Obamacare cost...

[calicoug]

You mean I haven't won you over yet? How disappointing. Guess I'll just have to try harder.

You are a smart enough guy that you should be able to know when you are reading little more than right wing propaganda. That you choose to ignore that fact and expect others to do the same is what is particularly disappointing.

[All-American]

You are a smart enough guy that you should be able to know when you are reading little more than right wing propaganda. That you choose to ignore that fact and expect others to do the same is what is particularly disappointing.

The mere fact that I am still responding to you in this conversation is objective proof that I'm not that smart.

[imanihonjin]

Sure. $750k can run a business into the ground. Of course, it depends on the size of the business. In this example where it takes 75 employees to get to the $750k expense you say it would be, they already have a sizable payroll. Assuming a mere $30k average salary, their payroll alone is $2.25M and would be $3M with the health insurance (less tax deductions). Your solution is to lay off all of those employees or reduce all of their hours. It makes one wonder in this perfectly optimized business you claim exists where there is no other cuts that can be made nor any price inefficiencies what those 25 employees were doing before this given how quickly you have determined they have to be let go. Were they not generating any revenue at all? Even sufficient to cover their $30k salary per year? If not, one wonders why this business has 75 employees. If they are generating revenue, does the additional expense necessarily outweigh the revenue that would be lost by cutting the employee? You are counting on about $10k per employee in health care costs (before taxes). I suspect most companies will find a way to make that up elsewhere without cutting their workforce out entirely. Example: in 2005 Target began offering health insurance to all of its part time employees. How did they do that voluntarily? Under your analysis, they should have fired hundreds of employees immediately after announcing they were going to give those employees healthcare. And yet, the granting of healthcare benefits doesn't even merit a mentioning in their 10k.

As I said before, this isn't a cost that is easily absorbed nor is it a cost that many employers want to have. It's not even a cost I want employers to have- I've already said my preference is for health care and employment to be divorced in this country. But it is a cost most large employers (more than 50 employees) can find a way to meet.

Uh, if you pay someone $30k a year it is presumably because you get more than a $30k a year benefit from their labor. Increase their pay by 1/3 and that equation may no longer hold true. At the end of the day a small business doesn't care about revenue generated it cares about profit.

You claim that small businesses will find a way to cut without cutting their workforce out entirely...that is precisely what others in thread have been pointing to--specifically reducing full time employees hours to part time and hiring more part time workers. Sure administrative costs may go up for small business owners doing so, but if those costs are well below $10k (which in almost every case the added administrative costs would be significantly lower than $10k/year) then a small business owner has a very powerful incentive to cut the employees hours.

One thing that is also being left out of your equation is that if a small business owner is paying an employee $30k it is because that is what that employee's labor is worth in the market. If you increase their total compensation to $40k to include health care benefits then employing that particular employee is not a rational choice. Presumably you would hire a person whose skill set is worth a wage of $40k a year. It is like those fast food workers who went on strike a week or two ago who demanded their hourly wages be doubled. What they didn't realize, and what you are failing to account for, IMO, is that if the salary of a fast food worker was doubled from $8 to $16/hour a company like Burger King would presumably want to hire and could now attract folks whose skill set was worth $16/hour. Where does that leave the employees who were screaming for their wages to be doubled?

[Color Me Badd Fan]

I've never had to figure out how to turn a profit in my life I don't know what the hell I'm talking about.

Finally something I can agree with you on.

[Color Me Badd Fan]

Cali, my dad owns and operates a business with about 40 employees. I talked to him about your theory of "looking for expenses to cut." He's been looking for a competitive edge for years, but this is the first time he's ever heard of your concept. Do you consult on things like this and if so what's your rate?

