The Coming ObamaCare Shock

In recent weeks, there have been increasing expressions of concern from surprising quarters about the implementation of ObamaCare. Montana Sen. Max Baucus, a Democrat, called it a "train wreck." A Democratic colleague, West Virginia's Sen. Jay Rockefeller, described the massive Affordable Care Act as "beyond comprehension." Henry Chao, the government's chief technical officer in charge of putting in place the insurance exchanges mandated by the law, was quoted in the Congressional Quarterly as saying "I'm pretty nervous . . . Let's just make sure it's not a third-world experience."

These individuals are worried for good reason. The unpopular health-care law's rollout is going to be rough. It will also administer several price (and other) shocks to tens of millions of Americans.

Start with people who have individual and small-group health insurance. These policies are most affected by ObamaCare's community-rating regulations, which require insurers to accept everyone but limit or ban them from varying premiums based on age or health. The law also mandates "essential" benefits that are far more generous than those currently offered.

According to consultants from Oliver Wyman (who wrote on the issue in the January issue of Contingencies, the magazine of the American Academy of Actuaries), around six million of the 19 million people with individual health policies are going to have to pay more—and this even after accounting for the government subsidies offered under the law. For example, single adults age 21-29 earning 300% to 400% of the federal poverty level will be hit with an increase of 46% even after premium assistance from tax credits.

Determining the number of individuals who will be harmed by changes to the small-group insurance market is harder. According to the Medical Expenditure Panel Survey, conducted by the Department of Health and Human Services, around 30 million Americans work in firms with fewer than 50 employees, and so are potentially affected by the small-group "reforms" imposed by ObamaCare.

Around nine million of these people, plus six million family members, are covered by employers who do not self-insure. The premium increases for this group will be less on average than those for people in the individual market but will still be substantial. According to analyses conducted by the insurer WellPoint for 11 states, small-group premiums are expected to increase by 13%-23% on average.

This average masks big differences. While some firms (primarily those that employ older or sicker workers) will see premium decreases due to community rating, firms with younger, healthier workers will see very large increases: 89% in Missouri, 91% in Indiana and 101% in Nevada.

Because the government subsidies to purchasers of health insurance in the small-group market are significantly smaller than those in the individual market, I estimate that another 10 million people, the approximately two-thirds of the market that is low- or average-risk, will see higher insurance bills for 2014.

Higher premiums are just the beginning, because virtually all existing policies in the individual market and the vast majority in the small-group market do not cover all of the "essential" benefits mandated by the law. Policies without premium increases will have to change, probably by shifting to more restrictive networks of doctors and hospitals. Even if only one third of these policies are affected, this amounts to more than five million people.

In addition, according to Congressional Budget Office projections in July and September 2012, three million people will lose their insurance altogether in 2014 due to the law, and six million will have to pay the individual-mandate tax penalty in 2016 because they don't want or won't be able to afford coverage, even with the subsidies.

None of this counts the people whose employment opportunities will suffer because of disincentives under ObamaCare. Some, whose employers have to pay a tax penalty because their policies do not carry sufficiently generous insurance, will see their wages fall. Others will lose their jobs or see their hours reduced.

Anecdotal evidence already suggests that these disincentives will really matter in the job market, as full-time jobs are converted to part time. Why would employers do this? Because they aren't subject to a tax penalty for employees who work less than 30 hours per week.

There is some debate over how large these effects will be, and how long they will take to manifest. However, the Bureau of Labor Statistics reports on a category of workers who will almost surely be involuntarily underemployed as a result of health reform: the 10 million part-timers who now work 30-34 hours per week.

These workers are particularly vulnerable. Reducing their hours to 29 avoids the employer tax penalty, with relatively little disruption to the workplace. Fewer than one million of them, according to calculations based on the Medical Expenditure Panel Survey, get covered by ObamaCare-compliant insurance from their employer.

In total, it appears that there will be 30 million to 40 million people damaged in some fashion by the Affordable Care Act—more than one in 10 Americans. When that reality becomes clearer, the law is going to start losing its friends in the media, who are inclined to support the president and his initiatives. We'll hear about innocent victims who saw their premiums skyrocket, who were barred from seeing their usual doctor, who had their hours cut or lost their insurance entirely—all thanks to the faceless bureaucracy administering a federal law.

