The United States' health insurance system is severely flawed. From its misaligned incentive structure to its lack of focus on preventative measures, the traditional health care system has many issues. In an attempt to remedy these, President Barack Obama pushed a bold and revolutionary piece of legislation through Congress, the Affordable Care Act, in 2010. But in the years following the bill's passage, businesses around the country have been hit hard by unintended consequences of the legislation. Resolving these issues should be one of the top priorities for the administration as it hopes to improve the country's economic outlook.
One of the primary unforeseen consequences of the health care bill has been its effect on hiring practices. Included in the legislation were penalties for businesses with greater than 49 employees that failed to provide insurance to their full time employees, who are defined as those who work a minimum of 30 hours per week. This sort of penalty creates a clear incentive for businesses that do not currently offer health insurance to begin offering very low quality plans, to hire less than 50 employees or to cut its employees' weekly hours to below 30. In fact, according to a recent Gallup poll, 41 percent of small businesses have held off on plans to hire new employees due to the ACA and nearly the same percentage have called off plans to grow their business. Additionally, franchise companies such as Darden restaurants, which operates 2,000 restaurants under most notably the Olive Garden, Red Lobster and LongHorn Steakhouse brands, have begun testing 29.5-hour work weeks for many of its employees, Nation's Restaurant News reported.
The White House and the ACA's supporters adamantly argued that any adverse effect the legislation may have on small businesses would be ameliorated by providing tax credits to those businesses enrolled in state-run insurance exchanges. By offering this carrot to small businesses, lawmakers in Washington argued that they would be able to sufficiently blunt the blow of an increased financial burden resulting from the new employer mandate. But few businesses have pursued this tax credit. Just over 10 percent of the 1.4 million businesses eligible for the exemption took advantage of it in the first two years of its existence, according to a U.S. Government Accountability Office report. Many businesses simply find it too cumbersome and expensive to go through the process of actually calculating their tax break and ultimately end up forfeiting their opportunity.
One of the primary goals of the Affordable Care Act was to get as many people in the United States into the insurance market as possible. This was supposed to correct incentives and soften the trajectory of rising costs. But much of the plan is contingent on getting the uninsured into the market for insurance, so the health care bill's shortcomings in doing so will have adverse effects across the insurance market.
The most disturbing fact about these unintended consequences of President Obama's signature piece of legislation may be how predictable they should have been. For all the talk of companies and wealthy individuals paying their "fair share," one would be hard pressed to find many businesses willing to stand by and watch as their costs skyrocket.
The White House has taken a bold step in announcing that it will delay the implementation of the employer mandate until 2015. But even this decision leaves much uncertainty over what sort of future legal atmosphere businesses will be forced to operate in. This uncertainty has a natural tendency to stymie growth and delay potentially profitable investments.
The Obama administration needs to offer greater clarity on what regulations and mandates businesses will face in coming years. However, even this sort of transparency will not be enough to solve many of the problems with the ACA as it stands. The law creates too many incentives for employers to do everything in their power to either cut employee hours or surrender growth opportunities. It seems that in order to get everyone into the insurance market, the individual mandate will have to be applied to millions of more Americans than originally planned. Alternatively, if President Obama wants to promote economic growth and support small businesses, he may find the Affordable Care Act to be a major roadblock. If those are his primary goals, he may find that scaling back the law's mandates could go a long way toward improving the sluggish economic recovery.
