Video: Will ObamaCare drive businesses out of providing health insurance?
posted at 2:10 pm on March 24, 2010 by Ed Morrissey
In a word, yes, and that’s not just me talking. Last night, CBS did a perspective on how ObamaCare’s mandates and tax incentives will impact small businesses, which Democrats insist will see benefits from the ObamaCare largesse. The only problem is that the system actually incentivizes businesses to pay penalties and throw their employees into the government-run exchanges:
• Businesses with fewer than 25 employees that pay an average of no more than $40,000 will get a tax credit – up to 35 percent of the company’s share of their total health care premium.
• Companies with 26-49 workers are unaffected.
• Businesses with 50 or more workers must offer coverage or pay $750 per worker. That penalty applies for every employee if even one signs up for government-subsidized insurance.
But there are potential problems. Case in point: It would be much cheaper for Dick Bus to drop the generous coverage he now offers and take the hit at $750 a head for his 120 workers. The penalty would be $90,000 a year. He’s currently spending $480,000.
Bus would save $390,000, but canceling his plan would force his workers to the health plan exchange and could cost more than they’re paying now. The Senate is considering an increase in the $750 penalty to prevent that scenario.
Bus insists that he won’t cut his employees loose, which is certainly noble, but unrealistic. If his competitors do it and lower their costs, allowing them to lower prices on their products and services, Bus will have to follow suit or go out of business. Small businesses already operate on tight margins, and this will be an easy business decision for those companies, at least when their CEO isn’t on camera.
In an otherwise good and balanced report, CBS misses another strange incentive. As listed above, small businesses only become eligible for the credits if their average salary remains below $40,000. That means a decision to give raises not only carries the cost of the raise itself to the business, but also a potential loss of that 35% subsidy ObamaCare grants. This will have the overall effect of suppressing salaries and putting experienced workers at a disadvantage in hiring decisions. It also provides an incentive to keep the workforce under 26 people; the 26th hire eliminates that 35% subsidy as well, making it a very expensive new position.
ObamaCare sets all of its incentives to oppose growth. Can anyone wonder at the impact this will have on the economy?
Update: One other anti-growth incentive, as Mark the Great points out in the comments: businesses with 50-60 workers have a big incentive now to downsize.