Southern California Bankruptcy Law Blog

Obamacare And Bankruptcy

Posted in Debt

One of the putative motivations for enacting Obamacare (a.k.a. The Patient Protection And Affordable Care Act; have fun reading it, and make sure you have industrial quantities of coffee on hand) was to ensure that no one would be financially ruined by a health care catastrophe.  After all, many bankruptcies are filed because of massive medical debt.  How have things played out in the Obamacare regime?

 

I.  Obamacare And Part-time Employment

 

Lately the White House ― well, not the building, but the chap who lives and works inside it ― has been claiming that the economy has improved considerably in the last year.  For example, in his recent State of the Union address, the President stated:  “Tonight, after a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999.”

This ostensibly rosy economic diagnosis doesn’t match with what I see in my practice, nor with the headlines I’ve seen over the last few weeks announcing layoffs at various companies.  (See, e.g., “Big profits, big layoffs: eBay, AmEx to cut jobs”.)  Therefore, I thought I’d look a little deeper into that job creation claim, and the types of jobs that are being created.

A major factor in the current job creation engine appears to be Obamacare.  You might think this is because new healthcare workers are being hired to take care of the surge in the newly insured.  Or you might think that new government workers are joining the workforce to administer Obamacare.  While there may be some job growth in these two areas as a result of Obamacare, it is far more likely that the dramatic surge in part-time employment accounts for the “creation” of all these new jobs.

As reported on October 7, 2014, by Chicago University economics professor, Casey B. Mulligan:

Starting this year, the United States’ working population will face three major employment disincentives resulting from the very benefits the Affordable Care Act (ACA) provides: (1) an explicit tax on full-time work, (2) an implicit tax on full-time work for those who are ineligible for the ACA’s health insurance subsidies, and (3) an implicit tax that links the amount of available subsidies to workers’ incomes.  A new study published by the Mercatus Center at George Mason University advances the understanding of how much these ACA taxes will reduce overall employment, and why.  It concludes that the reduction will be nearly double that projected by previous analyses.  Labor markets ultimately will reduce weekly employment per person by about 3 percent—translating to roughly 4 million fewer full-time-equivalent workers.  . . .  The magnitude of the ACA effects will vary with the magnitude of the taxes.  Still, the ACA’s benefits to part-time workers will push many to reduce their work hours to 29 per week or fewer.  The effect can be summarized as follows:

Those who would otherwise work just above 30 hours per week will be induced to cut their weekly work hours to part-time.  This effect will be especially pronounced for those working 30–35 hours per week; for them, dropping to 29 hours a week is a relatively small adjustment.  Those who continue to work full-time despite the taxes will tend to reduce the number of weeks they work per year (because in those periods they can obtain subsidized coverage) by more than they will increase their weekly work hours.  In other words, some of those who continue to work full time will work for fewer weeks per year, and be unemployed for more weeks, than they otherwise would.

What is it about Obamacare that would lead to a large surge in part-time employment?  Part of the explanation lies in the following provision ― and some other similar provisions ― in the statute:

If— (1) any applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A (f)(2)) for any month, and (2) at least one full-time employee of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee, then there is hereby imposed on the employer an assessable payment equal to the product of the applicable payment amount and the number of individuals employed by the employer as full-time employees during such month.

26 U.S.C. § 4980 H(a) (emphasis added).

According to 26 U.S.C. § 4980 H(c), the annual applicable payment amount per employee is $2,000.

In other words, if an employer doesn’t provide health insurance to a full-time employee, the employer has to pay a $2,000 fine.  But there is no such requirement in the statute for part-time employees.  There is, therefore, a strong incentive for an employer to reduce its employees’ hours to part-time status.  But are employers actually responding to this incentive?

Writing in the September 9, 2014, issue of the Federalist, John Daniel Davidson reported the results of several Federal Reserve Bank surveys:

Federal Reserve Bank surveys last month in New York, Philadelphia, and Dallas asked employers about the effects of the ACA on hiring and employee healthcare costs, and the results show that a vast majority of firms are facing higher health care costs and a significant number are responding by passing along premium hikes to employees, getting rid of full-time workers, or hiring more part-time workers and contractors.  In New York, two separate polls found 80 percent of manufacturers and 74 percent of services firms expect health coverage costs to increase next year, and a lesser but still significant share said they reduced their number of employees because of the ACA (21 percent of manufacturers and 17 percent of service firms).  A full 20 percent of respondents in both surveys reported they were cutting full-time workers or increasing the use of part-time workers as a direct response to the health care law.  Same thing in Philadelphia, where more than 15 percent of surveyed firms said their number of full-time workers was lower, more than 16 percent said the number of part-time workers was higher, and more than 28 percent said they were charging customers more—all in response to the ACA.  In Dallas, about 84 percent of manufacturing firms said the ACA increased healthcare costs this year and expect it will do the same next year, while about 90 percent of service firms are bracing for higher costs in 2015.  More than a quarter of manufacturers said they now employ fewer workers, more than 16 percent said they hired more part-time workers, more than 17 percent said they outsource more work, and 20 percent said they’re paying employees less.  Among service firms, more than 40 percent said the number of workers that are part-time, temporary, contract, or outsourced to other firms has increased.