The allure of the David-versus-Goliath narrative is likely to prove irresistible to the media, raising the pressure on Washington to repeal or dramatically modify the law. With the implementation of ObamaCare beginning to take full force at the end of the year, there will be plenty of time before the 2014 midterm elections for Congress to consider its options.

For those like Health and Human Services Secretary Kathleen Sebelius, who told a gathering a few weeks ago at the Harvard School of Public Health that she has been "surprised" by the political wrangling caused so far by ObamaCare, there are likely to be plenty of surprises ahead.

Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

A version of this article appeared April 30, 2013, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: The Coming ObamaCare Shock.

View the original article here

Implementation of the Affordable Care Act––More Evidence That Rate Shock is Coming

The Society of Actuaries is out with another estimate of health insurance rate increases as a result of implementation of the Affordable Care Act ("Obamacare").

While there is a great deal of difference between states, they are estimating an average increase of 31.5% on account of the new underwriting reform and benefit expansion requirements of the health law:

These rate increase projections by the Society do not include the big jumps that are coming for younger people driven by the laws requirement that age bands be narrowed so that older people pay no more than three times the premiums of the youngest. The combination of these baseline increases will about double the cost of health insurance for those in their 20s and early 30s––and perhaps decrease costs for those in their late 50s and 60s––in the majority of states that haven't already narrowed these age-related costs.

On this blog back in December, I predicted the same thing given the industry conversations I was having with those inside the companies tasked with calculating the new rates:

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays. 

At that time, I also pointed out that such increases would be way more than was first estimated when the law passed the Congress:

In a November 2009 report, the CBO estimated that premiums in the individual market would increase 10% to 13% on account of the health insurance requirements in the ACA. In the under 50-employee small group market, the CBO estimated that premiums would increase by 1% to a decrease of just 2% compared to what they would have been without the ACA. All of these differences in premium would be before income based federal subsidies are applied to anyone's premiums.

Defenders of the Affordable Care Act, including the administration, have been quick to point out that these increases won't be felt by those receiving premium subsidies––likely 60% of consumers.

That is right.

But, most of the cost of the Affordable Care Act is the cost of the coming health insurance subsidies––the Medicaid expansion is the other big part. So the federal government, that will pay the excess premium on account of those getting subsidies, will feel the impact of these big rate increases. Santa Claus is not going to be paying these higher subsidized premiums––federal taxpayers will be. Given that the CBO initially said the increase would only be about a third of what is coming, I have to question the original cost estimate for the new law.

That said, the 40% of consumers who will not be eligible for subsides are going to see some very high prices. Existing individual and small group customers, particularly those not in "grandfathered" plans are going to be shocked by what will happen to their premiums come January 1 in the vast majority of states.

The law also allows insurers to surcharge smokers' premiums by another 50%.

It is interesting to watch the most strident of the new law's supporters trying to spin the growing and overwhelming evidence of what is coming. The spin ends on October 1 when the promised new health insurance exchanges are scheduled to launch with the new health insurance offerings and their prices.

Readers of this blog likely saw my other post this week calling attention to a survey of health insurance industry insiders working with the new exchanges exhibiting little confidence the exchanges will launch smoothly.

"Obamacare" supporters in denial had better get ready for reality.

This is all shaping up to be a tough launch.

I told them not to call if the Affordable Care Act.

Recent post:
Six Months to Go –– Will the Health Insurance Exchanges Be Ready on Time? Survey: Health Plan Execs Don't Think So

View the original article here

Implementation of the Affordable Care Act––More Evidence That Rate Shock is Coming

The Society of Actuaries is out with another estimate of health insurance rate increases as a result of implementation of the Affordable Care Act ("Obamacare").

While there is a great deal of difference between states, they are estimating an average increase of 31.5% on account of the new underwriting reform and benefit expansion requirements of the health law:

These rate increase projections by the Society do not include the big jumps that are coming for younger people driven by the laws requirement that age bands be narrowed so that older people pay no more than three times the premiums of the youngest. The combination of these baseline increases will about double the cost of health insurance for those in their 20s and early 30s––and perhaps decrease costs for those in their late 50s and 60s––in the majority of states that haven't already narrowed these age-related costs.

On this blog back in December, I predicted the same thing given the industry conversations I was having with those inside the companies tasked with calculating the new rates:

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays. 

At that time, I also pointed out that such increases would be way more than was first estimated when the law passed the Congress:

In a November 2009 report, the CBO estimated that premiums in the individual market would increase 10% to 13% on account of the health insurance requirements in the ACA. In the under 50-employee small group market, the CBO estimated that premiums would increase by 1% to a decrease of just 2% compared to what they would have been without the ACA. All of these differences in premium would be before income based federal subsidies are applied to anyone's premiums.

