A.C.A. “Obamacare” Revisited – Employers & Government Set to Ream the Middle Class Worker

(For a detailed explanation of the ACA and its features go to: http://www.tdi.texas.gov/pubs/consumer/cb005.html

The Affordable Care Act has had its share of glitches and detours.  The technical problems can be addressed.

We tried to “keep our eyes on the ball” but they fooled us.  They showed us the wrong ball and we fell for it.  We should have noticed the tax implications of employers cancelling their health care insurance plans, because those are the most sinister parts of the scheme to pull billions of dollars out of the pockets of the middle class and businesses.

The enormous, savings to employers from dropping health insurance and the secret, unspoken, tax windfall to the federal government verge on devious and obscene.

The ACA’s Unfolding Structure Belies Promises & Benefits.

The demographics of the initial users of the new health insurance exchanges are what most thinking people would expect – the least healthy, most costly, poorest individuals have signed up because they are the ones who benefit the most from the taxpayer-subsidized design of the ACA.  This 1/21/14 article from Money Morning reveals the mix so far:

First-Ever Obamacare Demographics Are In – And They’re Ugly

Until last Monday, not a single Obamacare demographics statistic had been released since open enrollment began in October 2013.

Now we have our first-ever look at who is signing up for Obamacare – and the number is alarming. (see whole article).
http://moneymorning.com/2014/01/24/first-ever-obamacare-demographics-theyre-ugly/

But the ACA is just a subterfuge to pick the pockets of the middle class.  If the trend in businesses dropping health insurance continues, most average workers will not be able to afford any insurance because of the cut in compensation and the gross income needed to pay premiums from take-home pay.

The Largest Ever Tax Increase on the Average Worker

A poll cited by the Huffington Post 5/16/13 concluded:

Obamacare Won’t Cause Employers to Drop Health Benefits: Survey

Employers are concerned about increased health benefit costs arising from President Barack Obama’s health care reform law but almost none intends to drop coverage for full-time workers next year, according to survey results released Thursday.

The health care law’s requirement that companies with at least 50 employees provide affordable health benefits is the chief reason most firms expect their spending on health insurance to rise in 2014, according to a poll conducted by the International Foundation of Employee Benefit Plans, an organization of human resources professionals. Nevertheless, more than two-thirds of companies definitely plan to offer health benefits to full-time workers, and just 0.5 percent said they definitely will discontinue coverage. More than 90 percent of companies surveyed currently offer health benefits to full-time workers.”  http://www.huffingtonpost.com/2013/05/16/obamacare-employers_n_3286508.html

The actions and reactions of business do not quite match the rosy picture described in the article.  It seems that employers see plainly that $2,000 per employee is going to be cheaper than paying 50% of the premiums for insurance.  Many have rushed to drop employee health care insurance without an offsetting increase in employee pay for the premiums the company pays.

Of course, the one-year moratorium on those penalties seems to have accelerated the waves of health insurance cancellations by businesses.

This has left many employees stranded while more than a few employers dodge their responsibilities under COBRA by not informing workers of their legal option to temporarily continue their health insurance while they look for individual coverage.

We are witnessing a growing suspicion that the ACA marks the demise of health insurance as an employee benefit primarily as a way to dramatically increase federal tax revenue.

Last November, an article in Forbes magazine analyzed what is actually happening and what it bodes for the near future.  Here is an excerpt:

“Obamacare and the End of Employer-Based Health Insurance

According to the American Action Forum, 43 million American workers will lose access to employer-based health insurance coverage because of Obamacare. Critics of the Affordable Care Act (ACA) have warned that the creation of health insurance exchanges, and federal subsidies for people earning less than 400% of the federal poverty limit, practically invites employers to stop offering coverage to their employees, so the federal government picks up the tab. Some supporters of the ACA even celebrate this possible exodus from the employer-based insurance market, figuring it is prelude to a government takeover of the healthcare industry.”  http://www.forbes.com/sites/peterubel/2013/11/14/obamacare-and-the-end-of-employer-based-health-insurance/

Companies large and small have already dropped health plans as of 12/31/2013, for example, this excerpt from a 1/21/14 Bloomberg article:

Target to Drop Health Insurance for Part-Time Workers

Target Corp. (TGT) will end health insurance for part-time employees in April, joining Trader Joe’s Co., Home Depot Inc. and other U.S. retailers that have scaled back benefits in response to changes from Obamacare.

About 10 percent of part-time employees, defined as those working fewer than 30 hours a week, use Target’s health plans now, according to a posting yesterday on the Minneapolis-based company’s website. Target is the second-largest U.S. discount retailer by sales and had about 361,000 total employees last fiscal year, according to data compiled by Bloomberg.

http://www.bloomberg.com/news/2014-01-21/target-to-drop-health-insurance-for-part-time-workers.html

Another example from a 10/4/13 New Hampshire Business Review article:

“Is ACA the First Step in Ending Employer-Based Healthcare?

