Will Obamacare Free You From Job Lock?

“Job lock” is a phenomenon wherein people remain in jobs or positions for which they are not suited because of the downsides of leaving. While the uncertainty of income contributes to “job lock”, the risk of losing access to affordable employer-provided healthcare insurance coverage may also contribute.

“With the new law, job lock goes away,” says John Arensmeyer, who heads the advocacy group Small Business Majority, “[With Obamacare] [a]nyone who wants to start a business can do so independent of the health-care costs.”

Mr. Arensmeyer claims studies show that people who are freed from job lock (for instance, when they are old enough to start qualifying for Medicare) are more likely to undertake something entrepreneurial, and he says that one recent study projects that Obamacare could enable 1.5 million people to become self-employed.

Obamacare makes employer-provided insurance coverage mandatory at the 50 employee level—employers smaller than that are exempt. Fewer than half the companies with under 50 employees insure their employees, and half of uninsured workers work for small businesses or are self-employed. In fact, a full quarter of small-business owners are uninsured, too, according to an article by James Surowiecki that appeared in the October 14, 2013 edition of The New Yorker magazine.

Mr. Surowiecki writes that the rise of employer-provided healthcare insurance coverage was somewhat of a historical accident stemming from the Second World War. During the war, wages were frozen so companies began offering healthcare coverage insurance instead. After the war, attempts to create universal health care were stymied by politicians and doctors, and Congress gave companies tax incentives to continue to provide healthcare coverage, according to Mr. Surowiecki.

The employer-provided healthcare coverage system has worked well enough for large employers who can pool the risks that any large healthcare insurance company might face, according to Mr. Surowiecki. However, small businesses trying to provide healthcare coverage insurance run into “experience factor” problems that on the average can cause small business healthcare insurance coverage to cost 18% more than it does for larger organizations. A business with a large percentage of women or older workers faces high premiums. Even a single employee who runs up high healthcare costs can spell disaster for future premiums which are tied to the “experience factor”.

Obamacare may assist many small business employees and employers. If a small business employer truly cannot afford to provide health insurance, at least there will be somewhere for the employee to secure insurance coverage on a health care insurance exchange. Next, for those small companies who wish to provide insurance coverage there will be some tax credits available to help offset costs. The legislation also proposes to require “community rating” for small businesses, just as it does for individuals, sharply restricting insurers’ ability to charge a company more because it has employees with higher health costs. One additional aspect is that small-business exchanges will in effect allow companies to pool their risks to get better rates, writes Mr. Surowiecki.

“You’re really taking the benefits that big companies enjoy, and letting small businesses tap into that,” says Arensmeyer. This may lower costs, and it will insure that small businesses can hire the best person for a job rather than worry about health issues, according to Mr. Surowiecki, who reports that a 2009 study by economists John Schmitt and Nathan Lane documented that the US small-business sector is among the smallest in the developed world, and has one of the lowest rates of self-employment. The absence of a national health insurance option contributes to this low rate of self-employment, according to Mr. Surowiecki.

Obamacare may also have some provisions that seek to protect employees in 50+ employee firms from suffering from onerous healthcare insurance premium paycheck deductions. Companies offering insurance has to cover at least sixty percent of costs and can’t cost more than 9.5% of employees’ income, according to Mr. Surowiecki.

The potential downside of Obamacare for employees is that companies below the 50 employee threshold may quit hiring and contract operations to avoid the healthcare mandate, and that employers having 50+ employees may cut jobs or employment hours to get below the 50 employee threshold.

How big might the Obamacare impact be on employers overall? For sure, some will be significantly impacted, but it might be a very small minority. Mr. Surowiecki writes that only 3 percent of companies are in the “zone” of potential Obamacare impact, having between 40 and 75 employees. Of companies with more than 50 employees, 90% of these companies already offer some form of employer-provided healthcare. Moreover, 96% of American businesses have fewer than 50 employees and these under-50 employee businesses would face no impacts at all.

My office has no political position on Obamacare. I avoid discussions of politics in my professional blog. Frankly, I love my country dearly, but I have strong concerns that maybe we are headed in the wrong direction and have been doing so for decades! This post is not the beginning of a political critique about this administration, the last one, or even the last two or three administrations before that.

I have a number of clients who are miserable in their current jobs and are suffering from so-called “job lock”. I thought I would write about a potential escape from the salt mine of current employment. Many of my clients have great ideas and vision for opening their own businesses, but they are so worried about the loss of health care benefits that they cannot ever seem to launch their new life as a small business owner. Whether it be good, bad or ugly, I have no opinion. I just point out that Obamacare might help loosen the bonds of “job lock” for these would be business owners.

However, before venturing out on your own, it might be a good thing to erase troublesome debts with a bankruptcy filing. Many famous business and political figures from the past got a fresh start on their financial lives by filing bankruptcy, including Abraham Lincoln, Henry Ford, Walt Disney, H. J. Heinz, and Milton Hershey. What a different country we would live in today without the courageous acts that Lincoln, Ford, Disney, Heinz, and Hershey took—not only the ones that made them famous, but the acts that cleared away the unrelenting pressure of debt, and enabled them to lift their spirits and thoughts to greater pursuits that are such major parts of American life and culture today. Take stock of your own financial situation. If you see that it is time to clear your financial decks, then we are here to help—contact us today. Then you too will be free to pursue your dreams, whatever they may be, for you and your family.