Defenders of the Affordable Care Act, including the administration, have been quick to point out that these increases won't be felt by those receiving premium subsidies––likely 60% of consumers.

That is right.

But, most of the cost of the Affordable Care Act is the cost of the coming health insurance subsidies––the Medicaid expansion is the other big part. So the federal government, that will pay the excess premium on account of those getting subsidies, will feel the impact of these big rate increases. Santa Claus is not going to be paying these higher subsidized premiums––federal taxpayers will be. Given that the CBO initially said the increase would only be about a third of what is coming, I have to question the original cost estimate for the new law.

That said, the 40% of consumers who will not be eligible for subsides are going to see some very high prices. Existing individual and small group customers, particularly those not in "grandfathered" plans are going to be shocked by what will happen to their premiums come January 1 in the vast majority of states.

The law also allows insurers to surcharge smokers' premiums by another 50%.

It is interesting to watch the most strident of the new law's supporters trying to spin the growing and overwhelming evidence of what is coming. The spin ends on October 1 when the promised new health insurance exchanges are scheduled to launch with the new health insurance offerings and their prices.

Readers of this blog likely saw my other post this week calling attention to a survey of health insurance industry insiders working with the new exchanges exhibiting little confidence the exchanges will launch smoothly.

"Obamacare" supporters in denial had better get ready for reality.

This is all shaping up to be a tough launch.

I told them not to call if the Affordable Care Act.

Recent post:
Six Months to Go –– Will the Health Insurance Exchanges Be Ready on Time? Survey: Health Plan Execs Don't Think So

View the original article here

The Coming ObamaCare Shock

In recent weeks, there have been increasing expressions of concern from surprising quarters about the implementation of ObamaCare. Montana Sen. Max Baucus, a Democrat, called it a "train wreck." A Democratic colleague, West Virginia's Sen. Jay Rockefeller, described the massive Affordable Care Act as "beyond comprehension." Henry Chao, the government's chief technical officer in charge of putting in place the insurance exchanges mandated by the law, was quoted in the Congressional Quarterly as saying "I'm pretty nervous . . . Let's just make sure it's not a third-world experience."

These individuals are worried for good reason. The unpopular health-care law's rollout is going to be rough. It will also administer several price (and other) shocks to tens of millions of Americans.

Start with people who have individual and small-group health insurance. These policies are most affected by ObamaCare's community-rating regulations, which require insurers to accept everyone but limit or ban them from varying premiums based on age or health. The law also mandates "essential" benefits that are far more generous than those currently offered.

According to consultants from Oliver Wyman (who wrote on the issue in the January issue of Contingencies, the magazine of the American Academy of Actuaries), around six million of the 19 million people with individual health policies are going to have to pay more—and this even after accounting for the government subsidies offered under the law. For example, single adults age 21-29 earning 300% to 400% of the federal poverty level will be hit with an increase of 46% even after premium assistance from tax credits.

Determining the number of individuals who will be harmed by changes to the small-group insurance market is harder. According to the Medical Expenditure Panel Survey, conducted by the Department of Health and Human Services, around 30 million Americans work in firms with fewer than 50 employees, and so are potentially affected by the small-group "reforms" imposed by ObamaCare.

Around nine million of these people, plus six million family members, are covered by employers who do not self-insure. The premium increases for this group will be less on average than those for people in the individual market but will still be substantial. According to analyses conducted by the insurer WellPoint for 11 states, small-group premiums are expected to increase by 13%-23% on average.

This average masks big differences. While some firms (primarily those that employ older or sicker workers) will see premium decreases due to community rating, firms with younger, healthier workers will see very large increases: 89% in Missouri, 91% in Indiana and 101% in Nevada.

Because the government subsidies to purchasers of health insurance in the small-group market are significantly smaller than those in the individual market, I estimate that another 10 million people, the approximately two-thirds of the market that is low- or average-risk, will see higher insurance bills for 2014.

Higher premiums are just the beginning, because virtually all existing policies in the individual market and the vast majority in the small-group market do not cover all of the "essential" benefits mandated by the law. Policies without premium increases will have to change, probably by shifting to more restrictive networks of doctors and hospitals. Even if only one third of these policies are affected, this amounts to more than five million people.