[Omaha 680]

Sure. $750k can run a business into the ground. Of course, it depends on the size of the business. In this example where it takes 75 employees to get to the $750k expense you say it would be, they already have a sizable payroll. Assuming a mere $30k average salary, their payroll alone is $2.25M and would be $3M with the health insurance (less tax deductions). Your solution is to lay off all of those employees or reduce all of their hours. It makes one wonder in this perfectly optimized business you claim exists where there is no other cuts that can be made nor any price inefficiencies what those 25 employees were doing before this given how quickly you have determined they have to be let go. Were they not generating any revenue at all? Even sufficient to cover their $30k salary per year? If not, one wonders why this business has 75 employees. If they are generating revenue, does the additional expense necessarily outweigh the revenue that would be lost by cutting the employee? You are counting on about $10k per employee in health care costs (before taxes). I suspect most companies will find a way to make that up elsewhere without cutting their workforce out entirely. Example: in 2005 Target began offering health insurance to all of its part time employees. How did they do that voluntarily? Under your analysis, they should have fired hundreds of employees immediately after announcing they were going to give those employees healthcare. And yet, the granting of healthcare benefits doesn't even merit a mentioning in their 10k.

As I said before, this isn't a cost that is easily absorbed nor is it a cost that many employers want to have. It's not even a cost I want employers to have- I've already said my preference is for health care and employment to be divorced in this country. But it is a cost most large employers (more than 50 employees) can find a way to meet.

I just read through this finally because of others' responses and it makes no sense to me. The thought that there are large savings to be found in medium sized businesses that can be tapped if executives are only spurred on by some government mandate that forces them to look is a weird concept.

[Medfordcoug]

As I said before, this isn't a cost that is easily absorbed nor is it a cost that many employers want to have. It's not even a cost I want employers to have- I've already said my preference is for health care and employment to be divorced in this country. But it is a cost most large employers (more than 50 employees) can find a way to meet.

Sure an employer can usually find a way to cover the cost, but in order to do so, someone will be hurt. The company I work for is a good example. In order to "cover the cost", half of the workforce was laid off and hired back as temporary employees. The cost differental between the temporary service charges and the total cost of the average production employee is about $6.00. For the 100 people that this impacted, it saved the company about 1.25 million dollars, not bad for a company still feeling the impact of tepid recovery. However, not good for the people that no longer have any benefits. But like you said, a large employer will find a way to cover the cost.

[All-American]

Sure an employer can usually find a way to cover the cost, but in order to do so, someone will be hurt. The company I work for is a good example. In order to "cover the cost", half of the workforce was laid off and hired back as temporary employees. The cost differental between the temporary service charges and the total cost of the average production employee is about $6.00. For the 100 people that this impacted, it saved the company about 1.25 million dollars, not bad for a company still feeling the impact of tepid recovery. However, not good for the people that no longer have any benefits. But like you said, a large employer will find a way to cover the cost.

And all indication is that this is "the way" they are finding to cover the new costs, at the expense of who can guess how many other people would have had full time jobs.

[Medfordcoug]

And all indication is that this is "the way" they are finding to cover the new costs, at the expense of who can guess how many other people would have had full time jobs.

It is the way our company is reponding. This example was for only one location. All of the other locations are doing the same thing by using long-term temps and not rolling people onto their payroll. A couple of the smaller companies have been advised by their health care consultants to drop medical coverage as of January 1, 2014, for the remaining employees, as the health care rates are going way up.

[Color Me Badd Fan]

It is the way our company is reponding. This example was for only one location. All of the other locations are doing the same thing by using long-term temps and not rolling people onto their payroll. A couple of the smaller companies have been advised by their health care consultants to drop medical coverage as of January 1, 2014, for the remaining employees, as the health care rates are going way up.

I'm beginning to think this represents a real opportunity for Calicoug. Health care consultants and thousands (or tens of thousands) of businesses are all making independent decisions that all arrive at the same point -- and they're all wrong and Cali can tell them why they're wrong. Apparently it's never dawned on them that they can cut expenses to either maintain or grow profit. I look at this "cutting expenses" idea as the most important business innovation since Henry Ford perfected the idea of the assembly line and Cali is at the forefront.

