Tuesday, July 2, 2013

Obamacare begins to unravel

I've written a whole series of posts over the past several years on the fatal flaws of Obamacare. I'm standing by what I've said before: "the defects of this legislation are so massive and pervasive that it will never see the light of day."

Today we learn that the Obama administration is going to delay enforcing the penalty ($2000 per employee) on businesses with 50 or more employees that fail to provide them with healthcare insurance. This will presumably give businesses time to adjust, but it also conveniently postpones a key and controversial portion of the law until after the 2014 elections.

This delay shows that there were even more fatal flaws to Obamacare than I thought. How could I—or any congressional staffer writing the original law, for that matter—have failed to realize that exempting businesses with fewer than 50 full-time employees from the penalty, but imposing the full penalty (which would start at $100,000 per year) on any business that goes from 49 to 50 employees, would do anything but create havoc among small businesses, the biggest source of new job creation? For small businesses that currently do not offer health insurance, the effective cost of adding a 50th employee would be not only that employee's benefit package, but also $100,000 in annual penalties, or the cost of providing health insurance to everyone, which could be upwards of $6,000 per employee, or $300,000 for a business with 50 employees. Not many businesses are profitable enough to survive that, no matter how much time they have to "adjust." This is a huge anti-business and anti-jobs defect in the law.

Delaying this penalty on small businesses that want to grow is not going to fix the problem. Small businesses will continue to eye the magic "50," keeping employee counts low, postponing expansion plans, and relying as much as possible on temporary or part-time employees. Many employers may simply decide to downsize. This is not good for business and it is not good for new job formation. It creates a huge "wedge" between the cost of hiring additional workers and their marginal contribution to the business. It also interferes with individuals' right to contract freely.

This is not the first delay in the implementation of Obamacare, and it is likely not the last. The fact that some 30 states have not set up health insurance exchanges may well precipitate yet another delay which could expand to the entire program, not just the employer mandate. A few more such delays and Congress may finally realize that Obamacare is bad public policy and that the only solution is to repeal it and rely instead of market-oriented reforms to healthcare. With one simple change to the tax code—for example, allowing everyone, not just employers, to deduct health insurance costs—Congress could make a huge difference that would end up being a positive for everyone.

I'm always looking for the silver lining to clouds such as Obamacare, and so I welcome today's news. The more time passes, the more fatal flaws we are likely to discover in Obamacare, and the greater its chances of further delays, and eventually its repeal.

UPDATE: I highly recommend reading Michael Cannon's analysis of this delay action. "Congress gave neither the IRS nor the president any authority to delay the imposition of the Patient Protection and Affordable Care Act’s employer mandate." The administration and the IRS are doing an end-run around Congress by refusing to enforce the penalties. That's one more in a series of legal abuses, which include the Obama administration's decision to keep providing federal health benefits to members of Congress in violation of the ACA law; HHS's granting of waivers for select companies and unions; and the IRS' decision to "implement the law's tax credits, subsidies, and taxes in states with federal fallback exchanges—even though Obamacare ... prohibits the IRS from doing so. The IRS has literally asserted the authority to tax, borrow, and spend more than $1 trillion contrary to the express will of Congress."

More importantly, if employers do not report to the IRS whether they are providing acceptable coverage to their employees, "the federal government simply cannot determine who will be eligible for credits and subsidies." It's not hard to see that this will effectively require that the enforcement of the individual mandate (err, "tax") be delayed as well.

Pretty soon Congress is going to realize that the whole law should be delayed, if not repealed. Good riddance!

UPDATE 2: Late last Friday, HHS addressed this issue (the one-year delay in the employer mandate and its reporting requirement) by saying that it will rely on self-reporting to determine people's eligibility for subsidies rather than postpone the individual mandate. This is an open invitation for massive fraud, not to mention another case in which the administration has arbitrarily re-written the law in an attempt to overcome its massive deficiencies and defects. Will Congress allow this to stand? Obamacare, a daring, massive, and very poorly-designed attempt to re-engineer how one-sixth of the U.S. economy functions, is on such shaky ground that it is destined to fail if it is not repealed. As Sen. Max Baucus said, it is a trainwreck.

UPDATE 3: Senate Republicans are recommending that Obamacare be permanently delayed. It would be shocking at this point for the law to proceed as intended—way too many problems have surfaced, with one of the most troubling, but least-noted, being the Obama administration's unilateral actions to change the implementation of the law. This is a dangerous and unconstitutional expansion of executive power.

UPDATE 4: James Capretta's testimony today to the House Ways and Means Committee is a must-read. He clarifies the many legal and administrative problems that are surfacing and offers potential solutions. His arguments for delaying most if not all of the ACA for at least a year are compelling.

