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Obamacare-2012-460x306Woe is us, my small business brethren.  The Affordable Care Act is eminent and a small business apocalypse is creeping in on little cat’s feet.  And lo, while it cometh under the benign name of the Affordable Care Act, it is better known under the more sinister sobriquet of Obamacare.

As a society we are about to succumb to the most rococo, convoluted, slovenly written major law in American history; a law that is packed with sneaked-in surprises, inefficient bureaucracy (over 160 new government entities and counting), up to a two trillion dollar increase in healthcare cost, and a loss of 800,000 jobs (both figures estimates from the non-partisan Congressional Budget Office.)  Premiums will be going up at least 12% and, for single adults under 30, they will go up 46%, according to the American Academy of Actuaries.

But wait.  It gets better.  To make a profit with the added services mandated, existing policies in most of the small group and individual insurance markets will be forced to create much more restrictive networks, possibly separating you from your personal physician (which we were assured would never happen under this act.)

Nancy Pelosi famously told us we had to pass Obamacare to find out what’s in it.  Well, finding out we are.  Even the most left wing Democrats are voicing buyer’s remorse.  Democratic Senator Jay Rockefeller, a key proponent, now calls the ACA “beyond comprehension”, and Democratic Senator Max Baucus calls it “a train wreck.”  And, get this, Henry Chaowho is the Obama administration’s own head of ACA implementation, states frankly, “I’m pretty nervous…Let’s just pray it’s not a third world experience.”  Not very reassuring, Henry.

picBut the worst mandates in the ACA place a bull’s eye on the back of the entrepreneur and small businessman.  It is an unholy madness aimed straight at us.  It is a flat out disincentive to grow our companies and thereby grow the American economy.  Expansion now becomes expensive for the 500,000 US businesses with fewer than 100 employees.  For example, a company with 49 employees doesn’t provide health benefits.  Hiring just one more worker triggers a mandate to cover all workers or pay a tax penalty ($2000/worker).  Just how likely is that 50th worker to be employed?  Or, if a small business has more than 50, isn’t the company much more likely to fire workers or make them part-time?  I predict huge amounts of entrepreneurial energy and creativity will be syphoned into avoiding expansion requiring new employees.

In a recent study by Mercer, a growing number of entrepreneurs will employ this exact strategy.  Journalist Michael Tanner, in a recent article, points out that in France, another country where numerous government regulations kick in at 50 workers, there are 1500 companies with 48 employees and 1,600 with 49 employers, but only 500 with 51.  (Michael Tanner, NY Post, 11/18/12, p. 27)

Can this non-comprehensible 2,000 page plus new system (ACA) actually be put in place in 2014 without throwing healthcare into utter chaos?  To my thinking, no.

donald-trump1I have lawyer friends with employment specialties who are licking their chops at the tort possibilities in the impending confusion.  And to whom will their torts often be directed at?  You and me, brothers and sisters; we, who can ill afford a full-time lawyer to parse the particulars of the ACA.  I predict a veritable Obamacare tortfest beginning in 2014.

Donald Trump, comb over and ego aside, warns, “I support health care for people.  I want people well taken care of.  But I also want health care that we can afford as a country.  I have people and friends closing down their businesses because of Obamacare.”  Thanks for sharing, Donald.  Would that it were not so.

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208924_10151219093223696_1160063796_n-1[1]OK.  Gird your loins, friends.  This is an “I told you so” column, per my dour posting of Nov. 13.  (Ten Predictions, Obamacare and Entrepreneurship).  Already two of my predictions concerning Obamacare have come true.  The good news is that there are some partial remedial options for the havoc that is already being felt in our small business community.
 
First let’s review my predictions per Obamacare.  I said:
  • Employment growth will become moribund as small businesses strive to stay under 50 employees and out of the iron grasp of the government”s 150 new medical regulatory entities.
  • As a logical correlation of this, small companies will be forced to limit their growth.  The start-up risks and bureaucratic limitations presented by the Affordable Care Act will disincentivize innovation and growth.
We are there.  A November 28th article in the WSJ reports a survey from Vistage International, Inc. that already finds a significant drop in small business optimism.  The survey’s overall confidence index (based on 740 small business owners) fell to 83.9 from 93.3.  The survey’s index of expected economic conditions fell to 77 from 105.  Only 43% of owners anticipate higher profits in the coming year, down from 50% in October, 2012.  23% of owners plan to decrease their self-investment.  The non-partisan Congressional Budget Office now says Obamacare will cost the country over a million jobs, mostly in small business.
 