Thus, if the responding employers are to be believed, the aforementioned Obamacare provision is responsible for their choosing to emphasize part-time rather than full-time employees.

This fact is echoed in an article by J.D. Tuccille in the October 16, 2014, issue of Reason:

The Affordable Care Act not only makes hiring full-time workers more expensive for employers than part-timers, according to a new research paper, it also directly penalizes full-time workers.  That will drive at least some people to—perversely—reduce their hours in order to increase their compensation.  The end result for the country is likely to be the equivalent of 4 million fewer full-time-workers.  In “The Affordable Care Act and the New Economics of Part-Time Work,” Casey B. Mulligan, professor of economics at the University of Chicago, writes, “Three major provisions of the ACA introduce incentives to change the workweek.  The most obvious is the explicit penalty on assessable large employers that do not offer health insurance to their full-time employees.”  Employers are not required to offer benefits to part-time employees, creating an obvious incentive to reduce working hours and rely on part-time and contract employees instead of full-time workers.

Of course, none of this should surprise anyone who understands that human beings respond to incentives (and disincentives).  Thus, employers operating in a free-market system will seek to increase profit, either by reducing costs ― and Obamacare makes the move to a part-time workforce an effective cost-cutting measure ― or increasing revenues, or both.

 

II.  The Two False Promises

 

Obamacare was sold to the American public with two oft-repeated promises:  (a) Those happy with their healthcare coverage could keep it as is, and (b) health care premiums would go down by $2,500 per family per year.  Without those two promises it is extremely doubtful that Obamacare would have become law.  How are those promises working out?

First, my own experience:  Our healthcare policy was canceled in December 2013, because it was not Obamacare compliant, and the new policy we purchased had higher premiums, higher copays, and higher deductibles for the same coverage.  Then that policy was canceled in December 2014 because it was no longer Obamacare compliant, so we had to get a new policy, which again had higher premiums, higher copays, and higher deductibles for the same coverage.

Second, my experience was not unique.  Large numbers of people received cancelation notices in both 2013 and 2014, and faced higher costs.

As reported by Julie Appleby and Anna Gorman in the October 21, 2013, issue of Kaiser Health News:

Health plans are sending hundreds of thousands of cancellation letters to people who buy their own coverage, frustrating some consumers who want to keep what they have and forcing others to buy more costly policies.  The main reason insurers offer is that the policies fall short of what the Affordable Care Act requires starting Jan. 1.  Most are ending policies sold after the law passed in March 2010.  At least a few are cancelling plans sold to people with pre-existing medical conditions.

And in the September 30, 2014, issue of The Hill, Elise Viebeck reported:

Thousands of Americans will see their health plans cancelled before the November elections in a development that could boost critics of ObamaCare.  . . .  ObamaCare created new minimum coverage requirements for health insurance that prompted millions of plan cancellations last year for people on the individual market.

But maybe we’re done with the cancelations.  Just two bad years and that’s it.  Not according to Robert F. Graboyes article in the September 22, 2014, issue of U.S. News & World Reports:

There’s a bizarre reason why millions of Americans saw their health insurance plans cancelled in 2013 – and as explained in a new video put out by the Mercatus Center at George Mason University, millions more will lose their plans in years to come.  Insurance coverage for Americans will remain in permanent turmoil because the Affordable Care Act requires all plans to fit within four cookie-cutter designs called “metallic tiers.”  (The tiers – bronze, silver, gold and platinum – refer to the percentage of medical expenses a particular plan pays.)  The video also notes that families may have to change plans repeatedly because, as circumstances change, a plan that fits within a tier one year may not fit in any tier a later year.

So Obamacare compliance is a constantly moving target.

In sum, Obamacare is a terrible law that was sold to the American people with lies, and promises to screw people over for years to come.  Should we be surprised that the same government that treated veterans’ health care so badly would treat us any better?

 

III.  Bankruptcy Repercussions

 

I suspect that as more people are unable to secure full-time employment and are stuck with two or more part-time jobs, and as health care premiums continue to rise, that there will be a surge in bankruptcy filings.  As the French say, “Plus ça change, plus c’est la même chose.” (“The more things change, the more they stay the same.”)

If you’re a debtor and need bankruptcy protection, contact an extremely knowledgeable and highly skilled bankruptcy attorney to guide you through the process.

 

Image courtesy of Flickr (Licensed) by Ekaterina Alarcon