Why Small Businesses Fear Obama's Health Care Despite Today's Exemptions

William Dunkelberg, the chief economist for the National Federation of Independent Business (NFIB) is as wary of Obamacare as he was Hillarycare, even though there are exemptions for small businesses. His concerns are over mission creek and what constitutes "small business".

Barron's addresses those issues in Obamacare and Small Firms

Hillarycare was a nightmare from which the country soon awakened; Obamacare has managed to become law. While the new legislation also exempts most small businesses, Dunkelberg is again firmly convinced that the exemptions won't last. And either way, it can't be good for job creation.

Just when a small business gets large enough to no longer be called "small" is arbitrary. The legislation sets the exemption bar at fewer than 50 employees. And it turns out that, based on Bureau of Labor Statistics figures, there were nearly 4.7 million such firms in the U.S. last year, 95% of all private-sector firms. This 95% employed just 31.2 million workers in 2009 (down from 33 million in '07), accounting for 29.4% of all private-sector employment. Not surprisingly, Congressional Budget Office figures show that a disproportionate share of these workers lack health insurance.

The legislation waits until 2014 before imposing stiff fines on firms with 50 or more employees that do not install a government-approved health insurance plan. If Dunkelberg is right, however, then rising costs and shortfalls in revenue could lower the cutoff to 20 employees, or even 10. At a cutoff of 10, for example, one million firms (out of the 4.7 million total), would no longer be exempt. But wherever the cutoff is set, consider how the rule could affect firm behavior.

As Dunkelberg has noted, small-business people aren't stupid, and you don't need to be too smart to want to avoid going over the threshold if you happen to be near it. How will you know if an increase from, say, 48 employees to 51 puts you over the threshold? The rules as written are pretty specific, defining a "full-time employee" as "an employee who is employed on average at least 30 hours of service per week." And lest you think you can sneak part-time workers under that radar, another provision imposes a "full-time equivalents" formula which requires "dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120." Do the math and you'll find that a full-time equivalent comes to just 27.7 hours a week (120 hours divided by the average of 4.33 weeks in a month).

So if you want to expand, strategies you resort to might include: a) asking your full-timers, at say 35 hours, to work 40 or 45; b) firing a few workers and outsourcing their services to another firm; c) hiring more workers off-the-books; d) not expanding at all.

Businesses near the threshold of 50 will be loathe to go over that number. Should Congress act by lowering the threshold to 45, expect to see a rash of firings to get under that number.

Note what Obama did with part-time math, describing it one way in public soundbites, but mathematically another way in the legislation. Businesses will likely be loathe to have part-timers work more than 25 hours, possibly even 20.

This adds overhead to businesses as they waste time running through bureaucratic hoops to avoid Obamacare rather than spend time running businesses.

Cost Plus

There is one thing virtually guaranteed from this health care legislation, or for that matter any major piece of Congressional legislation: It will cost much more than projections.

How much more is subject to debate, but one must also factor in what it will do to small business formation, small business expansion, and small business hiring.

Obama Tries To Sell The Plan

Here is one curious thing about Obamacare: The legislation passed, yet the president is running around the country like a mad fool trying to sell it. It's as if the president does not know his bill passed. How often does that happen?

The setup seems ridiculous but the explanation is easy. Obama is hoping to stave off voter anger at the polls in the upcoming mid-term elections. The president knows the public was dead against this bill, but he insisted on ramming it through Congress anyway with the help of House Speaker Nancy Pelosi.

Bear in mind the president wants to ram through ridiculous cap-and-trade legislation the same way. If you want to help do something about that, please Donate to John Dennis who intends to dump Pelosi and put an end to such madness.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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