Affordable Care Act: Anything but Affordable
The Affordable Care Act is a piece of legislation that aims to extend healthcare coverage to millions of Americans. This bill has divided the nation and in some circles discussions end in bitter arguments. Those that support the bill feel it is the nation’s moral duty to grant everybody coverage, and many of those that oppose the bill are alarmed at the fiscal implications it brings. The Affordable Care Act was summarized by Avik Roy as follows: Some will be signed up for Medicaid and consigned to a lifetime of poor health care. Some will gain access to the subsidized exchanges, but will find it harder to gain employment as a result. And those who already have insurance, and are being squeezed by ever-increasing premiums, will be squeezed even harder by the law’s thoughtless blizzard of mandates and regulations (Roy, “How Obamacare Harms the Poor”).
The intentions of the Affordable Care Act are respectable, but the end result will disadvantage citizens that pay for their own health insurance and will impact small businesses and their employees on a greater scale than the rest of the population.
Under the Affordable Care Act, businesses with 50 or more employees are required to offer health insurance that meets government regulations to employees or face a fine of $2,000 per employee, minus the first 30 employees. In other words, a firm with 50 employees that fails to offer health insurance will be fined $40,000 and a firm with 100 employees would be fined $140,000 each year (“Obamacare Will Crush Small Businesses”). Businesses that currently offer health insurance to employees and firms looking to start offering health insurance in order to comply with the law will see a sharp increase in the cost of health insurance premiums. Employees of David Barr, who owns 23 Taco Bell and KFC locations in Alabama and Georgia, “likely will see little change in their coverage.” Barr Said, “[But] our premiums will go up significantly. They’ll probably almost double. We’re paying for it no matter how much they call it ‘affordable’” (Miller, “Businesses Fearful”). Barr currently “provides health insurance for only 30 managers or office personnel. But under the ACA’s rules, starting in 2014, he will have to extend insurance coverage to an additional 134 full-time employees among his 424 workers.” Barr says, “By any definition, the law applies to us. If we fully implement the law, we’ll have to just file for bankruptcy.” Barr calculates that at an average cost of $5,000 per year it would cost his company about one half-million dollars per year to cover the applicable employees, even if his employees were paying the maximum percentage of their premium. Barr continues, “this business, believe it or not, does not cash flow more than half a million dollars a year.
After I pay all my expenses, pay debt service, pay required upgrades and other capital expenditures required to run the business, we don’t have half a million dollars a year. And I really believe that’s the case for many low-wage service industries” (“Fast Food”). Faced with higher costs, many companies, unable to meet those costs will be faced with paying fines or finding a way to skirt the law. Many employers are contemplating reducing full-time employee’s hours to below 30 hours, turning them into part-time employees which the companies would not be required to offer health insurance. Barr is planning on reducing, “a majority of his 164 full-time employees” to part-time hours. Barr says, “The unfortunate part is it doesn’t help me, because I’m probably losing a good employee. And it doesn’t help my employees, because they might end up taking two part-time jobs and they still won’t have [employer-provided] insurance” (“Fast Food”). Barr is not alone in his decision to cut hours. Zane Tankel, an Applebee’s restaurant franchisee “told Fox News Business Network he would freeze hiring and may cut employees’ hours because of the cost of complying with the law.” Darden Restaurants, a firm that owns Red Lobster and Olive Garden, among others and John Metz, who owns about 40 Denny’s around West Palm Beach, Florida joined the growing ranks of businesses contemplating the reduction of full-time employees to part-time. Metz is also considering passing on the cost to the consumer.
In January, after the changes are in effect John plans to implement a new surcharge (“Forbes: Papa John’s”) (Ray, “Tipping Point Over Healthcare”). Not only will some firms be turning full-time employees into part-time, but other firms that are close to the 50 employee limit may look to reduce their number of staff to below 50 in order to gain exemption from the law. “Financially, the best course of action for some businesses is to fire people. If you’re a business with 50 to 60 people that faces penalties, you undoubtedly will evaluate if automation, a change in logistics, a cut in hours or service, and other changes in business practices will result in a greater net profit” (“Obamacare Will Crush Small Businesses”). The penalties companies will face are intended to motivate them to offer suitable health insurance to their employees, Bob Mcdevitt, union President of Local 54 of UNITE-HERE said, “The average cost of health insurance for my members is $6,000 per year. If the company pulled out that cost would be reduced to $2,000 and that’s supposed to be a penalty? A basic economic principle is if you can walk away from those kinds of legacy costs, it’s very enticing for any employer” (Miller, “Businesses Fearful”). I asked a local small business with just under 50 employees what their cost for health insurance was. In 2010 the average cost per month to the employee was $900 to $1000 for a family, with the employer paying a matching sum. Over the next year and a half their costs soared to $2,500 per month for the employee, and an additional $2,500 from the employer (Chartier). The business and the employees, unable to cover these additional expenses were forced to downgrade their coverage to a plan that was in their price range. This downgrade ends up costing the employee more in the long run since they are now left paying out of pocket on expenses that are above their coverage limit or are no longer covered by insurance at all.