In addition, according to Congressional Budget Office projections in July and September 2012, three million people will lose their insurance altogether in 2014 due to the law, and six million will have to pay the individual-mandate tax penalty in 2016 because they don't want or won't be able to afford coverage, even with the subsidies.

None of this counts the people whose employment opportunities will suffer because of disincentives under ObamaCare. Some, whose employers have to pay a tax penalty because their policies do not carry sufficiently generous insurance, will see their wages fall. Others will lose their jobs or see their hours reduced.

Anecdotal evidence already suggests that these disincentives will really matter in the job market, as full-time jobs are converted to part time. Why would employers do this? Because they aren't subject to a tax penalty for employees who work less than 30 hours per week.

There is some debate over how large these effects will be, and how long they will take to manifest. However, the Bureau of Labor Statistics reports on a category of workers who will almost surely be involuntarily underemployed as a result of health reform: the 10 million part-timers who now work 30-34 hours per week.

These workers are particularly vulnerable. Reducing their hours to 29 avoids the employer tax penalty, with relatively little disruption to the workplace. Fewer than one million of them, according to calculations based on the Medical Expenditure Panel Survey, get covered by ObamaCare-compliant insurance from their employer.

In total, it appears that there will be 30 million to 40 million people damaged in some fashion by the Affordable Care Act—more than one in 10 Americans. When that reality becomes clearer, the law is going to start losing its friends in the media, who are inclined to support the president and his initiatives. We'll hear about innocent victims who saw their premiums skyrocket, who were barred from seeing their usual doctor, who had their hours cut or lost their insurance entirely—all thanks to the faceless bureaucracy administering a federal law.

The allure of the David-versus-Goliath narrative is likely to prove irresistible to the media, raising the pressure on Washington to repeal or dramatically modify the law. With the implementation of ObamaCare beginning to take full force at the end of the year, there will be plenty of time before the 2014 midterm elections for Congress to consider its options.

For those like Health and Human Services Secretary Kathleen Sebelius, who told a gathering a few weeks ago at the Harvard School of Public Health that she has been "surprised" by the political wrangling caused so far by ObamaCare, there are likely to be plenty of surprises ahead.

Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

A version of this article appeared April 30, 2013, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: The Coming ObamaCare Shock.

View the original article here

Chick-fil-A Will Not Be Coming Back To Emory University

Emory University is in Atlanta, Georgia, just 20 miles from the Chick-fil-A corporate headquarters. Since the full extent of Chick-fi-A’s anti-gay beliefs and giving fully came to light last summer, student leaders protested the continued presence of a franchise in the campus’s food court. In December, even the Student Government Association passed a resolution opposing Chick-fil-A. Ultimately, campus administrators issued a thoughtful statement acknowledging the stigma attached to the company, but explaining it was not grounds to cancel the contract. The students vowed not to back down, and now it seems Chick-fil-A will not be coming back to campus next year.

According to a tweet from Emory Wheel, the student newspaper, Chick-fil-A has been removed from the food court as part of its new layout. The full details for this change are not yet known, but some clues can be found in the statement originally provided by the university:

Any decision to by Sodexo [the campus dining contractor] to renew or not renew the contract with Chick-fil-A, or any other vendor, must be part of a dining vision to advance the purposes for which Emory has contracted with Sodexo. Opposing views must be acknowledged, recognizing that some differences are truly irreconcilable. [...]

Typical brand selection and replacement considerations include, but are not limited to, preferential surveys, strategic planning processes, campus master planning, sales trends, contract requirements, and brand re-imaging.

Perhaps the franchise’s sales plummeted, or perhaps it simply it no longer fit in the campus’s “master planning.” At any rate, it is a victory for LGBT students, who will no longer have to encounter a glowing symbol of anti-gay prejudice as they partake in lunch on campus.

View the original article here

The Coming Failure of 'Accountable Care'

Spurred by the Affordable Care Act, hundreds of pilot programs called Accountable Care Organizations have been launched over the past year, affecting tens of millions on Medicare and many who have commercial health insurance.

The ACOs are in effect latter-day health-maintenance organizations—doctors, hospitals and other health-care providers grouped together to provide coordinated care. The ACOs assume financial responsibility for the cost and quality of the care they deliver, making them accountable to patients. With President Obama's re-election making it certain that the Affordable Care Act will begin taking full effect next year, the number of ACOs will continue to increase.

