The ObamaCare Train Wreck
When Obama delayed the implementation of the ObamaCare insurance mandate last month it sent a signal that Max Baucus, the author of this abominable law, may not have been far wrong to characterize it as a “train wreck.” Three years ago in this blog I gave my reasons why ObamaCare would fail completely. The law is too big, too complex, and too naïve in its assumptions. Supporters never took into account the second-order and third-order effects that destabilizing the US healthcare system, indeed the US economic system, would cause. Now, we’re about to find out.
In their lemming-like march toward European socialism, the Democrat architects of The Patient Protection and Affordable Care Act (ObamaCare) defined “full-time” as 30 hours per week. Yes, 30 hours! It’s right there in Section 1513 (p. 137.) The traditional 40-hour work week harks back to the 1938 Fair Labor Standards Act (don’t you love the high-sounding names of these laws?) which required time worked in excess of 40 hours to be paid as “overtime” at a “time and a half” rate. The mandated overtime pay rate worked as a disincentive (pay for 90 minutes and get 60 minutes of work) to exceed 40 hours per employee. Employers hired another employee instead who could be lawfully paid at a “regular time” rate. Thus economics, not legal definitions, drove the 40-hour work week into the national psyche to create the notion of “full-time” and “part-time” as well as “over-time.”
Recently, several bills were launched by Republicans and Democrats to replace the ObamaCare 30-hour definition of “full-time” and specify full-time to be 40 hours. They needn’t have bothered. First, modifications to the definition of full-time haven’t a chance in Harry Reid’s Senate. Reid said during a PBS interview last week that the US needs to “work our way past” an insurance-based healthcare system and have a single payer system. He is disinclined to make ObamaCare workable even if that were possible. And while there is a chance that the Democrats will lose the Senate in the 2014 elections, any such bill would be DOA at the White House. Its resident will be there until 2016.
Second, the well-intentioned bills to restore the traditional understanding of “full time” as 40 hours solve the wrong problem. A careful reading of ObamaCare defines a “small” business as one employing less than 50 full-time employees, whereas a “large” business is defined as employing 50 or more full-time employees. Since “full-time” is defined as an average of 30 hours worked per week, many employers had resorted to capping work per employee at 29 hours a week. But the “small” business section of ObamaCare defines employment in terms of hours of work produced by the company, not the work produced by individuals. Simply stated, at the margin 50 people working an average of 30 hours per week represent 1,500 hours per week. Any company producing 1,500 and more weekly hours – regardless of the number of people employed in producing that 1,500 hours – is considered a “large” business under ObamaCare and is subject to the employer mandate to provide insurance or pay a fine.
Switching from full time to part time employees doesn’t solve the problem because ObamaCare counts full-time equivalent employees (FTEs) to determine if the 50-employee limit has been reached or exceeded. It doesn’t matter if there are 50 employees working 30 hours per week on average or 100 employees working 15 hours per week on average. Both amount to 50 FTEs. Both produce 1,500 hours per week.
Suppose an employer’s workforce is all part-time workers or a mix of part-time and full-time. How is the number of FTEs determined if the part-timers work variable amounts – more hours in some weeks and less in others? The provisions specify a “look-back” period of not less than 90 days and not more than a year. The number of hours worked in the “look-back” period divided by the number of weeks in that period determines the number of FTEs. If the number equals or exceeds 50 FTEs based on 30-hour weeks, the employer is subject to the insurance mandate. Keep in mind that most “full-time” employees work 40 hours per week, so it isn’t hard to run up a total of hours worked that kicks in the mandate using the 30-hour rule.
If an employer is subject to the mandate and fails to offer insurance to all “full-time” employees, the employer must pay a $2,000 fine per employee whose work equals or exceeds 30 weekly hours, but 30 employees are excluded in the fine calculation for reasons known only to the idiots who wrote this law.
Here’s an example. A company is subject to the mandate because it had an average of 50 (or more) FTEs in the look-back period. There are 35 employees identifiable by name who worked full time – an average of 30 hours per week during the look-back. Since 30 are excluded in the fine calculation, five are the basis for the fine, a total of $10,000 which is levied and payable at a rate of 1/12th per month for every month insurance was not offered to ALL 35 full-time employees.
The employer’s choice is to pay the fine – $10,000 per year – or buy insurance. It doesn’t take a genius to determine that unless insurance could be purchased for 35 employees for $10,000 or less, about $285 annually for each of them, the company will pay the fine. Do you know of any health plans costing $285 per year? I don’t. According to the Congressional Budget Office, employers are projected to pay $130 billion in fines over the next decade.
Incidentally, if an employee has been “full time” in the look back period, he is considered full time over the same period going forward – regardless of the number of hours the employee works. So, if Joe Smith averaged 30 hours per week in a 90-day look-back, Joe Smith is a full-time employee for the coming 90 days. If full time over a six-month look-back, old Joe will be full time for six months in the future. Apparently the geniuses who wrote this gibberish wanted to remove any incentive to cut old Joe’s hours to avoid the mandate going forward. Anyone who has been “full time” in the past will be full time for some period in the future. No doubt this was done in hope that some part of an employer’s workforce calculations in the future can be jerry-rigged into the full time classification regardless of hours worked. If Joe and 29 other employees worked “full time” in the past, only 20 additional full timers are needed to push the company into ObamaCare in the future.
