The New Obamacare Trap

“Relax,” said the night man, “we are programmed to receive.”

“You can check out any time you like, but you can never leave.”

            —Eagles, Hotel California

I know then-Speaker of the House Nancy Pelosi (D-CA) told us we’d have to pass Obamacare to find out what’s in it.

But wait ‘til you get a load of this.

Most of the discussion over the last couple of years about Obamacare has centered on the individual mandate and the contraception coverage requirement.  But while the public attention has been focused on those issues, somewhat under the radar most of the attention of the benefits professionals who have to understand and implement the mechanics of Obamacare has been focused on the obligations the new law places on the employers who will have to provide most of the mandated coverage.

Without getting too deep into the weeds, under Obamacare, all employers with 50 or more full time employees (“full time” defined for these purposes as 30 or more hours per week) must offer health care coverage meeting minimum federal standards.  Any that don’t must pay a fine of $2,000 per employee after the first 30.  This was always the first problem with Obamacare and the President’s outright lie that “if you like your coverage you can keep it,” because in many instances it’s cheaper for the employer to pay the fine than to provide the coverage.  With this as the new environment beginning in 2014, some businesses will make the very rational, and in some cases economically necessary, decision to drop coverage—coverage their employees may well have liked—in favor of simply paying the penalty.

But in some lower-margin industries like the restaurant business, even paying the penalty simply isn’t a viable financial option.  Well, if you’ll look again at the defining threshold for triggering the requirements, there are a pair of obvious alternatives for businesses that find themselves in that situation.  One is to lay off employees until they get below 50 (or, for a growing business, stop hiring at 49).  The other is to cut employee hours to a maximum of 29 hours a week so they’re not “full-time.”  Either option gets the business under the threshold of 50 full time employees such that the mandate doesn’t apply.  And many businesses—Dardens Restaurants (Olive Garden, Red Lobster), and some Wendy’s and Taco Bell franchises, among others—are now starting to do precisely that.

As an aside, notice the perverse “unintended” effect here.  Employees in these businesses are typically low-income people: fry cooks, waiters, etc.  These are the very people Obamacare was supposed to help by getting them employer-sponsored coverage.  Instead, as a direct consequence of Obamacare not only do they not get the employer-provided medical insurance they were promised, they’re having their already low incomes reduced by having their hours cut or losing their jobs altogether.  With lighter or nonexistent paychecks, they’ll then be shunted off into Medicaid under the individual mandate.  Of course the real irony here is you know the majority of these people voted for this crap.

Be careful what you wish for, ‘cause you just might get it all.

There’s a similar phenomenon happening in the medical device industry, which employs some 400,000 people in the U.S.  Now, these are typically higher income earners, but the essential problem is the same.  Medical technology companies are faced not only with the mandate to provide coverage or pay the penalty, but effective the first of this year they also must pay an additional 2.3% excise tax under Obamacare.  In response, publicly traded medical device companies cut 7,000 jobs in 2012.  A recent survey indicates that 62% of those surveyed plan additional layoffs or reduced hiring in 2013.  All to offset the tax.

Well, it appears that all this hasn’t been lost on the Obama administration, and it’s not going to let them get away with it.  The IRS has now released a 144 pages of new regulations that included an announcement that measures would be coming to stop employers from taking these steps to avoid the impact of the Obamacare employer mandate.  What does this mean?  It means the IRS will begin levying penalties against employers who initiate layoffs or reduce hours in order to get below the thresholds that trigger the mandate/penalty dilemma.

Of course, all of this only applies if you’re already over the 50 full-timer limit; if you have only 49, none of it matters to you (as long as you don’t grow your business).  As a result, you could see an Olive Garden with 50 employees facing tens of thousands of dollars in federally-mandated additional costs, while the Chili’s next door with only 49 employees incurs none of those costs, and the Olive Garden has no way to correct the competitive imbalance; once over 50, always over 50 (at least as far as the fines are concerned).

So here’s the trap in which some businesses will now find themselves caught:

  • The government requires them to provide health insurance they can’t afford.
  • If they don’t provide it, they’ll have to pay a penalty they can’t afford.
  • If they try to trim staff so the law doesn’t apply, they’ll have to pay a different penalty they can’t afford.

That doesn’t leave many options, and the simple fact is that some businesses won’t be able to afford any of it; they’ll be forced to close.  I expect more than a few business owners who could afford the penalty will refuse to pay it and close out of spite.

This is truly terrifying.

Many of us on the Right, like voices crying in the wilderness, tried to warn about this.  You now have a federal government that although it lacks the power under the Commerce Clause to compel you to engage in a commercial transaction, it can tax you if you don’t.  That same federal government is forcibly imposing costs on businesses, then threatening to impose fines if those businesses try to restructure themselves to get out of it.  We gotcha now.  And here’s the really sick part:  Obama and the Democrats created this Frankenstein’s monster of a health care law, and now the administration is sending the IRS after people to fine them for acting under the terms of the law as Obama and the Democrats wrote it.  Not only are they over-regulating, but now you can’t even avoid their laws/fines by complying with them.

Obamacare is a disaster.  It is a vicious assault on individual economic liberty and religious freedom.  It is an unconscionable abuse of the Constitution.  It will prove to be a strangling albatross around the neck of the economy.  And not only will it never achieve the stated objective of providing health care insurance to [pick your number] of uninsured Americans, it will actually be counter-productive to that end.

We’re caught in a trap; we can’t walk out.

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One thought on “The New Obamacare Trap

  1. Pingback: Can You Hear Me Now? | Chasing Jefferson

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