Saturday, January 15, 2011

The New Health Care Law Will Impoverish You: Here's Why

I just submitted this to Mike Marnell, crusading editor of the Lincoln Eagle out of Kingston, NY.

The New Health Care Law Will Impoverish You: Here's Why
Mitchell Langbert, Ph.D.*

In the 1990s the Clinton administration and the left wingers who dominate the Democratic Party pushed through the Family and Medical Leave Act (FMLA).  Democrats claimed that it would improve efficiency and reduce costs because employers would no longer terminate employees on sick leave and so save on costs arising from turnover.  For instance, the University of California's Andrew E. Scharlach and Blanche Grosswald  claimed in Social Service Review that FMLA provided so great a bounty to employers that it ought to be expanded to include the smallest firms, which can be bankrupted by increases in employment costs.   As well, the University of North Carolina's Christopher Ruhm claimed in the Journal of Economic Perspectives that FMLA's costs would be minimal and that it might contribute to increasing efficiency because employers without the benefit of government regulation overlooked employees' needs for family and medical leave.

After FMLA passed, Scharlach's, Grosswald's and Ruhm's claims turned out to be pap.  Hallmark Cards reported that FMLA increased its leave costs by 35%.  Southwest Airlines, the best run (and most union-friendly) airline stated that reservation agents were gaming leave provisions to get extra overtime.  Southwest added that "FMLA has forced employers to abandon their attendance reward policies… once an employee claims that his or her absence was an FMLA covered absence, it cannot be considered in determining whether the employee is eligible for a perfect attendance award."  

Worse, FMLA led to litigation. The Department of Labor held that employees in intense, assembly-line and service environments must be given leaves of as little as six minutes.  Because some employer processes depend on minute-to-minute responsiveness, employers have reported disruption and dramatic cost impact.  The Eighth Circuit Court of Appeals held in Caldwell v. Holland of Texas that employers could be held liable for FMLA violations even if the employee does not comply with notification requirements.  Employers who discharge an employee when FMLA might be involved may be liable.  Thus, every time an employee is fired firms must spend time and money to investigate potential FMLA violations. Uncertainty raises costs.
Health Care Law an FMLA Redux
Much like the debate concerning the FMLA, left-wing academics, attorneys, economists and the legacy media filled the recent health reform debate with promises of improved efficiencies and reduced costs.  For example, in an August 12, 2009 editorial The New York Times promised that small business would "reap substantial benefits" if only health care reform were passed.  Healthier work forces would enable small business to attract and retain talented workers.  Insurance rates would fall.  Yet, as the two health care laws, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act go into effect, The Times's David Brooks writes that because employers are likely to dump the worst risks onto the insurance exchanges the exchanges’ costs might be three times as great as the Congressional Budget Office projected, as much as $1.4 trillion, and "the price of the health care law could double."  

Costs Do Not Decline

The Website of the Society for Human Resource Management (SHRM) reports a High Roads, Inc. survey that finds that 25 percent of employers say that there is insufficient federal guidance as to what they need to communicate to employees concerning the new health care law.  Another survey by Price Waterhouse Coopers finds that Employers are raising deductibles and that healthcare costs for 2011 are expected to increase by nine percent, six times the inflation rate.  Much of the cost increase is due to Medicare's dumping costs onto employers.  Medicare is reducing hospital payment rates and more than 40 percent of employers aim to increase employee contributions and increase medical cost sharing.  

Costs Imposed on Small Employers

Lisa Horn, SHRM's government affairs director pointed out in May 2010 that key issues of health reform are the elimination of pre-existing conditions restrictions and tax penalties for people who chose not to be covered and employers who do not offer health coverage. Employers with over 50 employees who do not offer coverage will have to pay a fine of $3,000 per employee if at least one employee receives a government subsidy and if the employer does not contribute at least 60 percent of the employee's cost. Employers must offer "free choice vouchers" to employees to purchase insurance on government-enforced exchanges.  Employers with 200 employees must automatically enroll employees. The value of health benefits must be reported on W-2s. Generous benefit plans that cost over $10,200 for an individual will have to pay a 40 percent excise tax. The law requires break time for female employees to express breast milk at work for their nursing children.  Human resource managers are scrambling to figure out how to do this. 
Bureaucracy Runs Wild

Much like the FMLA, academics and legacy journalists argued strenuously for the health care law but did not consider  the bureaucratic complexity with which the Obama administration and the Democratic Congress were about to hamstring the US economy.  A professor of social services, Harold Pollack, circulated a letter in favor of the Obama health care plan in early 2010.  Numerous left-wing academics signed it.  But few of them will suffer from declining job opportunities and the shrinking economy that will result from the explosion in health care bureaucracy. 

In May 2010 SHRM's Lisa Horn described the health reform laws as "complicated."  On January 4, 2011 SHRM reported about the government's publication of "frequently asked questions". FAQs involved automatic enrollment, dependent coverage of children to age 26, standards for summaries of benefits, grandfathered health plans and the exemption of employers with fewer than 50 employees.  SHRM notes that the health reform laws will require that firms re-write their policies and employment manuals multiple times through 2014. Experts anticipate significant employee relations issues.  

There will be plenty of bureaucratic work and costs for left-wing lawyers and benefit managers.  The American economy will become ever less innovative at the same time.  And as the economy becomes less innovative, the average American's real wage will continue to stagnate.
*Mitchell Langbert is associate professor at Brooklyn College-CUNY. He blogs at

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