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End run on Obamacare

Small businesses get burden that shouldn’t be theirs

A growing number of businesses, most recently some Taco Bells in Oklahoma, have announced plans to cut worker hours. You see, Obamacare requires that businesses with 50 or more full-time workers (or their equivalent) provide health insurance for all full-time workers or pay a penalty. These business owners recognized a third option – cut employee hours to less than the full-time threshold (30 hours a week).

It’s not surprising that businesses would respond like this. Smart business owners do what they can to limit costs. So perhaps it’s a mistake for the federal government to push universal health insurance. The problem: President Obama stated on Jan. 25, 2007, “The time has come for universal health care.” Then, he was elected. And re-elected. There are, however, two other more interesting criticisms of Obamacare: It should not have relied on employers to provide insurance, and it should not have tied this requirement to full-time employment.

Employers have been providing health insurance since World War II, and it’s been a boon for employees: Payroll taxes and income tax do not apply to money spent by employers on health insurance. What this means: Employers who pay $5,000 for employee health insurance give their employees a $5,000 increase in take-home value, but employers who increase their employees’ salary by $5,000 (which would be subject to payroll tax and income tax) give their employees a take-home value of, at most, $3,750. Providing health insurance through employers has become the American way.

Sadly, new regulations with pernicious effects on small businesses have also become the American way, and Obamacare is no exception. Many small businesses do not offer insurance that meets Obamacare standards. These small businesses now face new costs: Either provide increased coverage or pay a penalty. It’s not surprising, then, that these businesses cut employee hours; no full-time employees equals no insurance costs and no penalty.

So perhaps Obamacare should not have tied the employer-provided coverage to full-time employment. Because it’s tied to full-time status, Obamacare’s incentives could lead to employees who 1) still don’t have insurance and 2) earn a more meager living because their hours have been cut. This shows a serious flaw in Obamacare. An alternative: Tie the requirement to provide insurance to primary income source instead of full-time status. That is, employers should be required to provide insurance for all employees whose job at their company is their primary income source.

This has three advantages. First, it encourages full-time employment. If the business already pays for insurance for an employee, it will find as many hours for that employee as possible before hiring someone else. Second, it encourages employers to provide part-time employees with insurance. Employers could refuse to provide coverage for moonlighting employees with little risk, but for all other employees, this job may be their primary income source. Third, it discourages employers from cutting hours to avoid providing insurance. Cutting an employee’s hours to 20 a week makes it more likely that the employee will have a different primary income source, but that is not a guarantee. The employer may end up paying the penalty anyway.

While this may get around the problem of employers cutting employee hours, it avoids entirely dealing with the larger problem – we’re using the backs of small businesses to solve our social problems. They say small businesses are the drivers of the economy, the innovators and the entrepreneurs. And now they’re supposed to solve our health insurance problem, too. But we all know they aren’t going to solve it on their own – the additional money they spend on insurance will come from somewhere. As John Schnatter (CEO of Papa John’s) put it: “That’s what you do, is you pass on costs. Unfortunately, I don’t think people know that they’re going to pay for this.” While this response to Obama’s re-election was poorly conceived, he raises an important problem with Obamacare.

It’s a mistake to put solving the problems of our broken health care system on the shoulders of small businesses. As they say, if you want a job done well, you should do it yourself.

Abraham Schwab is an assistant professor of philosophy at IPFW. He wrote this, with assistance from Michelle Ethington Kibler, for The Journal Gazette.