The company in question is below the 50 employee limit, so they are not required to offer health insurance; because of this the employer is considering dropping the health insurance from its employees’ benefits. If the company does decide to drop coverage it would be beneficial if they remained below the 50 employee limit, because of this the employer has decided not to expand until they can be certain the new law wouldn’t crush them under its requirements (Chartier). A number of small businesses that normally get overlooked are franchises. While they have the name recognition of a large corporation, they are usually owned and operated by local people. Under the ACA a franchisee that owns multiple locations will have their employees pooled and if it totals over 50 they would be required to offer health insurance. “In the U.S., more than half of all franchise outlets are operated by franchisees that own multiple locations,” these franchise owners say they will be disadvantaged compared to “local, nonfranchise competitors” (“Fast Food”). One of the unintended consequences of this bill hurts families of special needs children. Flexible spending accounts have been limited to an annual contribution amount of $2,500. In the past there was no federal limit. Limits could be imposed on the employer level, the most common limit imposed by employers was $5,000 but there were some that did not impose a limit. FSA’s are pre-tax contributions, and families with special needs children can use their FSA to pay for their child’s tuition at a special needs school since it is counted as a medical cost.
Stephen Sanborne, a sales executive with Thomas Heist Insurance said, “The act reduces the amount of pre-tax income people can set aside in a flexible spending account for health care from $5,000 to $2,500. The rationale is that about 90% of people never go over $2,000 anyway” (qtd in Michael). Children’s Hospital of The King’s Daughters is a hospital in Norfolk, Virginia that provides emergency service to those that cannot afford it. As a business CHKD relies on the Federal subsidies to at least partially cover the deficit from providing what is essentially free care to these individuals. Unfortunately, this is about to change. CHKD has “sustained operations with the help of a stream of federal revenue. That money is set to disappear of the next six years. The money is going to disappear due to ‘one of the unintended consequences of the health insurance reform bill’ (“Editorial: Once Again”). If one is unable to access insurance through the employer, the options are Medicaid or buying a government approved health plan through a state exchange. President Obama hopes to cover an additional 32 million people through this act, and according the Congressional Budget Office, Obamacare will shove 17 million more Americans into Medicaid, which is “The developed world’s worst health-care system” (Roy, “How Obamacare Harms the Poor”).
Medicaid patients have consistently been proven to have far worse health outcomes compared to patients with private insurance. The University of Virginia conducted the largest study of this type. After analyzing the data, they found that “surgical patients on Medicaid were 97 percent more likely to die in the hospital than those with private insurance, and 13 percent more likely to die than those with no insurance at all” (Roy, “How Obamacare Harms the Poor”). Medicaid patients not only see a lower standard of care when compared to private insurance patients, they are also heavily restricted in where they can go to receive care. Medicaid patients are 8.5 times more likely to be rejected by an internist when compared to private insurance patients. Children with serious conditions on Medicaid were denied
appointments 2 out of 3 times, compared to the 1 out of 10 times for children with private insurance. Proponents of the Affordable Care Act feel that it would be immoral to repeal it. The Story of Deamonte Driver has been cited by Ezra Klein, who works for the Washington Post, as an example of this immorality. “In January 2007, Deamonte told his mother, Alyce, that he had a headache. She took him to the hospital, where he was diagnosed with a severe dental abscess and given some medication. But the next day, his condition worsened. It turned out that the infection from his tooth had spread to his brain. He was taken to the hospital again and underwent emergency surgery. After a second surgery, he got better for a while, but then began to have seizures. Several weeks later, Deamonte was dead” (Roy, “How Obamacare Harms the Poor”).
