Much of the recent discussion of the Affordable Care Act (ACA) has concentrated on the malfunctioning health insurance exchange website and the termination notices that many individual market insurance purchasers have been receiving. That’s not surprising because the media concentrates on the here and now, and these problems are currently inconveniencing a lot of people.
But as the federal government solves these problems, attention inevitably will turn to the negative effects of the health care law on employment and consumer spending. Both will emerge as issues in 2014, when consumers react to ACA-driven changes in the cost of health insurance, and small business owners grapple with the employer mandate.
Affordable Care Act Premium Increases
Health insurers are likely to raise premiums for 2015 for customers obtaining insurance through the new health care exchange. Fewer young healthy people are likely to buy insurance through the new exchange than the government originally had anticipated. While older and sicker people who need to cover pre-existing conditions will likely persist in getting coverage through a tough-to-use website, a larger-than-expected fraction of young and healthy people will likely pay the penalty for non-insurance.
The end result will be an older and sicker risk pool than policy makers had hoped for, which will cause insurers to raise premiums for 2015.
Once Americans can sign up for health insurance online, many of them will find out that the plans they can purchase have high deductibles. Those deductibles, combined with notices of rising premiums (which will be sent out by insurers sometime next year), will strain consumers’ household budgets. This sticker shock will dampen consumer spending (probably in the second half of 2014), just as big retailers like Wal-Mart are now predicting.
Affordable Care Act Job Loss
As small businesses prepare for the employer mandate, they will cut hiring and trim workers’ hours. Because companies with 50 or more employees now need to offer health care coverage to full-time workers, businesses will cut some worker hours to part-time levels. Recent surveys by the International Franchise Association and the U.S. Chamber of Commerce, the International Foundation of Employee Benefit Plans (IFEBP) and the Gallup Organization indicate that between 12 and 18 percent of employers have already begun converting full-time jobs to part-time in response to the new law. The numbers will only grow as we get closer to the start of the employer mandate.
Unable to absorb the cost of employee health insurance, small businesses in low margin industries will cut hiring. The IFEBP survey showed that 7 percent of small companies have already cut employment in response to the law, while the Gallup poll indicated that 19 percent have shed workers.
Future hiring plans will also be trimmed. More than four-in-ten respondents to the Gallup poll said they “have held off on plans to hire new employees” and nearly four-in-ten “have pulled back on plans to grow their business” in response to the ACA. One-in-four small businesses has indicated that they will “reduce hiring” in response to the new law.
The layoffs and hiring cuts will be concentrated among businesses with just under 50 employees, as companies seek to keep their work forces below the cut-off at which they have to offer employee health insurance. The IFA-Chamber survey reveals that more than half (52 percent) of businesses with between 40 and 70 employees plan to “make personnel changes” to remain below 50 workers.
Some companies will respond to the law by dropping employee health insurance. The IFA-Chamber survey indicates that more than one quarter (28 percent) of businesses surveyed will drop employee health insurance coverage and pay the penalty for non-insurance in 2015, when the employer mandate begins.
While the termination notices and problems with the health care exchange website are today’s headlines, the major economic costs of the new health care law will not be felt until later next year. Americans should expect a slight softening of consumer spending and a modest decline in workers’ hours and employment as the new law goes into effect.
White House image via Shutterstock
Hi Scott,
I hope you’re right when you say a “slight softening” and “modest decline.”
– Anita
Me too. I hope that it is just an exaggeration. Maybe it is because it looks like it has a lot of problems that’s why they can only see more problems down the road. It is just that if that is true, that would really be some bad news for small businesses.
I think you’re right about the general direction, but I’m with Anita in hoping that it won’t be as bad as expected.
Certainly seems plausible to me. I’m already dealing with a canceled policy for my dependents (wife +2 kids) which will cost loads more in 2014 to replace, and I’m hearing horror stories from owners of other small businesses like mine that are looking at 50-150% increases in premiums next year… I am waiting to hear what my business’s increase will be but if it’s something like that it is really going to be a disaster.
This law does NOT affect small businesses with fewer than 50 employees. I hate scare tactics. Read the law. I did. Higher deductibles is for people who don’t get sick as often. they just need to choose well. Those who have health problems can choose a lower deductible. The problem with this law that everyone is complaining about is that its original formula was “single payer” and not the mess we have now. That is because people were SOOOO afraid of socialized medicine. I don’t have children, nor I want to have them. Yet, I have to pay taxes so that other people’s kids can go to school and get provided free meals and transportation and books and materials. Why would we be doing this? Because it’s for the better of society. Wouldn’t we want people to be healthier? I work for a health insurance company and it’s ridiculous the amount of people with chronic illnesses that could’ve been prevented had they had health insurance years ago. Now, we have to pay for all that. I can’t ask people to stop complaining about taxes they pay for others’ benefit. But remember that a lot of things we take for granted, like social security, education, medicare, post office, garbage collection, the military (which not only are we paying their salaries, but their homes, utilities, medicine, etc), and much more, are socialized systems and we want them in place. 🙂
Monique,
It is incorrect to say that the law does not affect small businesses with fewer than 50 employees. Different aspects of the law affect small businesses of all sizes, in different ways:
(1) The law affects self-employed and small business owners of any size business who purchase individual coverage for themselves. It also affects their employees who purchase individual coverage. For instance, some small businesses give their employees a lump sum amount to purchase their own coverage. This is affecting them today, as the individual mandate is still in place, and as 5 million people have had policies cancelled — and many of those are self-employed.
(2) Those who wished to use the SHOP Exchanges can’t do that online for another year, and must go through brokers. So their access to information online is limited.
(3) Obamacare has had an impact on small business finance by putting uncertainty into the market, according to one authority.
(4) The employer mandate to provide insurance or pay a tax instead applies to businesses with 50+ employees. The SBA defines small businesses as having up to 500 employees.
I think this law is complex and full of unintended and unknown consequences — some of which are just now being uncovered. Was the existing system great? No it wasn’t — it needed some things fixed in my view, such as exclusions for pre-existing conditions being done away with.
The question is: has the ACA fixed anything or will it fix anything? Or does it create a worse system in its attempts to fix something broken? Those are very much wide open questions right now.
Many business owners are not political and just want to do the best they can for their families and themselves. They are willing to keep an open mind to try to understand it all. However, asking people to just have blind faith when their insurance is being yanked from under them and less attractive options put in front of them — and not demand answers to questions — isn’t likely to convince anyone.
– Anita