Jobs & Economy
FEATURED RESEARCH, TESTIMONIES AND ANALYSIS:
ADDITIONAL RESEARCH, TESTIMONIES AND ANALYSIS:
The National Federation of Independent Business (NFIB) published a report today detailing the effects of the Patient Protection and Affordable Care Act (PPACA) health insurance premium tax that will be imposed on health insurers beginning in 2014. Based on original research from the American Action Forum, the tax is estimated to cause health insurers to raise premium prices and increase the cumulative expenditures per family by nearly $5,000 through 2020. A follow-up study by NFIB projects that small businesses will take the brunt of the tax-induced damage, leading to a loss of 125,000 to 249,000 jobs in 2021 depending on the rate of health insurance premium inflation.
In March 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA), a massive bill affecting nearly every facet of the US healthcare system as well as many other market factors. Key among these changes were additional regulations over employer sponsored insurance plans that have a particularly harmful effect on small businesses.
American Action Forum President Douglas Holtz-Eakin emphasized 4 key points in his testimony on Small Business and PPACA. First, the PPACA raises the overall cost of operating a small business and undermines job growth in the United States. Second, the PPACA’s new taxes will dramatically increase the cost of insurance premiums and force small insurers out of business; removing insurance options for small business owners and create disincentives for future job growth. Third, the small business tax credits and the grandfathering health insurance provisions included in the PPACA offer false promises to small business owners and create disincentives for future job growth. Fourth, the PPACA will lead to a dramatic decline in employer sponsored insurance; meaning as many as 35 million Americans will not be able to keep their insurance if they like it and the federal government will need to substantially increase spending projections for the state exchange subsidies.
One of us is an economist who has laid out the math showing why roughly 35 million American workers will almost certainly be transferred from employer-provided care to the Obamacare exchanges. For these workers, it will be possible for both the employer and the employee to be financially better off if they are “dumped” into the exchanges. Only the taxpayer loses. As even some in the Obama administration have noted, many employers — and millions of employees — will find the idea of taxpayer-subsidized care very attractive.
American Action Forum President Doug Holtz-Eakin expressed five major points in his testimony. First, at a time when sound policy requires low taxes and reductions in present and future transfer spending, the ACA moves dramatically in the wrong direction. Second, the mandates and tax provisions in the ACA will have detrimental impacts on employment growth, wages, and economic growth. Third, the impact of the ACA will be more expensive health insurance putting employers in the position of either reduced wage rates, fewer employees, or dropping insurance coverage. Fourth, the ACA has strong incentives to drop health insurance coverage, and to the extent that employers pursue these incentives, taxpayers face tremendous upside risk to the cost of the ACA. Fifth, even without unexpectedly large numbers of employers dropping coverage, the ACA will exacerbate an already-dangerous fiscal outlook.
The Affordable Care Act (ACA) is an impediment to economic growth and federal fiscal balance, threatening nearly 700,000 jobs and increasing the deficit by nearly $300 billion in the near term. At a time when too many Americans remain unemployed and the country faces a daunting budgetary outlook, alternative approaches to health care reform would be preferable.
In this testimony, Doug Holtz-Eakin makes four major points. First, the mandates and tax provisions in the PPACA will have detrimental impacts on employment growth, wages, and economic growth. Second, the impact of PPACA will be more expensive health insurance, putting employers in the position of reduced wage rates, fewer employees, or dropping insurance coverage. Third, the PPACA has strong incentives to drop health insurance coverage, and to the extent that employers pursue these incentives, taxpayers face tremendous upside risk to the cost of the PPACA. Fourth, even without unexpectedly large numbers of employers dropping coverage, the PPACA will exacerbate an already-dangerous fiscal outlook.
ObamaCare, formally known as the Patient Protection and Affordable Care Act, is bad news for U.S. workers. ObamaCare creates strong incentives for employers — even while holding workers financial harmless — to drop employer-sponsored health insurance for as many as 35 million Americans. This is sure to lead to widespread turmoil in labor compensation, employee insurance coverage and labor relations. ObamaCare slaps big increases in effective marginal tax rates on low-income workers. Every worker forced onto the subsidized exchanges is sure to face higher barriers to upward mobility and the pursuit of the American Dream.
The new health care law is a threat to the health of small businesses. Its heavy dosage of mandates and penalties will be a financial burden, and the law is riddled with hidden barriers to job growth. In what might be the greatest irony of all, the healthcare law is a threat to U.S. medicine. That’s because the most common business form among healthcare providers is the sole practitioner.
Douglas Holtz-Eakin and Michael Ramlet examine the PPACA from the perspective of the direct and indirect cost implications for small businesses. They find that the reform law’s insurance mandate will raise overall costs, and that the structure of the mandate and tax credit will raise effective marginal tax rates on small business growth and expansions. These cost pressures will be exacerbated by the indirect effects of PPACA. Small businesses will face unmistakable upward pressures on health insurance premiums and the need to re-work benefit packages. Indeed, in the extreme some may choose to exit providing insurance all together.
The PPACA will have profound implications for U.S. labor markets. The PPACA is fiscally dangerous, raising the risk of higher labor (and other) taxes at a time when the job market is struggling. It provides strong incentives for employers – with the agreement of their employees – to drop employer-sponsored health insurance for as many as 35 million Americans, perhaps leading to widespread turmoil in labor compensation and employee insurance coverage – and raising the gross taxpayer cost of the subsidies to roughly $1.4 trillion in the first 10 years.