We believe that many of them will not succeed. The ACO concept is based on assumptions about personal and economic behavior—by doctors, patients and others—that aren't realistic. Health-care providers are spending hundreds of millions of dollars to build the technology and infrastructure necessary to establish ACOs. But the country isn't likely to get the improvements in cost, quality and access that it so desperately needs.

The first untenable assumption is that ACOs can be successful without major changes in doctors' behavior. Many proponents of ACOs believe that doctors automatically will begin to provide care different from what they have offered in the past. Doctors are expected to adopt new behavior that reduces the cost of care while retaining the ability to do what's medically appropriate. But the behavior of doctors today has been shaped by decades of complicated interdependencies with other medical practices, hospitals and insurance plans. Such a profound behavior shift would likely require re-education and training, and even then the result would be uncertain.

To give one example, if ACOs are to achieve their cost-saving goals and improve medical care, most doctors will need to change some of their approaches to treating patients. They'll need to employ evidence-based protocols more often to determine optimal treatment—for instance, in prescribing medication or deciding whether certain kinds of surgery are necessary. Doctors will also have to find ways to move some care to lower-cost sites of service, such as more surgery in ambulatory clinics instead of a hospital. ACOs aren't designed or equipped to transform physician behaviors on the scale that will be needed.

Associated Press President Obama signs the Affordable Care Act at the White House, March 2010.

The second mistaken assumption is that ACOs can succeed without changing patient behavior. In reality, quality-of-care improvements are possible only with increased patient engagement. Managed care, as formulated in the 1990s by the HMO model, left consumers with a bad taste because the HMOs acted as visible gatekeepers to patient access to care. ACOs, seemingly wary of stirring a similar backlash, allow Medicare patients to obtain care anywhere they choose, but there is no preferential pricing, discounting or other way for ACOs to steer patients to the most effective providers.

The Everett Clinic in Washington state has taken steps to plug this hole by deciding not to become a full-fledged ACO. Last year, the clinic told patients that to remain with Everett, they must shift to Medicare Advantage—which encourages preventive care and supports disease-management programs. Those who want to remain on regular Medicare were required to obtain their care elsewhere.

Accountable Care Organizations are also on the hook for patients who don't comply with recommended treatment or lifestyle changes. Patients can even decide not to share their claims data or medical history with the ACO. If a woman from, say, Massachusetts, spends half the year in Florida and receives care there, the Massachusetts ACO is still responsible for managing the patient's medical costs, though it in no way was able to manage the Florida care. The seems to be unfair both to the responsible ACO provider and to the patient, who will likely not receive optimal care in these transitions.

In other words, ACOs hold caregivers accountable without requiring patient accountability. How can this work?

The third and final flawed assumption of the Affordable Care Act is that ACOs will save money. Even if the pilot Medicare Pioneer ACOs—as the 32 most advanced Medicare ACOs are called—achieve their full desired impact, the Congressional Budget Office estimates that the savings would total $1.1 billion over the next five years. This is insignificant in a total annual Medicare budget of $468 billion. As for the commercial and Medicare ACOs that are operating outside these pilot programs, even the most optimistic assumptions come up with relatively small reductions to annual health-care spending nationally.

The architects of the ACO initiative somehow assume that making the existing system more efficient will make health-care affordable. But slowing the rise of health-care costs can't address the challenge of adding 50 million uninsured to the system while keeping expenditures the same or even somewhat lower than the unsustainable percentage of national wealth that they already represent. No dent in costs is possible until the structure of health care is fundamentally changed.

How can that level of change be achieved? We beseech policy makers in Washington to study a range of reform approaches that aren't burdened by as many untenable assumptions as Accountable Care Organizations, and go well beyond them in their aspirations.

• Consider opportunities to shift more care to less-expensive venues, including, for example, "Minute Clinics" where nurse practitioners can deliver excellent care and do limited prescribing. New technology has made sophisticated care possible at various sites other than acute-care, high-overhead hospitals.

• Consider regulatory and payment changes that will enable doctors and all medical providers to do everything that their license allows them to do, rather than passing on patients to more highly trained and expensive specialists.

• Going beyond current licensing, consider changing many anticompetitive regulations and licensure statutes that practitioners have used to protect their guilds. An example can be found in states like California that have revised statutes to enable highly trained nurses to substitute for anesthesiologists to administer anesthesia for some types of procedures.