Furthermore, remember that promise that no one would lose their present insurance?  Not true.  Here’s why.  Employers can no longer afford it.  Per a NY Times story in early January, it turns out that insurance companies can raise rates as much (or more) than before the law was enacted.  The Times reports, “…health insurance companies across the country are seeking and winning double-digit increases from customers, even though one of the biggest objectives of [Obamacare] was to stem the rapid rise in insurance costs….Particularly vulnerable to high rates are small businesses.”  The article notes that, in California, Aetna is proposing rate increases of as much as 22%, Blue Cross 26%, and Blue Shield 20%.  The Affordable Care Act is a bonanza for these insurance companies.  They love it.
 
Betsy McCaughey, in an op-ed in the NY Post (Jan. 16, 2013), notes a report from the Centers for Medicare and Medicaid Services.  The report says many employers will simply discontinue health benefits for their employees.  James Sherk of the Heritage Foundation estimates Obamacare will add $1.79/hr. to the cost of a full-time employee.  This can be especially damaging with regard to lower wage full-time employees in areas like retail, construction, restaurants, and medical services.
 
I heard John Mackey of Whole Foods state in-person last week that Obamacare may legally force him to discontinue his healthcare program for employees, even though his plan is much more generous than the new mandates.
 
This is madness.
 
obamacare-cartoon[1]There was an illuminating annecdotal case study in the WSJ on January 17 (Page B-1) concerning Meash & Mia, a successful and growing clothing boutique.  “We are poised this year to more than double or even triple business.” says Elizabeth Turley, the founder.  She needs and wants new committed employees, but feels she must fumfer by with contractors and temps.  Why?  Simply because Meesh & Mia is on the edge of having over 50 employees already.  Or take a Nebraska network of Wendy’s Restaurants.  They recently announced they are cutting back employee’s hours to part-time to avoid the mandate.
 
So here are five palliatives that may help us all survive the Obamacare (ACA) mandates.  (I dislike offering these suggestions because they assume a cynical need to game the system. Nevertheless…)
  1. Opt out.  Stop health coverage altogether.  For the employer the penalties are lower than the cost of insurance under the added coverage demanded by government mandates. 
  2. Avoid the 50 worker threshold by outsourcing and using part-timers.  But be careful about hiring contractors.  The IRS is gearing up to increasingly contest  contractor status.  (My guess is that temp worker stocks like Robert Half and Manpower will go through the roof over the next couple of years.) 
  3. Reduce or end coverage for retired workers.
  4. Offer only higher-deductible plans or just give employees a lump sum to apply to any plan they want in the new government exchanges.
  5. Have your employees become one man corporations.  You then pay them as corporate entities.  This has already worked quite effectively for large companies like IBM, Intel, and Microsoft.  Paul Christiansen details this option in yesterday’s (January 29, 2013) WSJ op-ed page, if you are interested.
No matter the compassion and empathy most of us have for our employees, ROI survival may militate some unpalatable choices for many of us.

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Well, Obamacare has passed muster with the Supreme Court.  Alas, alack.  Let the regulatory onslaught begin.
 
My feeling is Obamacare will be even worse for the small businessman than expected.  Here’s why:  TORTS.  Pandora has opened her medical box.  The lupine tort bar is salivating over the hopelessly recondite ferrago of bureaucratic processes delineated in the almost 400 new governmental entities created by this law.  My fear is that this well-meaning, but wrong-headed, 2700 page law will become the lawyer’s full employment act, a wanton feeding-frenzy of tort litigation.
 
In a July 9, 2012 article Crains’ reports (p. 3) four different federal agencies (the IRS, the Department of Labor, the Department of Health and Human Services, and the Department of Housing and Urban Development) are in the process of writing thousands of pages of regulations listing new employer obligations.  Benefits lawyers report a proliferation of potential HR liability around record-keeping, reporting, qualification, and payments.  It is a veritable mine-field of potential litigation.
 
Peter Marathas, a partner at Proskauer, states,  “The statute has an extremely complex regulatory framework that adds layers onto what  we already have.  It leads to an increased burden and increased liabilities.”
 
This is especially threatening to our small business community.  We simply don’t have in-house the cadre of administrators to deal with this onslaught, but I guarantee you right now an increase in accounting expense and lawsuits.
 