The Affordable Care Act might eventually result in the end of the nation’s employer-based health system, and that might not be so bad, said Stan Hopfield, an author, former hospital CEO and the keynote speaker at NHBR’s Health Care Forum, held Tuesday at the Grappone Conference Center in Concord.  Businesses have striven to maintain employee coverage for years despite higher costs, trying to straddle the realities of higher premiums, lower benefits, restricted provider access and higher deductibles. “This is an expensive benefit that you are providing an employee and all you get is grief,” Hupfeld told the audience of about 300. “It’s a huge human resource headache and the first chance to get out of this, you are going to take it.”  The Affordable Care Act might be a way out, he said, since starting Tuesday individual coverage will be offered to those who can’t get coverage through their employers.”

http://www.nhbr.com/October-4-2013/Is-ACA-the-first-step-in-ending-employer-based-health-care/

The Washington Post published an article 1/11/14 which says, in part:

“Second Wave of Health Insurance Disruption Affects Small Businesses

In New Jersey, the state’s association of health plans says 650,000 people with small-group coverage have had their plans disrupted. In Colorado, regulators said small-group plans covering 143,000 people are being discontinued in 2014.

In New Hampshire, the state’s largest insurer, Anthem Blue Cross Blue Shield, is moving all of those in its small-group plan — 60,000 to 70, 000 people — to plans that are similar to those sold on the marketplace created by the health-care law. These plans have drawn fire from consumers because they include only 16 of the state’s 26 acute-care hospitals.

In Pennsylvania, Delaware and West Virginia, Highmark Blue Cross Blue Shield is discontinuing all its small-group plans for those who did not renew early, and offering new policies with different coverage and premiums. The company says 99.5 percent of the 5.3 million people it covers through its individual and small-group plans will be affected, but it declined to break out the number under small-group plans for competitive reasons.

http://www.washingtonpost.com/national/health-science/second-wave-of-health-insurance-disruption-affects-small-businesses/2014/01/11/dc2f7404-6ffe-11e3-a523-fe73f0ff6b8d_story.html

It is even more evident that employers are taking advantage of the one year delay, paying nothing at all.  Drop the insurance and hold onto all the money subtracted from the employees’ compensation.

Big Tax Bonus for the Government, Big Compensation Rip-Off for Businesses

The Obama administration is about to make the biggest tax increase ever on average wage earners, by exposing compensation that was tax free (health insurance paid by the employer) to at least 30.3% taxation between the employer and the employee.

The A.C.A. does what Congress has contemplated, but been reluctant to do overtly: eliminate the tax benefits of employer-provided health insurance to employees.  This is where all the rhetoric about helping the middle class is belied.  It means a giant tax bonus for the government at the expense of the workers. The promised subsidies for health insurance will come from the paychecks of the middle class.

This sleight of hand means that many workers will lose their pretax health insurance and be forced to replace it with insurance they pay from after-tax dollars.  The premiums an employer pays are not taxable to the employees.  Figure it out,

As long as your employer was paying the premium for your health insurance, it was not income taxable to you, or subject to social security and Medicare payroll taxes.

Paycheck income is subject to both employer and employee federal FICA payroll taxes.  The employer and the employee each pay 7.65%.  What this should say to employers is that unless health insurance premiums are more than 8% of current gross payroll, they are increasing their costs when they drop health insurance.

Add the employee’s income tax rate of at least 15% (which is what we used in the examples) and we have subjected every dollar of added income to 30.3% in federal taxes, plus state taxes, where applicable.  The employer also pays unemployment taxes and workers compensation insurance premiums, which vary by state and type of work.

The Biggest Rip-Off Ever – Businesses Drop Insurance & Do Not Offset With Wages

The taxation is not the worst thing that is happening to middle class workers. The biggest threats to workers income are the companies who drop their health insurance plan and do not pay their employees an offsetting  raise.  This is a greedy grab for keeping part of the workers total pay & benefits and cutting the pay of every employee with impunity.

Notice in the examples below, what happens when the employer drops health care insurance with no offsetting raises.

What happens under the various employers’ options?

In the first example, A, the employer drops the health insurance and replaces the $10,000 the company paid for health insurance with an equal increase in pay.  Both the employer and the employee will pay $600-700 more a year including payroll taxes, workers’ compensation and unemployment taxes.

If the employer fails to offer health insurance or pay 50% of the premiums, their company will pay the $2,000 per employee penalty tax to the federal government.

