In his State of the Union’s response, Senator Marco Rubio said:
For example, Obamacare was supposed to help middle class Americans afford health insurance. But now, some people are losing the health insurance they were happy with. And because Obamacare created expensive requirements for companies with more than 50 employees, now many of these businesses aren’t hiring. Not only that; they’re being forced to lay people off and switch from full-time employees to part-time workers.
Senator Rubio is way ahead of Wall Street, which is still ignoring Obamacare.
On the most recent “Payroll Friday” Bloomberg’s Tom Keene interviewed the Smartest Economist on Wall Street, justly renowned for his mastery of the myriad methodological mysteries of the payroll survey and the household survey. He noted, more or less in passing, that “Next year Obamacare kicks in.” WRONG. Obamacare matters NOW because whether or not businesses have to pay fines in 2014 for failing to provide adequate health insurance depends on their average number of “full-time employees” THIS YEAR. So if I have 45 employees but am thinking of expanding, my lawyer will caution me that if I go “over the limit” of 50 full-time employees I could get socked with a big fine. One solution is not to hire new workers; another is to cut the hours of some current workers so they work less than 30 hours and don’t count as full-time employees. So Obamacare will discourage hiring this year.
How to Save $5,000 per Employee
It’s messy, complicated, and expensive, partly because the new law mandates a “gold plated package” costing much more than what employers are offering now, particularly in low-wage service industries. Listen to Whole Foods Markets CEO Tom Mackay talking to CNBC: “Say we’re paying $3,200 a year for insurance for somebody, and the new regulations cost us $5,000 to insure somebody. If they work fewer hours, we just saved $5,000 per person.”
A New “Structural Factor”
Since payroll employment is arguably the single most important macro number reported each month, and Fed policy partly hinges on unemployment, one would expect Wall Street economists to be “all over” Obamacare. They’re not. Today Tom Keene interviewed another Smartest Economist on Wall Street, who went over his team’s Major New Report on the “cyclical” and “structural” forces impeding employment growth. The “structural” discussion was all about demography and aging boomers staying out of the labor force and forcing down the participation rate. That’s fine, but what about a massive new law that makes it more costly and complicated to hire? Is that also a “structural” factor worth considering? Apparently not; there was NO mention of Obamacare.
Learning from Europe
What makes this particularly weird is that a standard element of the macro debate in Europe is “increasing the competitiveness” of countries like Spain and Italy and France, which basically means undoing laws resembling Obamacare that punish companies for hiring more workers (because the more workers you employ, the tougher the regulation you face).
Bringing New Meaning to the Term “Fine Print”
The political genius of Obamacare (so far) is that it is so complicated and convoluted and technical and boring that no one pays attention unless they have to. Now employers have to. I won’t try to describe the intricate rules in the notorious “employer mandate” – that’s way above my pay grade – but to give you a taste of the risks employers face, consider two hypothetical examples from the U.S. Chamber of Commerce’s highly informative study “Critical Employer Issues in the Patient Protection and Affordable Care Act.”
Example 1: Betty’s Wire Co. pays a $140,000 fine
In 2014, Betty’s Wire Manufacturing fails to offer minimum essential coverage to its 100 full-time employees, 10 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan.
RESULT: For each employee over the 30-employee threshold, the company owes $2,000, for a total penalty of $140,000 ($2,000 multiplied by 70 (100 – 30)).
Example 2: John’s Construction pays a $60,000 fine.
In 2014, John’s Construction Company offers coverage and has 100 full-time employees, 20 of whom receive a tax credit for the year for enrolling in a State Exchange offered plan.
RESULT: For each employee receiving a tax credit, the employer owes $3,000, for a total penalty of $60,000 (20 times $3,000). (Go to the Chamber’s study for the gory details about the “cap” on the fine.)
Small Business Confidence Is in the Sub-Basement
Obviously this issue is most burdensome to small business. It’s one reason why the NFIB Small Business Confidence index is an abysmal 89 – lower than during the 1991 and 2001 recessions, even though we are four years into an economic expansion, corporate profits are strong, and the stock market is soaring. The NFIB reports that healthcare costs are the Number One Problem facing small business.
Copyright 2013 Thomas Doerflinger. All Rights Reserved.
