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Health Care Reform and Unintended Consequences

Dawn Rivers Small Business Trends

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July 26, 2009

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Right now, your nation's leaders are busily hammering out the details of a proposed health care reform plan.

You knew that.

It begins to look as if we are all going to be stuck with mandated health insurance coverage of every kind. Employers with more than 25 full-time workers on staff are going to be saddled with "play or pay" requirements, where they will have to offer coverage for their employees or pay into a kitty that will fund subsidies for individual coverage.

Individuals who do not have coverage through their employers will be required to get it on the individual market. If you can't afford it, they say, subsidies will be forthcoming.

I don't like these mandates. I don't like the government making it more expensive for people to conduct their daily lives. I also don't think it is fair for the government to use its policymaking authority to enrich companies in a certain industry sector by requiring us to buy their products (no matter how badly they suck).

And I think that people should have the right to make their own decisions about how they want to pay for their medical care.

Sadly, nobody asked me about that.

But what I think is much more interesting that the mere prospective presence of these mandates is their probable effect on the business landscape.

For starters, the mandates will make companies that have just over 25 employees decide to lay off just a few people to put themselves under the magic twenty-five. Those companies are likely to replace the full-time workers with independent contractors, allowing them to maintain their capacity without falling afoul of those mandates.

They will discover that independent contractors cost less than full-time employees, too.

Meanwhile, the presence of those mandates will also undoubtedly cause a lot of companies on the right side of 25 employees to forget their plans about growing much larger. Or, once again, they will work on growing revenues without growing the size of their companies ; behaving, in short, like microbusinesses tend to behave anyway.

The middle was already shrinking. In the ten year period between 1997 and 2006, the non-micro small businesses population (i.e., firms with between 5 and 499 employees) has declined from roughly 12% of U.S. firms to 8.7% of U.S. firms.

I suspect this set of federal moves will cause the middle to shrink even faster.

Perhaps even more interesting, I also suspect that all this required spending will cause businesses to take another good hard look at the advantages of independent contractors. They're cheaper and, in many ways, much more efficient. They tend to require less training (if any at all) and less supervision, causing less wear and tear on management.

They also require a different style of human resource management, which will undoubtedly spawn an entirely new set of management consultants.

And the population of nonemployer businesses, which is calculated each year by the U.S. Census Bureau, may well go through the roof.

At some point during all this, federal lawmakers may notice that their 2009 legislative agenda has not produced as many new ‘jobs' as they had hoped. On the other hand (and they may or may not notice this), there are millions upon millions of new nonemployers.

And they may wonder: what's up with that?

The answer to that question is, as simply as I can put it, that the nature of the workplace and the workforce are changing. Those changes call for different ways of looking at the labor market and at job creation and at the whole economy. They will call for different sorts of public policies to address the issues this new labor market will bring to light. Vision will be required.

Sadly, nobody is going to ask me about that, either.

* * * * *

About the Author: Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the editor and publisher of The MicroEnterprise Journal. She also blogs at The Journal Blog.