Obamacare’s Threat To American Manufacturing: Legitimate Or Manufactured?

We’ve heard it time and again: Obamacare will be bad for business. It’s no secret that this fear has catalyzed a Congressional stalemate and contributed to the government shutdown. In fact, both federal and state representatives have introduced bills to defund the program and constrain its scope.

The Patient Protection and Affordable Care Act, or Obamacare, is slated to go into effect in 2014, and depending upon whom you ask, it could either spell nationwide economic calamity or secure unprecedented medical coverage for a country that’s still licking wounds sustained during the gravest financial crisis since the Great Depression.  Obamacare is the most dramatic restructuring of our nation’s healthcare system since the inception of Medicare and Medicaid in the 60s, and it will force American manufacturers to make some major decisions about how they manage their employees’ benefits.  Though the legislation has already been signed, the full enactment of the employer mandate has been delayed until 2015.

We’ve heard it time and again: Obamacare will be bad for business. It’s no secret that this fear has catalyzed a Congressional stalemate and contributed to the government shutdown. In fact, both federal and state representatives have introduced bills to defund the program and constrain its scope. In the likely event that these last-ditch efforts to thwart the new law’s implementation fail, what will come of the blossoming manufacturing sector?

As consumer confidence upticks at a snail’s pace, and American factories cautiously begin reshoring jobs, analysts forecast modest economic growth for the remainder of 2013.  However, upper management—especially in the significantly influential manufacturing industry—have expressed concern that new federal healthcare legislation could raise costs, discourage hiring, and ultimately torpedo an economy that’s still bailing itself out of the mire.

As it stands, all signs point to progress for U.S. manufacturing.  The 2013 Empire State Manufacturing Survey shows improvement for the fourth consecutive month and projects a favorable six-month outlook.  Perhaps the most emboldening news is that the shipments index has skyrocketed by fifteen points, its highest level in a year.  The NAM/IndustryWeek 2013 Q2 Survey echoes these upward trends, albeit with a caveat:  manufacturers’ concerns about impending healthcare legislations and the expected cost increases are at an all-time high.  So, what of these fears?  Should manufacturing be worried, and if so, can unease about ACA’s implications coexist with a healthy business climate?

Considering the technical complexities and unprecedented scope of Obamacare (the legislation is 70,000 pages long), it would be impossible for companies to be wholly prepared for its full enactment in 2015; yet, evidence suggests business leaders—especially within the manufacturing community—are perilously under-informed.  According to the Empire survey, a whopping 56 percent of respondents reported that they were unprepared or unsure as to how their firms would be implementing the new healthcare laws.  When the clock strikes midnight on January 1, 2015, there are a number of changes that will go into effect. At Domestic Manufacturing Solutions, we advise middle-market manufacturing companies who employ over 50 workers, and though our clients harbor a wide range of concerns about Obamacare, the following three fears are the most ubiquitous:

  • Pony up or pay the fine - Companies that employ 50 or more workers will be required to provide healthcare coverage to all full-time employees or face substantial fines (anywhere from $750 to $2,000 per employee). Many companies expect that this will artificially force firms to decelerate hiring. Economic analysts have suggested this trend has already begun. Tax credits for companies with fewer than 25 workers could also reduce incentives to recruit new labor.
  • More costly, less competitive - As higher healthcare costs translate to more expensive supply chains, U.S. manufacturers become increasingly less savory and customers begin looking abroad to increase gross margin and EBITDA.
  • Uncertainty breeds hesitancy - Unstable labor costs and unpredictable risk could stymie business expansion and inhibit industrial growth.

There is no silver bullet solution to ACA’s potential pitfalls. Expanding meaningful healthcare coverage while preserving a fertile and competitive field-of-play for American business will be tricky. While there is no quick fix in sight, it stands to reason that negotiating consumer-directed healthcare plans and engaging in health insurance exchanges might be a start.  Nevertheless, the following is certain:  healthcare costs have been steadily rising in the manufacturing sector for years—in fact, 2012 saw an eight point increase—and yet, the economy continues to recover and businesses continue to grow.  Additionally, employers have already been voluntarily providing healthcare to more than 170 million Americans without derailing trade. Unless the legislation’s regulatory scope is further focused, the law, as it currently reads, will likely do more harm than good for American manufacturing.

In the end, the industry may find it prudent (and unavoidable) to bite a bullet and cover higher premiums in order to maintain a labor force that will eventually lead to expanding operations.  Then again, if manufacturers have no choice but to pass along fees to a consumer who is unwilling or unable to pay them, the commitment to stateside manufacturing could become fiscally unviable altogether.  The key to preserving the health of U.S. manufacturing will lie in the industry’s ability to negotiate the new costs of health.

Douglas Dzurko is the VP of Operations for Domestic Manufacturing Solutions (DMS) in Pittsburgh, PA, and a former President of several local manufacturers.

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