Wednesday, July 4, 2012

Why Some Businesses Hate Health Reform

Since Romneycare/Obamacare was given the green light by SCOTUS, there have been some small business owners who have loudly griped that this will cost them either the ability to fully ensure their workers or be able to hire more. In fact, they are rather vocal about the new health care law costing jobs. Are they right?

This is one that really bugged me when I first heard it, because I understood what these businessmen were saying without understanding why they were saying it. I'm certain I'm not alone in that regard. Why would these businesses be staging press conferences with Scott Walker and Rebecca Kleefisch to insist that Romneycare/Obamacare is bad?

I think I understand, now. I promised I'd share that info, and here it is: It all has to do with the provisions for businesses who have 50 or more employees.  Under the Healthcare Reform Act, any employer with that number of employees would have to either provide insurance to 100% of their employees, or else pay a penalty of $750 per employee.  Employers with 49 or less employees don't have this penalty and will, in most cases, end up saving money.

That's ultimately not a bad deal. When an employer provides health insurance coverage, the employee pays part of it, usually with a percentage out of his or her paycheck, and the employer pays the rest. (Why doesn't the employee pay all of it? Or the employer? Well, for the tax benefits to each, you see.) Now, the average cost per year for an insurance plan these days is about $2,200 per year.  If that cost is split between employer and employee, then each pays $1,100 per year. (It's not always that simple, but I need to keep this brief.) That means that an employer who covers his employees could save $350 per year if he dropped the insurance coverage and paid the penalty. But his employees would end up being covered anyway if he did.

So what's the problem?

The problem came when an employer did a poor job of providing insurance coverage before all this happened. If an employer had a lousy plan, or didn't encourage employees to sign up for insurance, or even covered only a small portion of the insurance payments and left the employee to pay the rest, the result was an employer where only some of the workers had insurance. These businesses, the "bad insurers" were in for a nasty shock with Health Care Reform.

Say a certain employer has 50 employees, but only 25 opted for the insurance plan. That means the employer, if he's paying half of the national average, is paying $1,100 for each of them. (It's probably less than that, since he's a bad insurance boss, but we'll ignore that for this example.) That means he's paying $27,000 annually (25 X 1,100). But look out, here comes Romney/Obama-Care. Now, he might have to pay $750 for each uninsured employee. If he persuades all of his employees to drop their coverage in order to help the company save money (which would be very mean of him) he would still have to pay $37,000 (50 X 750), or 10,000 more. All his employees now have health insurance, which is good, but this employer is mad about it.

He'll bitch and moan about "Obamacare" hurting his business. He may even pose with conservative politicians and publicly declare that he can't afford to hire any more workers, or might even have to fire a few, because of this new health care law.

Ah, but here's the catch: Over 95% of businesses provide 100% of their employees with insurance coverage already! It's only the remaining 5%, the dead-beats when it comes to making sure employees are covered, the ones who might even be trying to skimp on coverage in order to undercut their competitors or line their own pockets, who are upset. These are the minority cheap skates who will be hurt. But the only reason they will hurt is because they no longer have the ability to cut those corners which they shouldn't have cut in the first place.

These are the businesses who stand in front of a podium with Walker and Kleefisch and declare how bad "Obamacare" is. Because now (gasp!) they have to balance their books a little bit more responsibly.

Cry me a river!

Look, I'm not insensitive to the realities of business.  Sometimes the margin between success and failure is a tenth of a penny per sale. But at least each of the other competing businesses now have the same problem of how to provide health insurance for all their employees as well, so there won't be any competitive disadvantage. And those markets which have gotten used to being cheap on the health care in order to make ends meet will all have to learn how to not cheat that way anymore. That may mean, in a few cases, temporarily lower salaries as these employers try to pass the costs of the insurance payments onto their employees, but it won't mean less jobs. And then the market will adjust, the salaries will bounce back, and everyone will have better access to health coverage.

In the meantime, these employers are reacting to all this by donating lots of money to the Romney campaign after being insensitive to their workers' needs in the first place.

Yeah, well, I could think of a few better uses for their money. And so could their employees!

Eric



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