• Make fuller use of technology to enable more scalable and customized ways to manage patient populations. These include home care with patient self-monitoring of blood pressure and other indexes, and far more widespread use of "telehealth," where, for example, photos of a skin condition could be uploaded to a physician. Some leading U.S. hospitals have created such outreach tools that let them deliver care to Europe. Yet they can't offer this same benefit in adjacent states because of U.S. regulation.

These and other innovative approaches have potentially large payoffs in how health care is delivered and what it will cost. By contrast, Accountable Care Organizations over the long haul may ease the path to slightly lower reimbursements or redistribute physician compensation among specialties. But what ACOs most assuredly will not do is deliver the disruptive innovation that the U.S. health-care system urgently needs.

Mr. Christensen is a professor of business administration at Harvard Business School and co-founder of Innosight Institute, a think tank focusing on disruptive innovation. Dr. Flier is dean of the faculty of medicine at Harvard University and professor of medicine at Harvard Medical School. Ms. Vijayaraghavan is a senior research fellow at Innosight Institute.

A version of this article appeared February 19, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: The Coming Failure of 'Accountable Care'.

View the original article here

The Coming Obamacare Recession

By Brandon Crocker on 2.6.13 @ 6:09AM

Actually, we already saw it last quarter and there’ll be no escaping it this year.

To the shock of many, U.S. GDP shrank in the fourth quarter of 2012 by 0.1%. Immediately, however, economists and commentators flooded the media with reassuring explanations. Super Storm Sandy reduced economic activity in the areas it ravaged; worries about the fiscal cliff and sequestration dampened business spending and government defense spending; businesses let inventory levels dwindle. Even the Federal Reserve commented that the GDP drop was the result of “weather-related disruptions and other transitory factors.” All this is true, to some extent. But none of the reporting I saw even mentioned the elephant in the room that not only depressed economic activity in the fourth quarter of 2012, but will continue to depress economic activity through 2013 and beyond. That elephant is the “Affordable Care Act,” aka “Obamacare.”

Some of the negatives from the fourth quarter will reverse in the first quarter of 2013. Sandy reconstruction will kick in, and the big drop in defense outlays was probably an anomaly. But business inventories fell in the fourth quarter not because businesses were too pessimistic about demand and let inventories fall too much, but because they had been too optimistic earlier in the year and allowed them to get too high. The idea that business will have to start increasing inventory levels in the first quarter of 2013 in order to meet increasing demand is purely theoretical, and right now, there is precious little evidence to support that theory. On the contrary, lackluster holiday sales do not auger well for consumer spending, and the Conference Board’s index of consumer sentiment fell from a reading of 66.7 in December to 58.6 in January, its lowest reading since November 2011.

The January employment report, which cheered Wall Street due to the upward revision in November and December employment, showed only an increase of 157,000 jobs, which was slightly below expectations and not even high enough to keep up with population growth. Surely, many optimists have argued, the stronger fourth quarter employment numbers show that there must be something wrong with the fourth quarter GDP report and it will surely be revised upwards. Initial GDP reports often do get revised, and it would be no surprise if the fourth quarter is revised upwards, but the employment numbers are not a harbinger of that outcome. An equally valid interpretation of the data is that employers were hiring in the fourth quarter in anticipation of greater economic growth that did not materialize, and if it doesn’t materialize soon, much of those employment gains may be reversed out in 2013.

The American economy is resilient, full of entrepreneurial spirit, despite the best efforts of the Obama administration. The American economy wants to grow, and after four years of recession and faint recovery, a release of pent up demand has resulted in higher spending on autos and on business software and computer systems. But will that continue and will it be sufficient to counter the roadblocks the Obama administration has set up that have proved so effective in retarding economic growth?

Consumer and business spending, which have been rising modestly, will continue to rise if consumers and businesses have confidence in the future. The new year, however, brought with it higher taxes, and not just the increases on income over $400,000 recently won by the Obama forces. Many Obamacare taxes became effective January 1, 2013, including a 0.9% increase in Medicare Taxes and an extra 3.8% tax on investment income, including dividends, interest, capital gains, and rent income, for households earning more than $250,000.

Some of the ugly details of Obamacare, the most far-reaching piece of legislation to be passed without a single member of Congress having actually read it—indeed not even having been allowed a serious chance to read it—have only been gaining attention in recent months. Looking forward to 2014, employers are now looking at an additional $63 per insured employee fee to compensate insurance companies for the added costs of covering previously uninsured people with pre-existing conditions. That’s supposed to phase out by 2017, but if you believe that you probably also bought the line that Obama is in favor of a “balanced” approach to deficit reduction.