Meanwhile the employee pays taxes on the $10,000 and has to make up the difference from aftertax paycheck income.

The government makes out like a bandit.

Effect on Cash

A.    Employer Pays $0 Ins, Pays Offset $10,000, You Pay $10,000

Change for

Income

Payroll Tax

Income Tax/ Tax Penalty

Insurance Premiums

Total

Employer:

($700)

($2,000)

($2,700)

You

+$10,000

($680)

($1,500)

($10,000)

($2,180)*

Government:

+$1,380

$1,500

+$2,000

+$4,880

*Congratulations you just got a $2,800 pay cut, courtesy ACA.

Effect on Cash
B.    Employer Pays $5,000 (50% of $10,000), Pay Offset $5,000, You Pay $5,000

Change for

Income

Payroll Tax

Income Tax/ Tax Penalty

Insurance Premiums

Total

Employer:

($5,000)

($400)

+$5,000

($400)

You

+5,000

($400)

($750)

($5,000)

($1,150)*

Government:

+$800

+$750

+1,550

*Congratulations you just got a $1,550 gross pay cut, courtesy Employer and ACA.

Effect on Cash

C.    Employer Pays $0, Pay Offset $0, You Pay $10,000

Change for

Income

Payroll Tax

Income Tax/ Tax Penalty

Insurance Premiums

Total

Employer:

(2,000)

(2,000)

You

($10,000)

($10,000)*

Government:

+$2,000

+$2,000

*Congratulations you just got a $12,800 gross pay cut, courtesy Employer and ACA.

Effect on Cash

D.   Employer Pays $5,000, Pay Offset $0, You Pay $5,000

Change for

Income

Payroll Tax

Income Tax/ Tax Penalty

Insurance Premiums

Total

Employer:

$5,000

$5,000

You

($5,000)

($5,000)*

Government:

$0

*Congratulations you just got a $6,400 gross pay cut, courtesy Employer and ACA.

Summary

Preference

Most Favorite

Least Favorite

Employer

C

A

Employee

B

C

Government

A

D

The most attractive option for the employer is “C.” – Drop coverage, No Offset, Pay Penalty

The second most attractive option for the government is also “C.”

In every scenario, the employee loses money, “C.” being the worst.

The pain of this change will crush the middle class worker.  Is this what you thought would happen?

What can we do to head off this travesty?

False Hope Is Far Worse Than No Hope

What is wrong with hope?  We know that in an impossible situation where the outcome is unknowable, hope can keep us in that situation long enough to triumph or despair.  The problem comes when hope is not accompanied by action.  When things look hopeless, we either give up or fight on with everything we have.  When we are given false hope, assurances that all will be well, despite the looming crisis, we either relax in the happy notion that it will work out, or we fight on, but not with everything we have, rather with the idea that fate or miracles will save us.

It seems that the past few years in America, we have operated on the false hope that the federal government has the ability to control economic and world events.  Our hopes were elevated after 9/11 by the war on terrorism, including military interventions in Iraq and Afghanistan.  The results have been weak to poor.  We have burdened the future taxpayers with four to six TRILLION dollars of future obligations, and for what?

We have exhausted our volunteer military with short turnarounds and multiple tours.  We have aggravated and elevated the importance of the leaders and citizens of the region with our misunderstandings, ignorance, and arrogance.  No one has ever been able to extract the minds of the people from the secular feuds, endemic poverty, and warlord mentality since before the birth of Christ.

Everyone else on the planet sees our hubris and disrespect for other cultures, yet we continue our Crusades.

What if we had recognized the damage and pain inflicted on our national psyche by the 9/11 attacks?  What if we had reconsidered our smug attitudes toward the rest of the world?  What if we had just revised our approach of insisting that democracy is the best form of governance for everyone regardless of their history, culture, economy, and philosophy?

Instead, we embarked on a path of attack and appeasement.  We attacked anyone who remotely seemed to be a threat with no idea what to do and whom to do it with or to.  We were ready to believe that the vast expenditures and capabilities of our military could subdue the culprits and liberate the subjects of our perceptions of tyranny.  We took no heed of the clear indications that the religious and cultural context these people were born and raised, they see as absolute truth.

What made us think that pouring billions of dollars into the hands of a culture that values corruption and cheating as an art to respect would buy us anything but hate and deceit?  Where else have we bought victory or power with our Niagara of free money?

We fooled ourselves that the impact of the attacks on world confidence and finances was easily healed.  We proceeded to go on a spending spree of unheard of proportions, borrowing as much as our credit could bear, and more, when politics made buying a home hysterically important and easy for virtually anyone.

