Friday, April 02, 2010

Companies of all Sizes fear National Health Care

Obama's massive health care proposal has far reaching implications, many of which we are now only beginning to learn about. One of the biggest areas of concern is the cost to businesses of every size. Higher government costs on business leads to several negative effects, including these businesses becoming less competitive (or leaving the US to avoid the costs), laying off employees to avoid certain regulatory thresholds or simply to remain competitive, and higher prices for consumers (since businesses will be forced to pass on the higher costs of doing business).

The Associated Press is reporting that "In the first two days after the law was signed, three major companies — Deere & Co., Caterpillar Inc. and Valero Energy — said they expect to take a total hit of $265 million to account for smaller tax deductions in the future. With more than 3,500 companies now getting the tax break as an incentive to keep providing coverage, others are almost certain to announce similar cost increases in the weeks ahead as they sort out the impact of the change. Figuring out what it will mean for retirees will take longer, but analysts said as many as 2 million could lose the prescription drug coverage provided by their former employers, leaving them to enroll in Medicare's program."

One of the first and most important rules I learned in economics was this little concept called the "secondary effects." Public policy is virtually always full of good intentions, but they are often damaged by the unintended consequences. The government thought they were going to be able to get businesses to pick up the load of its socialized health care programs. Unfortunately, many of these businesses will not be able to (nor have to), because they will be exempt due to their losses. These results are similar to the Massachusetts experience with government health care, where there was suppose to be huge health insurance relief by business, that instead resulted in a large increase in government coverage and the costs that come with such.

The problem does not end with big businesses though. According to the Pittsburgh Business Journal, "Employers with 50+ workers that do not offer health insurance will pay $2,000 per full-time worker (not including the first 30 workers) if any of their employees purchases government-subsidized coverage through an exchange. Employers with 50+ workers that offer unaffordable coverage or coverage that does not cover at least 60 percent of allowable costs will pay $3,000 for any employee who receives a tax credit in the exchange" Again, myopic policy makers who do not understand basic human nature, do not see the obvious consequence of these type of policies. These still small, but aspiring to be larger, businesses will simply layoff enough employees to make sure they fall beneath the 50+ threshold. They will likely make up the loss through outsourcing and vendors, including the utilization of companies overseas. This latter result is something people of most political stripes hate to see happen, but will be the natural result of Obamacare.

Currently the US is in the middle of what is being called the "Great Recession," with the highest unemployment numbers in over a quarter of a century. The Obama administration's irresponsible health care policy could move the country closer to seeing the original Great Depression as the second worse economy in US history. Actually, the ones who should fear Obama's health care policies the most is not the employers, but the people who will ask these companies for a job.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

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