Tough Road Ahead for Small Businesses and Employees

Weatherhead School of Management economics professor forecasts fewer full-time workers in the United States due to Affordable Care Act

News Release: Friday, December. 6, 2013

CLEVELAND – While the federal government concentrates on getting the Affordable Care Act (ACA) website functioning, an economics professor at Case Western Reserve University’s Weatherhead School of Management predicts the health care law will likely cause small businesses to cut staff and consumers to spend less.

Scott Shane, the A. Malachi Mixon III Professor of Entrepreneurial Studies at the Weatherhead School, writes this month (Tuesday, Dec. 3) in a Small Business Trends article (“What Problems Will the ACA Cause Next Year?”) that job cuts and less consumer spending will become bigger national issues during 2014, as small business owners wrestle with health insurance costs and the law’s employer mandate, and those insured encounter premiums that may rise.

Some job changes are already noticeable, such as reduced work hours, as employers prepared for the ACA, writes Shane, who has written nine books, including Fool's Gold: The Truth Behind Angel Investing in America. He also predicted major economic fallout of the new health care law will not be felt until later in 2014.

In the small business arena, the adjustment is likely to continue past 2014, according to Shane, who writes that health insurers are likely to raise premiums for 2015 for customers who obtain coverage through a health care exchange.

“Fewer young, healthy people are likely to buy insurance through the new exchange than the government originally had anticipated, while older and sicker people who need to cover pre-existing conditions will likely persist in getting coverage,” Shane writes. “The end result will be an older and sicker risk pool than policymakers had hoped for, which will cause insurers to raise premiums for 2015."

Shane's ACA analysis explains that some Americans who sign up for health insurance online will discover the plans they can buy have high deductibles.

"Those deductibles, combined with notices of rising premiums, will strain consumers’ household budgets," Shane notes. "This sticker shock will dampen consumer spending, probably in the second half of 2014.”

Meanwhile, as small businesses adapt to the employer mandate, they will limit hiring and trim workers’ hours, Shane writes. He points out that, because companies with at least 50 employees will need to offer health coverage to full-time workers, businesses will cut hours, as some are already doing.

Shane cites recent surveys conducted by the International Franchise Association with the U.S. Chamber of Commerce, the International Foundation of Employee Benefit Plans (IFEBP) and the Gallup Organization. He believes that between 12 percent and 18 percent of employers have already begun converting full-time jobs to part-time in response to the new law.

Shane expects that some companies will respond to the law by dropping employee health insurance, even if they must pay the penalty for non-insurance in 2015.

Posted by: Marvin Kropko, December 6, 2013 05:37 PM | News Topics: Official Release