Our false hopes led us down a path of self-destructive thinking and acting.  In the midst of an unmitigated world financial crisis, governments took on the bad debts of citizens using the creditworthiness of nations.  Now that that burden has become untenable, we see financial strategies that verge on desperation and still try to maintain the illusion that the solution is at hand.

I wonder what paths we might have taken without the false notions and optimism on which we proceeded to get where we are today.

Marital Status Equality Is Next – End Legal Discrimination Against Unmarried People

As the US erases marriage law distinctions, they expose another enormous layer of inequality:  the difference in treatment and taxation of married and unmarried Americans.

Every argument the alternate sexual orientation community has used to demand rights and privileges equal to traditional heterosexual marriage must apply to the legal status of the unmarried.  How can our society continue to maintain discrimination against single people?

Our social, legal, and tax structures assume that the man/husband, as father would support his wife/mother and children with his labor and that the wife/mother would manage the resources of the family and nurture her children until they became self-sustaining adults.

Are these and the related assumptions still true in America?

Today, single is the rule, not the exception, in personal social, tax, and legal relationship status in America.  At least half of the parents of dependent children in our country are single.  More than half of the married couples in America have no dependent children.

So why are married people given preferential treatment under civil and tax law?  Why does our society give special dispensations to families? We operate under historical religious and cultural assumptions that marriage is socially expected and desirable for bearing and raising children.

The legal trend towards sex-indifferent marriage exacerbates the treatment of unmarried people as second class citizens.  What logic supports this discrimination?

If we are ready to redefine social contracts, we must modify and reform the law to provide equal treatment regardless of marital status.

Raising the U. S. Minimum Wage in a Lower-Wage World

What are we Americans and our elected politicians thinking?  The real minimum wage is zero for many Americans who cannot find a job at all.

At this tenuous stage of our economic recovery, raising the federal minimum wage would only make businesses more prone to raise prices, to put greater work responsibilities on fewer employees, to adopt technology alternatives, and to outsource work to the lower-labor-cost, domestic and overseas vendors and suppliers of services.  The last choice is to go out of business or adopt a new business model.

Think a minute about how the minimum wage is used and to whom it applies.  Minimum wage is paid for entry level jobs, part time jobs, jobs for under-educated or untrained workers, etc.  Those who do a good job, and prove reliable, usually get raises.  In other words, entry-level, unskilled, or transient workers start at minimum wage. (See notes and links below)

So let us suppose the federal government raises the minimum wage to $10 or even $15 per hour, as some fast food workers propose.  Sure, those who get the higher wages will be happy, but who will choose the employees to keep?

Imagine you are the owner or manager of a business that has a very thin profit margin now.  If you calculated the added costs of a higher minimum wage would erase or greatly erode that margin, you would have six choices:

  1. Raise prices on the goods and services the business provides.  This option is greatly limited by the likes of Walmart.  If your customers can get the same or equal/services for less, where would they go?
  2. Increase the workload of a smaller staff.  This option is limited to the most work you could expect from each employee.  If the work gets to be too much, employees look for other work.  Walmart, and other discount retailers, squeeze suppliers and staff to limit costs.
  3. Adopt technology that replaces unskilled labor.  This is limited by the functions technology can fulfill.  We are all familiar with voice menus, websites, self-service, and vending machines.  Imagine what else technology can be designed to do.
  4. Outsource to US contractors.  The US military has greatly reduced the number of soldiers, marines, sailors, and airmen by contracting civilian companies to do non-combat and combat support services, such as food services, equipment and vehicle maintenance, etc.
  5. Outsource to foreign contractors.  Wages in other parts of the world are much lower, even for skilled work.
  6. Quit the current business and take on a different business model.  Many retailers have shifted from stores to online catalogs, for example.  Some businesses have shifted away from low-margin operations to higher market levels.

So, we would have growing unemployment among those who could get jobs at the old minimum wage, but not the new minimum wage.  Who bears those costs?

Add this to the list of ideas that sound good, but have unintended and undesirable consequences.

Notes:

  1. If you are not up to date on recent labor statistics, review the U.S. Department of Labor publication below, or go to http://www.bls.gov/cps/minwage2012.htm and read or download the report and the appendices.
  2. Some states have slightly higher minimum wages than currently mandated by the federal government, but none more than Oregon’s $9.10. (http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx)
  3. Although not included in the statistics, many self-employed people end up with less than minimum wage for the time they spend, depending on business conditions.

BBC Shows Class

Recently, the BBC has shown definite class by having its news reporters use the word “migrant” to describe people from other countries who are not citizens.

The American media, sadly, continues to use confusing and inaccurate terms (undocumented worker, illegal immigrant, etc.) to disguise their disdain for immigration law and policy.