12 comments:

skydude said...

Aren't some of the problems Obamacare addressing due to the fact that healthcare demand is inelastic?

As an example, the majority of healthcare for uninsured is found through emergency rooms. This is the most expensive way to cover healthcare.

I wholeheartedly agree that the free market does work best. However, when healthcare is provided for those who are uninsured then the problem becomes more complex. Perhaps a strict denial of any healthcare for those individuals who are uninsured would work better.

W.E. Heasley said...

“Delaying this penalty on small businesses that want to grow is not going to fix the problem. Small businesses will continue to eye the magic "50," keeping employee counts low, postponing expansion plans, and relying as much as possible on temporary or part-time employees. Many employers may simply decide to downsize. This is not good for business and it is not good for new job formation. It creates a huge "wedge" between the cost of hiring additional workers and their marginal contribution to the business. It also interferes with individuals' right to contract freely.” - SG

Observation: consider that interventionists who advocate interventionist policy into economies, to supposedly fine tune a macro economy or as countercyclical measures to a macro economy e.g. Paul Samuelson’s policy, generally use temporary discretionary policy. The classic case is the temporary tax cut and/or rebate vs. the permanent tax cut. The former causing short term behavior that either quickly vanishes or has no impact and the latter causing long term positive behavioral changes.

Keeping the above in mind, delaying the ACA penalty to firms [plus fifty full time employees] until 01/01/2015, given that the firms are already engaged in cutting hours and/or hiring new employees at 28 hours (below the full time threshold of ACA) is an interventionist policy that is fine tuning in nature. Meaning, it causes short term behavior that either quickly vanishes or has no impact regarding firms engaged in cutting hours and/or hiring new employees at 28 hours. Very nice indeed.

Moreover, the situation is the interventionist who advocates interventionist policy trumping his/her own interventionism with more interventionism. Sweet!

mmanagedaccounts said...

I have been discriminated against by liberal Democrats for decades as a self-employed worker and employer of five excellent employees because I cannot deduct my personal health insurance costs whereas employees do not have to declare health insurance premiums paid by their employers as income.

Since when is it the employer's responsibility to provide health insurance and retirement benefits for employees?

Why not add to that dental, disability and life insurance, transportation costs to and from work, vacation costs, education for the employee's children, etc?

Heck, we could make the employer financially responsible for the total welfare of each employee. That's the liberal Democrat way!

I believe there could be ways to bring down the costs of healthcare, but they do not include more mandates on employers. They do include more personal responsibility on the part of each of us.

Scott Grannis said...

skydude: the number of uninsured using emergency rooms is a small fraction of healthcare spending. It doesn't make sense to change the whole system just to address this relatively tiny problem.

Joseph Constable said...

We will never resolve the problem of the high cost of healthcare as long as we can get someone else to pay for it.

Joseph Constable said...

We will never resolve the problem of the high cost of healthcare as long as there are monopolistic protections for the industry. Healthcare providers laugh all the way to the bank every time a liberal says health care should not be for profit.

sgt.red.blue.red said...

Ya' mean the big lovefest is about over? If they think that business is going to pick up because of this moratorium, they will be mistaken, just like temporary tax cuts had no pump priming effect.

The market will find a 'work around' to this massive obstruction. But what a tremendous waste of time and resources from every vantage point in this sad, sordid mess.

Note: mmanagedaccounts:

Set up corporation, and have the corporation hire you, and then pay your healthcare and take deduction at corporate level.

Johnathon Banks said...

Hopefully as time goes on more people will wake up and realize just how ridiculous Obamacare is. It is going to do nothing to help growth in this country at a time when everything is going stagnant at best. Then again, we're all going to need insurance when we don't have jobs!

NormanB said...

Wait until my free-lancing 33 year old son and his wife learn what health care is going to cost them. And why don't they know already? The media wants to keep it from them as long as possible to say nothing of this adminstration. Where are the Republicans on this?

Benjamin said...

Well, maybe Scott Grannis just gave the answer:

Get rid of Obamacare, all other government health care programs.

Reimburse hospitals for unpaid emergency room visits, on some sort of per capita basis. Maybe government money matches private charitable donations

Not perfect, but cheaper.

John said...

"Heck, we could make the employer financially responsible for the total welfare of each employee. That's the liberal Democrat way!"

Absolutely not. Obamacare is modeled after Romney Care. The liberal Democrat way is Medicare for All, a single payer system similar to Canada's.

RichmondG30 said...

To sgt.red.blue.red:

Unfortunately you can't do that. As both and owner and employee of my S-Corp, I must report the amount my company pays toward my health insurance and I must claim that amount as income (and pay tax on it). In effect, the law eliminates my ability to deduct my health insurance.