and associated costs (like Obamacare). So yes, it will hurt employment BIG TIME. Money is smart, Government is not. Government has the power of the guns but entrepreneurs have the power of their brains.

  8. CRCC says:

    Will the delayed start date of OBAMACARE affect the US unemployment rate? The U.S. healthcare reform (“Obama Care” or the “Patient Protection and Affordable Care Act”) is intended to pressure large and small employers through force and taxation.

    Enacted in July 2010, the end result will show North American companies deciding to send appointment setting, sales, lead generation and customer support jobs offshore to stay competitive or risk going out of business. Many business owners will hire a dedicated bilingual employee nearshore who is 100% qualified for their project. Financially speaking, ESL call center employees in Costa Rica are as effective as transitional in-house staff for half of the cost.

    This proven strategy will give small to medium sized companies the option to scale up their BPO staff without getting caught in the Obamacare challenge in 2015.

  9. I think Obamacare will not show up directly in the unemployment figure that we are used to seeing, but will be very obvious when we look at underemployment numbers. The pure unemployment figure may go down, actually, as one full time job gets divvied up between two part time workers. The ratio of part-time workers to full-time workers will go way up, masking the devastating effects of Obamacare in newspaper headlines, but its insidious effects will be keenly felt, especially in food service and retail.

    You’ll have to look at underemployment numbers to catch the effects of Obamacare. That is, you have to look at the U-6 unemployment rate, not the more commonly published U-3. The U-3 doesn’t track ‘marginally employed’ workers, or workers who are stuck in part time jobs, but who want or need full-time work.

    Look at this graph: http://www.macrotrends.net/1377/u6-unemployment-rate

    The U-6 is usually twice the U-3 unemployment rate. But when U-3 rises, U-6 rises twice as much. The delta in the U-3 reflects workers who lose their jobs entirely, but the delta in the U-6 reflects the number of workers who are thrown from full-time to part-time work, and for every full-time job lost, two more are thrown from full-time to part-time.

    Furthermore, if the Administration didn’t think the mandate would have an effect, they wouldn’t have delayed it on the eve of an unemployment report over the 4th of July weekend.

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