Oh, one more thing just in case you thought there was an end to this nightmare. If an employer tries to get around the mandate by forming multiple companies and counting them separately to avoid the mandate rule, don’t bother. ObamaCare has an “aggregation” provision that makes it very difficult to claim businesses are separate entities if they have common or nearly common ownership. If you have a perverse interest in the language of the law it says, “All persons treated as a single employer under subsection (b), ©, (m), or (o) of section 414 of the Internal Revenue Code of 1986 shall be treated as one employer.” So if you own a chain of restaurants, incorporating each as a separate business entity won’t cut it. Obama counts every employee as if collectively they work for the same company even if one group works in a grocery store, another works in a hardware store, still another group works in a restaurant, and a fourth group works in a retail clothing store.
Passing a bill to define “full time” as 40 hours instead of 30 simply means the margin for compliance with the employer mandate moves from 1,500 hours to 2,000 hours – a 33% increase. What such a law doesn’t change is the fact that ObamaCare’s employer mandate is fundamentally a tax on business growth. As the law currently stands, when the 1,500th hour is worked in any week, the employer’s costs immediately increase $40,000 ($2,000 for 20 FTEs since 30 FTEs are exempted) and for every FTE thereafter the employer pays at least $2,000 tacked on to the annual salary.
So, Mr. Employer; business is booming and you’ve been keeping your workforce just below 50. But the demand for your product or service would let you employ 60 FTEs. Well, get your checkbook out. You can exempt 30 employees but you’ll pay a $2,000 fine to Obama for the other 30 – a whopping $60,000 for the privilege of growing and employing more people. But you could comply, the liberals tell you, and avoid the fine if only you’d buy your folks insurance. Let’s say the cheapest plan you can find has a $1,500 annual premium (let me know if you find anything that cheap.) But, don’t forget, you have to buy it for all full time employees. Let’s see, that comes out to $90,000. Hmm; $60,000 fine or $90,000 in insurance? Those extra sales I’d like to make had better be really profitable or else I best stay small.
This Kafkaesque universe was created by politicians – people like Obama, who have never held a real job in the real economy in their entire lives. They haven’t a clue how cost-benefit decisions are made by business people who risk their fortunes (sometimes those of others) to run a needless gauntlet created by byzantine laws. But, hey, that’s why they are politicians! Unfortunately they know how to write asinine laws like ObamaCare, and somehow they managed to get people to vote them into office so they could destroy the economy, which is where ObamaCare is going to take us.
None of this should really surprise us. Social Security, Medicare, Medicaid … they are all political scams that force the private sector to pay for expensive benefits that politicians can’t afford to finance through taxation if they want to get reelected. ObamaCare is going to cork economic growth and, to pay the fines or excessively expensive insurance, raise prices and lower wages and salaries.
I’ll give this much credit to Obama. He was politically astute enough to see the handwriting on the wall and realize that the employer mandate had to be delayed until after the 2014 elections. Maybe he’ll get lucky and find enough clueless voters to keep the Senate in Democrat hands. I think the House is out of the reach of Nancy “Let’s-Pass-ObamaCare-to-See-What’s in-It” Pelosi.
A one year delay in the employer mandate won’t make the choices any better than they are today. And since the IRS will be looking at 2014 to determine FTEs in 2015 – the year ObamaCare’s mandate begins – business owners don’t have that much time to make adjustments to their businesses, assuming anything can be done. It will give business owners time to realize that converting their workforce to part time and setting up a Potemkin village of “separate” businesses to avoid the mandate isn’t going to work if their workforce is producing 1,500 hours a week. Do you know what “checkmate” means?
There is one tired old bromide I’d like to put to rest before I end this blog and go take an Alka-Seltzer and it’s this: “96% of the businesses in the US have fewer than 50 employees, which illustrates the improbability of the detrimental effects that some claim [ObamaCare] will have on business.” That’s a quote right off of the pages of Forbes, if you can believe it. It was in an article written by the CEO of a PR company, whom I’d advise to go back to doing whatever CEOs of PR companies do. I don’t know if he came to that conclusion on his own or read it somewhere. The “96%” justification is grossly misleading.
The 96% statistic is the number of business entities reporting 50 or less W-2s issued. Since most people work 40 hours, some of those companies exceed Obama’s 1,500 hour limit. In fact 37.5 FTEs working 40 hours would be subject to the ObamaCare mandate. More than “just 4% of all businesses” – the line used by ObamaCare defenders – will be subject to the law. But most of them already carry employer-based health insurance for their employees. So what problem does ObamaCare solve?
Second, the “96%” statistic assumes it’s the same 96% of firms forever. Since virtually all employment growth comes from small businesses, many if not most of these companies will graduate from the “96%” and be replaced by new firms in the future – if there is a future under ObamaCare. The law will dampen the incentive to grow.
Speaking of incentives, guess who doesn’t want ObamaCare? The same people whose unions pushed it in 2009 and 2010. A survey published last week showed that over 92% of federal employees want to keep their cushy health plans paid by taxpayers rather than be herded into ObamaCare like the rest of us cows.
However, our elected Congress and their staff employees succeeded in exempting themselves from the law last week. ObamaCare, it seems, is good for thee but not me.