Friday, January 27, 2012

Indiana job loss is likely under ACA, say economic experts

Indiana can expect to lose a substantial number of jobs in the near future, according to a report issued by Timothy F. Slaper, Ph.D, Director of Economic Analysis, and Ryan A. Krause, Research Analyst, using research findings obtained by the Indiana Business Research Center, Kelley School of Business, Indiana University.

Indiana's Senate just passed a right-to-work bill, which some fear may lessen Indiana's attractiveness to outside businesses. Slaper and Krause somewhat bypass that argument, stating that it "may" put Indiana in a weaker competitive position compared to states without such right-to-work legislation, and, instead predict that it is the ACA that will, without question, put at least 12,700 jobs at risk, based on statistics they gathered with regard to small businesses job growth from 2003 to 2008. For that period, Indiana businesses that started with between zero and 49 employees, and ended with fewer than 100 employees created exactly 12,698 jobs.

At first glance, it would seem that a right-to-work bill would leave Indiana at more of a disadvantage than would the ACA, because not every state has passed right-to-work legislation, and prospective employers might bypass Indiana for a non-right-to-work state. By comparison, since the ACA is a federal law, employers in every state are held equally to its various restrictions. However, Slaper and Krause argue convincingly that the ACA's requirement that employers with 50 or more employees must soon provide their employees with health insurance or pay a $2,000 fine, might make employers think twice about expanding from a 49-employee business to a 50 or more employee business. It is this small-scale expansion, they contend, that will no longer happen because small employers will be reluctant to add an extra one or two employees.

Slaper and Krause explain that, starting in 2014, small employers will have to pay a $2,000 assessment if they don't provide health insurance, but the ACA exempts the first 30 employees from the fine. So, for an employer that employs 49 employees at an average salary of $35,500 and doesn't provide health insurance, a 50th employee will cost $35,500, plus $40,000 ($2,000 times (50 employees minus 30 exempt employees)), for a grand total of $75,500. Even employers looking to add a few more employees might hesitate to incur the extra cost involved.

Big businesses would be less likely to be affected, because they would most likely start out with an excess of 50 employees, and very fast growing businesses, termed “parachute” firms by Slaper and Krause, would see the ACA assessment spread out among large numbers of employees. On top of this, Slaper and Krause stated that they didn’t take into account in their calculations businesses with 50 or slightly more employees that would terminate jobs just to avoid the penalty. Slaper and Krause have only looked at data from Indiana, but it’s hard to believe that other states aren’t facing the same concerns.

It seems as though Slaper and Krause are assuming that most Indiana small businesses don’t provide their employees with health insurance, which may very well be the case. Also, employees who don't obtain health insurance from their employer have to get it from somewhere, or face the possibility of financial ruin in the event of a severe illness or medical emergency. Ideally, small businesses should take that into account when determining what their employees salaries should be. The $600 and $1,700 more per year that Slaper and Krause report that Indiana small businesses and parachute firms pay their employees, respectively, compared to other Indiana employers, would hardly be enough to cover those costs. Presumably, small businesses will have to re-think employee salaries, and perhaps offer less to offset the cost of employee health coverage.

There is help on the horizon from the ACA that might make it easier for small businesses to avoid the $2,000 assessment by offering their employees relatively inexpensive helath insurance. It looks like Slaper and Krause are either unaware of, or decided not to factor in, Act Sec. 1311 of the ACA. The ACA requires states to establish Small Business Health Options Program (SHOP) Exchanges. Under these Exchanges, individuals and small businesses with 100 or fewer employees can purchase affordable qualified coverage, though, eventually, states may allow businesses with more than 100 employees to purchase coverage in the SHOP Exchange. Indiana could even form a regional exchange with other states. SHOP Exchanges will be designed to assist qualified small employers (i.e., with 100 or fewer employees) in the state in enrolling their employees in qualified health plans in the state's small group market.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, as well as provisions for small businesses, just click here.


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