[imanihonjin]

I'm beginning to think this represents a real opportunity for Calicoug. Health care consultants and thousands (or tens of thousands) of businesses are all making independent decisions that all arrive at the same point -- and they're all wrong and Cali can tell them why they're wrong. Apparently it's never dawned on them that they can cut expenses to either maintain or grow profit. I look at this "cutting expenses" idea as the most important business innovation since Henry Ford perfected the idea of the assembly line and Cali is at the forefront.

Think about the wonders of this new argument. We don't need to stop at mandated employer provided health care. We can include items such as employer provided housing, food, entertainment....heck even vacations. According to Cali all a business would need to do is find other areas to cut from rather than personnel.

[Medfordcoug]

I'm beginning to think this represents a real opportunity for Calicoug. Health care consultants and thousands (or tens of thousands) of businesses are all making independent decisions that all arrive at the same point -- and they're all wrong and Cali can tell them why they're wrong. Apparently it's never dawned on them that they can cut expenses to either maintain or grow profit. I look at this "cutting expenses" idea as the most important business innovation since Henry Ford perfected the idea of the assembly line and Cali is at the forefront.

Maybe Cali could start with Detroit? They could use some help.

[calicoug]

I'm beginning to think this represents a real opportunity for Calicoug. Health care consultants and thousands (or tens of thousands) of businesses are all making independent decisions that all arrive at the same point -- and they're all wrong and Cali can tell them why they're wrong. Apparently it's never dawned on them that they can cut expenses to either maintain or grow profit. I look at this "cutting expenses" idea as the most important business innovation since Henry Ford perfected the idea of the assembly line and Cali is at the forefront.

Oh brother.

This exact process happens every single day. A company loses a large amount in litigation- how do they respond? By putting more cost control pressure on managers. A company loses a key account- how do they respond? Putting more cost control pressure on managers and demanding more from sales. Companies with more than 50 employees are big companies with decent revenues. I guarantee they have options for additional cuts. That doesn't make it easy nor painless and those cuts may have their own hidden costs (cut travel for employees and there is less face time with customers which could hurt sales for example). The point is that eliminating employees is not the only option (which was your argument). Neither is pushing all of them to part time work. Those moves have their own costs and are often the choices of last resort.

Companies always think they are running efficiently but when faced with greater cost pressures they adapt or they go under. Some companies might not figure this out and they will fail. Others will figure it out and will succeed. This is true of every regulatory change. SOX adds huge compliance costs but now that the regs have been in place for a while corporate America as adjusted and still is thriving.

One likely result is that wages will decline in companies that previously offered no health insurance as they shift to include health care in compensation. Undoubtedly some other companies will lay off employees and will shift to part time labor. But will it be widespread? There isn't much evidence of that right now (including the helpful survey someone included earlier).

[calicoug]

Cali, my dad owns and operates a business with about 40 employees. I talked to him about your theory of "looking for expenses to cut." He's been looking for a competitive edge for years, but this is the first time he's ever heard of your concept. Do you consult on things like this and if so what's your rate?

He has never heard of the concept of looking for expenses to cut? Well, in that case my rate is pretty irrelevant. It's clear he will pay whatever I ask.

[calicoug]

Think about the wonders of this new argument. We don't need to stop at mandated employer provided health care. We can include items such as employer provided housing, food, entertainment....heck even vacations. According to Cali all a business would need to do is find other areas to cut from rather than personnel.

No, not what I am saying.

Health care is a bit unique, at least in a couple of senses. First, other competitors with more than 50 employees are already likely offering health insurance to employees even if your business isn't. So how are they doing it? Odds are they are controlling costs in other areas better. They are also likely paying employees less. This isn't an expense that is new and unprecedented. It's one most every large company already deals with. That means you can too.

Second, the government will absorb some of the costs through the tax code. That softens the blow and is exactly why many companies already offer health care.

If this was a completely new cost being borne by companies the most likely result would be price increases. That may still happen in some industries. You may also see some employees laid off. You may see some salaries compressed. You may see more part time hiring. You will almost certainly see costs cut in other areas, at least in the short term. You might see some or all of those things, but what we don't see yet is evidence that full time work is being converted into part time work which was the claim here.