Rosina Rubin, CFO of Attitude New York, a limousine company with 60 employees, states simply, “I think that we’ve created some jobs for lawyers and accountants.”  I think you’re right, Rosina.
 
Yet, worse even than the administrative burden, is the further dampening of animal spirits that may well descend on our entrepreneurial world.  New ideas and creative risk-taking flourish in a petrie dish of freedom and open-ended possibility, not in an increasingly proscribed dirigism of tightly-controlling, top-down governance.  At a certain point entrepreneurs may choose to not grow—to subtly go on strike from the over regulation of these new legal strictures.  Ayn Rand’s Atlas Shrugged fictionalized this very event.
 
John F. Kennedy stated in his last State of the Union Address (Jan. 14, 1963),  “A police state finds it cannot command the grain to grow.”
 
Thank you, John.

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President Obama seems to hate us entrepreneurs.  Why, for God’s sake?  Why?  He needs us to succeed if he is to succeed.

What has utterly amazed me over the last 3 1/2 years is the Obama administration’s lack of sympathy and even hostility to small business.  The culmination of this consistent trope came last week when the President informed us our private sector was doing just fine, but the public sector was what was truly suffering in the present recession.  Huh?

Obama seems hurt and surprised when small business howls with alarm at the farrago of mandates, regulations, penalties, and added taxes his policies promulgate.  In nothing is this more apparent than his complete lack of sensitivity to the unpopularity and impracticality of ObamaCare in America as a whole, and in our small business community in particular.

The Supreme Court will decide if ObamCare is constitutional before the end of June.  But, whatever the nine Justices decide next week, to my mind this misbegotten 2700 page monstrosity is straight-out, all-fired, and pure-D insane.

Here are just a few reasons practical reasons it won’t work, especially for small business:

  1. It’s hugely expensive for us to comply with.  Jeffrey Carlisle, Founder of Our Health Connector states, “A massive amount of money is dedicated toward an alphabet soup of regulation which shift energy [away from health] and onto compliance.”  (New Hampshire Union Leader-May 12, 2012)
  2. Many small businesses will simply bypass the law by paying a fine and dropping healthcare altogether.  This helps no one.  For instance, Laura Doerger-Roberts, with 170 employees at Vinylmax in Hamilton, OH, says it will be cheaper for her to pay a $340,000 fine than comply.  Or take President Pat Daly of Sierra Bullets in Sedalia, MO.  Pat says, “At Sierra we have looked at ObamaCare. If it goes the way we believe it will, it would make sense for us to pay the fine and go.  I can’t imagine that being a better plan than the excellent healthcare we supply now.”  (The Sedalia Democrat-May 2, 2012)
  3.  ObamaCare is a disincentive to hire or expand.  73% of businesses in a recent survey report the healthcare law is an obstacle to hiring.  (The Hill-April 16, 2012)
  4. It will be more expensive for employees as increased regulatory costs and medical overhead are passed on through reduced salaries and diminished raises.  63% of owners in a survey by Zywave in Milwaukee, WI, say they’ll be forced to do this, resulting in wage stagnation.  (Birmingham Business Journal-June 1, 2012)
  5. Supposedly small business will get a tax credit to ameliorate the above mentioned problems.  However, it requires filling out IRS Form 8941, a mind-numbingly complex series of calculations.  Furthermore, according to my own CPA, going through this expensive accounting exercise will only qualify a very small number of companies.  Why bother?

And let’s not even mention the effect on our national debt.

So, while the intentions of Obama and ObamaCare may be good—even noble—the actual results for the economy are horrendous.  Small business must create the bulk of new jobs if our economy is to improve and it simply cannot do this while groaning under the added weight of ObamaCare.

While healthcare is certainly a mess, this just ain’t the way to fix it.  Indeed, Obama needs entrepreneurs to succeed if he is to have any hope of generating tax revenue to support his ambitious expansion of federal services.  Poorly wrought, bureaucracy heavy programs like Obamacare make this task herculean, if not impossible.  So, for the sake of all of us, I personally hope ObamCare will be thrown out next week–because, like Crazy Eddie says, “It’s insane.”

As liberal journalist Matt Taibbi puts it in his recent book Griftopia:  Bubble Machines, Vampire Squids, and the Long Con That Is Breaking Ameirca, “The Congressional Record will forever show that ObamaCare was passed in a romper room of overgrown children seemingly barely old enough to keep from peeing on themselves.”

Goodness me.  Thanks, Matt

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