Ezra Klein says, “To repeal the bill without another solution for the Deamonte Drivers of the world? And to do it while barely mentioning them? We’re a better country than that. Or so I like to think” (qtd. in Roy, “How Obamacare Harms the Poor”). The supporters of this bill wish to provide the same medical benefits to all walks of life. Many people point out that the private insurance companies haven’t been able to sort out our medical system’s issues, and that our medical costs continue to soar. Some of these people wish to let our government run our entire medical system, hoping that they can succeed where the private sector has failed them. I will not deny that the private sector is flawed. We could benefit from true healthcare reform, but this bill, “expands coverage without any regard to the value, or the quality, of that coverage” (Roy, “How Obamacare Harms the Poor”). The Medicaid and Medicare programs, which are run by our federal government, are one of the biggest drains on our healthcare system: “Medicaid doesn’t pay particularly well, and consumers may not find a doctor who will take Medicaid as payment. Out of a job, and provided with health care coverage that is difficult to impossible to use is the situation some will find themselves in” (“Obamacare Will Crush Small Businesses”). Due to the requirements imposed onto the private insurance companies, it is possible that private insurance companies could be forced to leave the market:
“Obamacare forces insurers to cover everyone, including those who are already sick. But because the law’s individual mandate is weak, containing numerous exemptions, many people will have an incentive to wait until they are sick to buy insurance, and then drop their coverage once they’ve received the care they need” (Roy, “How Obamacare Harms the Poor”). If private insurers can no longer make a profit, which as a business they are entitled to; they will leave the market and the public will be left with only government provided healthcare, but we need to remember “not all health coverage is created equal. A plastic card in your wallet with the word ‘insurance’ on it doesn’t guarantee that you’ll have access to the medical care you need, when you need it” (Roy, “How Obamacare Harms the Poor”). The story of Deamonte Driver is indeed sad, but the Affordable Care Act would not have done anything to save Deamonte. According to Avik Roy, Deamonte: died not because he was uninsured. Indeed, Deamonte Driver died because he was insured–by the government.
Deamonte, it turns out, was on Medicaid. Under Obamacare, if Deamonte were alive today, he would still be stuck with the dysfunctional Medicaid coverage that he was stuck with before (“How Obamacare Harms the Poor”). If, in the end, we are left with just the government run healthcare option, we will all be in a worse situation than I can even imagine. I do not wish to deny medical insurance to Americans that need it; however this is not the solution. Aside from the substandard quality of government coverage, the Affordable Care Act will put undue strain on small businesses. Due to the large percentage of employees that work for potentially affected employers there will be a large number of people that we are trying to help that we end up hurting instead. “For businesses that are just making ends meet while hoping for an economic upturn soon, this may be the straw that breaks the camel’s back” (“Obamacare Will Crush Small Businesses”). Even though everyone is guaranteed coverage “for some people, losing their job may also mean a reduction in the quality of health care service” (“Obamacare Will Crush Small Businesses”).
For some this may result in lost jobs, for others it will foreseeably end in lower take home pay. In response to reactions regarding his planned surcharge John Metz says, “[I] may tell cost-sensitive customers to tip their servers less, putting more of their tab toward their meals. Since any increase in the price of the dinner is the result of providing health care insurance for workers, waiters and the like are getting a higher percentage of the bill in benefits. Hence, customers can rightfully tip servers more frugally without feeling guilty” (“Fast Food”).
I do not deny that there are many great things within the Affordable Care Act, such as extending children’s’ inclusion on parent plans age to 26. The issue I have is that businesses are required to conform to these complex requirements. No business, large or small is going to benefit from the governments influence in the marketplace.
Bruce and Mitchell are two small business owners that are experiencing the extreme effects. Bruce owns three restaurants in Florida and offers coverage to all full-time employees, but: ObamaCare will declare his insurance plan not good enough, and Bruce will be fined $2,000 per employee. Moreover, since his restaurants only earn $1,200 in profit per employee, he will not only lose all profitability but be $800 in the hole for each employee he maintains. The only rational business decision Bruce can make is to shed the third restaurant, which will unfortunately mean laid-off restaurant workers, fewer construction jobs, and community blight resulting from the newly vacant property (Kyl, “A Tale of Two Job Creators”). While Bruce has to shed a restaurant in order to avoid penalties, Mitchell isn’t in a position to downsize and faces large penalties, followed by a bizarre tax law: Because ObamaCare does not allow business owners to deduct these fines, the tax code will treat Mitchell as if he still had $1 million in business profit, even though he already turned over 100 percent of it (which he never had in cash) to Uncle Sam. As a result, he will also owe hundreds of thousands of dollars in income taxes on $1 million that does not exist (Kyl, “A Tale of Two Job Creators”).
Bruce and Mitchell may be gaining national publicity, but there are many more small businesses that will suffer similar fates. The Affordable Care Act fails to do what its name states; be affordable. Provisions from this bill could be salvaged and possibly implemented around a different framework, but as it is currently implemented this piece of legislation is thoughtless, reckless, and will be devastating to this nation’s economy. Businesses and employees face increased costs and fines alike. People that are currently at the mercy of our government coverage are not offered anything more, in fact they will receive a smaller amount of the pie as more people are shoved into the Medicaid program. This is all a manifestation of our deeper problem. America has become a nanny state. The federal government should not be inserting themselves into the lives of its citizens like this. Works Cited
Chartier, Jeanine. Personal Interview. 3 Dec, 2012.
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