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Happy Birthday, Obamacare? What It Really Means for American Businesses

Posted By Kathryn Nix On March 21, 2011 @ 4:30 pm In Obamacare | Comments Disabled

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This Wednesday marks the first anniversary of Obamacare. While advocates spend the week highlighting the new law’s effects on different groups of Americans, we will do the same. A review of the facts on the ground and the conclusions of Heritage research over the past year reveal the far-reaching negative consequences of the new law.

Today, the argument is that Obamacare is good for American business. Though there are sure to be those who experience some benefit under the new law, its overall effect will be to cause great harm to job growth and the economy at large. By and large, Obamacare will also fail to remove the obstacles that smaller employers face to provide health insurance for workers.

For starters, Obamacare creates burdensome new paperwork for business owners through its requirement that they file a 1099 form with the Internal Revenue Service for all purchases above $600. Though there is bipartisan support to repeal this onerous requirement, it remains part of the law. Altogether, Obamacare includes more than $500 billion in new taxes, which, as Heritage analyst Curtis Dubay writes [2], “will slow economic growth, reduce employment, and suppress wages. These economy-slowing policies could not come at a worse time. [Obamacare] tax increases will impede an already staggering recovery.”

Obamacare also creates penalties for firms with more than 50 workers that do not provide employees with a level of health coverage deemed adequate by Washington. This discourages small businesses from expanding. As Heritage analyst Brian Blase writes [3], “The economic effects of the employer mandate will likely be lower profits for many businesses, lower wages for millions of workers, increased unemployment, and higher prices for many goods and services.” Since employers will be required to increase the amount they compensate workers in the form of benefits, they will reduce the amount of compensation they provide as wages, since, after all, “Productivity gains, not acts of Congress, are required to increase worker compensation over time.”

Moreover, Blase writes [3], “businesses that conform to the mandate will face compliance costs. Therefore, many businesses will have less profit with which to compensate their employees and shareholders, resulting in lower wages for employees and diminished portfolios for shareholders.” To make up for cost increases, businesses will likely increase prices for goods and services.

Finally, though Obamacare is touted as helping small businesses to afford coverage for employees, its new small business tax credit actually makes little leeway to accomplish this goal. The Congressional Budget Office estimates that [4] “a relatively small share (about 12 percent) of people with coverage in the small group market would benefit from that credit in 2016. For those people, the cost of insurance under the proposal would be about 8 percent to 11 percent lower, on average, compared with that cost under current law.”

The tax credit will be largely ineffective due to the narrow criteria businesses must meet to qualify. The credit would offset, at most, 35 percent of insurance costs, but it is phased out as the number of employees or average wage rises. Both of these phase-outs occur simultaneously, quickly diminishing the value of the credit. According to Bill Rhys, tax counsel for the National Federation of Independent Business [5], “The fact is neither this law, nor this credit, will make healthcare more affordable for small businesses long-term.”

Heritage’s Center for Data Analysis [6] simulated the overall effects of the new law on the economy and found that Obamacare would result in reduced investment in the U.S. economy and a loss of 670,000 job opportunities every year. While liberals try to sell the ever-unpopular Obamacare to the American people, a look at the bigger picture reveals that, no matter how you slice it, the new health care law is an economic disaster. To read more, check out the following Heritage documents:

Obamacare: Impact on the Economy [6]

Obamacare and New Taxes: Destroying Jobs and the Economy [2]

Obamacare and the Employer Mandate: Cutting Jobs and Wages [3]

Obamacare and Health Subsidies: Expanding Perverse Incentives for Employers and Employees [7]


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/03/21/happy-birthday-obamacare-what-it-really-means-for-american-businesses/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/2Going_out_of_Business090203.jpg

[2] Heritage analyst Curtis Dubay writes: http://www.heritage.org/Research/Reports/2011/01/Obamacare-and-New-Taxes-Destroying-Jobs-and-the-Economy

[3] Heritage analyst Brian Blase writes: http://www.heritage.org/Research/Reports/2011/01/Obamacare-and-the-Employer-Mandate-Cutting-Jobs-and-Wages

[4] The Congressional Budget Office estimates that: http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf

[5] According to Bill Rhys, tax counsel for the National Federation of Independent Business: http://www.nfib.com/press-media/newsroom-article/cmsid/52099

[6] Heritage’s Center for Data Analysis: http://www.heritage.org/Research/Reports/2010/09/Obamacare-Impact-on-the-Economy?query=Obamacare:+Impact+on+the+Economy

[7] Obamacare and Health Subsidies: Expanding Perverse Incentives for Employers and Employees: http://www.heritage.org/Research/Reports/2011/01/Obamacare-and-Health-Subsidies-Expanding-Perverse-Incentives-for-Employers-and-Employees

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