Better known is the $2,000 per employee charge that any business with more than 50 full-time employees will have to pay for every full-time employee to whom that business does not provide an Obama-approved health package (though the first 30 such employees are exempted). With all the concern expressed in the media about how the uncertainty posed by the fiscal cliff negotiations negatively affects business, it is odd that so little attention has been focused on the certainty of Obamacare costs that businesses now have to face. Many companies, large and small, have pointed to these provisions, explaining that this is why they won’t be hiring, or won’t be hiring nearly as much in 2013 as they would otherwise. Abbott Labs, Boston Scientific, Welch Allyn, and many other companies have even reported they will be laying off workers directly as a result of Obamacare.

I’m in the commercial real estate business, and have managed commercial properties for more than 20 years. A friend of mine has been in the real estate services business, providing everything from janitorial services to window washing to parking lot repairs for about as long. In fact, the company I work for was his first account. In the last 20 years, he has expanded from a handful of full-time employees to 150 full-time employees. I recently discussed with him his concerns about the effect of Obamacare on his business. Most of his employees are in lower-skill occupations and so only earn $10 - $15 per hour. He cannot afford to tack on health care benefits equal to another $3.50 to $5.50 per hour without going broke. His more affordable alternative would be to pay the $2,000 per employee fee, which would effectively erase his entire 2012 profit from his business. In essence, this one provision is the equivalent of a 90% - 100% tax on his typical net business income. Worse yet, since the law does not allow the $2,000 per employee charge as a deductible business expense, he’ll have to pay federal income tax on approximately $240,000 of business income he didn’t get. Implicit in the law (or perhaps it is explicit) is the notion that it is the responsibility of employers to provide health insurance to their employees, and if they don’t they are bad people, greedy capitalists exploiting the working class, and deserve to be punished.

What is my friend to do? He can raise his prices and risk losing business from people like me who will then need to cut back on his services, or who will go to his smaller competitors with fewer than 50 employees who are not (yet) subject to the fee. Or he can cut back the hours of his employees until he has fewer than 50 working full-time. Or he can fire most of his employees and tell them they are on their own as independent contractors, and he may be able to subcontract with them from time-to-time for specific jobs. None of these alternatives are good for the business owner, his customers, his employees, or the economy in general.

This is what you get when people sheltered all their lives in government and community organizing, with little knowledge of how businesses actually operate, are put in charge of crafting far-reaching economic policies. This is what you get from people who don’t recognize businesses as the drivers of employment, economic growth, and higher standards of living, but see them as entities that need to be regulated, managed, and controlled by government for the “public good.” This is what you get from people who deride the idea that successful businesses are created by their owners working long hours, developing good ideas, and putting capital at risk, but instead are the creations of government and the community at large.

The iniquity of the law, in that it places a much higher burden, as a percentage of payroll costs, on companies in lower-skilled/lower-wage industries versus companies in relatively higher-skilled/higher-wage industries, is one argument against Obamacare. But there is no question that the law delivers pain to almost everyone. Unions, for instance, are now complaining that the requirement to eliminate annual and lifetime benefit caps, a feature in many policies, including many administered by unions, by itself will, by the estimate of one Atlanta area Sheet Metal Workers Union representative interviewed by the Wall Street Journal, push the price of union labor up by $0.50 to $1.00 per hour to cover the extra costs associated with eliminating those caps. Perhaps unions, being friends and supporters of the Obama administration, will be successful in obtaining federal subsidies or further waivers from the law (equality under the law has not been a hallmark of this administration), but the cost will just be shifted somewhere else, such as on to employers or taxpayers, with the same depressing effect on economic activity.

How the economy performs will be determined by more than just Obamacare. There will be other negative factors, such as Europe, which will continue to have bouts of economic turmoil. But there will be positives, as well. The U.S. economy is fundamentally sound and dynamic. It is poised to grow, and has been for years. American corporations, on the whole, are sitting on large cash reserves, looking for opportunities to put that cash to productive use. It will be Obamacare, however, that I fear will be the weight that will matter most. The consensus among economists is that GDP will rebound in the first quarter of 2013 and that GDP growth for the year will be about 2.0%. Unfortunately, I believe that even that dreary prediction will prove too optimistic, and 2013 is more likely to be the year of the Obamacare recession.

?Photo: UPI

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