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Howard Barbanel

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Obamacare Could Become the Next Volstead Act

Posted: 07/20/2012 5:27 pm

Thanks to Chief Justice John Roberts, the Affordable Care Act (ACA) is the law of the land. Interestingly, like the 18th Amendment to the Constitution prohibiting alcohol and 1919's Volstead Act enforcing it, what is sometimes derisively called Obamacare may end up once again proving the law of unintended consequences. Much as how the Anti-Saloon League was triumphant and confident in their victory over booze in America, only to discover they had loosened the forces of organized crime, heavy drinking and a libidinous cocktail culture, so too Democrats may discover that avoidance of the ACA may become a prevalent art form and Republicans may find that blind opposition to it may become a giant sand trap.

The first way around the law for an employer (whether in the public or private sector) is to get a waiver from the Administration delaying or altering implementation of the provisions of the law, as have more than 1,000 unions and businesses so far to date. Waivers may start to be issued at the frenzied face of Papal dispensations and indulgences during the Middle Ages. This will create yawning holes in the perceived fairness of the act as some groups with access and influence will avoid having to participate for a time. This will encourage business, unions and individuals to look for their own ways around the act if they can't secure a coveted waiver.

Let's look at individuals first -- Henry Blodget at Business Insider wrote that many Americans "seem to hate the idea that Obama is forcing them to do something more than they hate the idea of shelling out money." Which doesn't mean that the money doesn't matter. The Supreme Court has ruled that Congress can penalize you in the form of taxation for not buying health insurance if you're not getting coverage now at work. These "penalty taxes" will be phased-in between 2014 and 2016. The minimum penalty will be a mere $95 per person in 2014 for people earning between $9,500 and $37,000 a year. Under $9,500 you're exempt. This escalates to a maximum of $695 per person by 2016 and for families, the maximum you can be charged is three times the $695 if family income is below $40,000.

Above $40,000 there is a 2.5 percent penalty tax on household income, which at $50,000 would be a $1,000 tax; $1,600 on $75,000 and $2,250 on $100,000. The penalties max-out at $200,000 where the tax would equal the cost of a "Bronze Health Insurance Plan" offered by the state insurance exchanges, or an estimated $5,000 for individuals or up to $12,500 for a family. The rub here on avoidance for individuals is that high income folks generally have health insurance now and will continue to do so regardless of the law. While the intent of the law is to insure millions of currently uninsured young people and middle class workers, it is precisely these young people who may be more inclined to pay the $695 annual tax if they're making $35,000 and forgo health insurance costing $400 to $500 a month of their net income. In fact, in an expensive place like New York, it is wholly conceivable that young people (the very folks needed to minimize risk for insuring older Americans) even grossing $60,000 or $80,000 might find it more cost effective to give $1,500 to the government rather than pay $6,000 or more for insurance coverage. More young and moderate income people may opt to pay the penalty and forego the insurance -- the exact opposite of the ACA's intended goal. If you avoid even paying the tax, the IRS has no sharp teeth here, they can only sue you, not seize your assets and the maximum they can collect is just twice the amount you owe. Easy to imagine here that a lot of people will thumb their noses at even paying the penalty. You'll also see more people claim Native American ancestry as members of Indian tribes and even the Amish are exempt entirely. Can a Christian Scientist exemption be far off? The state insurance exchanges and the insurance companies could be somewhat hobbled by the ACA's prohibition on charging older folks more and younger people less along with young people deciding to pay the tax instead of signing up.

For companies the formula is a little different. Businesses with fewer than 50 full-time employees are exempt from being required to provide insurance. The ACA defines 'full-time" as 30 hours a week or more. Failure to offer insurance will result in a $2,000 per-employee fine, but the first 30 employees are exempt, so a company with 50 full-timers would have to pay a $40,000 penalty on the next 20 uninsured workers. When this is compared to having to pay between $5,000 and $15,000 to cover all their 50 workers, many businesses may opt to just pay the tax as a way to save money without a shred of guilt because their workers would then be eligible for low-cost coverage in the ACA's insurance exchanges. Ironically, businesses not providing insurance who may have some employees receiving low-income subsidized coverage in the exchanges, will be taxed $3,000 per employee. This could cause some businesses to avoid hiring lower income applicants to keep their overall penalties lower.

The Labor Department reported that 80,000 new jobs were created last month, of that figure, 25,200 were temporary jobs. According to Economist David Rosenberg, businesses are moving to "just-in-time" hiring strategies that revolve around an increasing use and dependence on temp workers. Temps are outpacing full-time hires by 10 to 1 in many companies. Manpower Services (a temp worker agency) said that only 30 percent of their workers landed full-time jobs this year. Companies will hire more people on part-time shifts to avoid hitting the 50 full-time employee threshold along with temps who work for just a few weeks. Some small companies will just opt to stay small instead of looking to expand so as to avoid increased mandates and penalties. Seasonal businesses will be penalized for aggregations of part-time employees working under 30 hours a week who will then be added-up to count as one full-timer. Some businesses will start subcontracting ("outsourcing") a great deal of their lower end labor needs to independent labor providers, like the character Johnny Gallagher provided Scarlett O'Hara for her lumber mill in Gone With The Wind. Look for a profusion of 25 employee businesses providing per-project work for other businesses and that may run the gamut from bussing dishes, deliveries to bookkeeping. There will be a lot of musical chair-rotating temps and outside independent contractors.

For Republicans, sticking their heads in the sand is not an answer -- voters will be looking for some kind of health plan, not just "repeal everything," which would be like saying that Social Security and Medicare should be repealed, which is a non-starter for most voters. The GOP and Mitt Romney need to do some creative thinking and offer an alterative that is socially conscious (as opposed to unconscious) and fiscally responsible while not being a disincentive to business expansion.

A step in that direction is what I've previously called "Americare," in which all Americans get basic catastrophic coverage with premiums deducted from their paychecks (since Congress can now tax for this) and then the private sector can offer extra coverage options above the national base, much as insurance companies do now with seniors for expenses above Medicare Part B coverage. The extra coverage ought to be available across state lines and portable nationally and irrespective of employment or the place thereof. Competition would bring prices down and mandatory basic coverage for every American will spread risk and protect hospitals. Because of "Americare," taxes and penalties could be lifted from individuals and businesses, thereby reducing the size of government. But offering Americans absolutely nothing but "repeal" is no way for the GOP to attract independent swing voters or do something positive for the American people.

 
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