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Obamacare Will Suck the Life Out of the Economy

It already took a bite out of Q-1

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The word "unexpectedly" for negative economic reports has become a much-mocked cliché in the media over the past five-plus years of recovery, but this week's final look at first-quarter economic growth deserves an exception. First estimated at a meager 0.1 percent annualized rate, and then downwardly revised to -1.0 percent in May, most economists expected a smaller revision to the downside – in the -1.5 percent-1.8 percent range.

Instead, the Bureau of Economic Analysis calculated the drop as -2.9 percent, a full three percentage points lower than its initial estimate, and the worst quarter since the technical recovery began in June 2009.

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Almost immediately, the Obama administration and its apologists began insisting that the sharp decline meant nothing. Cold weather caused it, some claimed, even though the US has had cold winters in the past without suffering undue economic damage. In fact, this was the worst Q1 read on GDP in 32 years (1982), and the three winters following that produced annualized growth rates of 5.3 percent, 8.2 percent, and 4.0 percent. This was hardly the first tough winter America has faced in terms of weather, but it was the worst in decades economically.

Still others claimed that this was evidence of the success of the Affordable Care Act. Consumer spending on health care dropped in Q1 after BEA initially estimated a significant rise in that category. ACA advocates claimed the decline as proof of the program's effectiveness, but the White House argued the opposite when BEA first reported increased spending.

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Fox's Wendell Goler challenged then-press secretary Jay Carney as to whether the 0.1 percent GDP growth rate in the initial estimate indicated that the taxes, fees, and mandates of Obamacare was slowing down the economy. "The report makes it clear that it was consumer spending on health care that helped drive economic growth in the first quarter," Carney responded, "and that is directly related to the increase in people who have insurance because of the Affordable Care Act."

Using the White House analysis, the lack of increased consumer spending on health care indicates that the economy-tamping effects of Obamacare will outstrip whatever consumer impulses it produces, even when consumer use should be highest as people gain coverage and can access provider networks for the first time.

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Get ready for more dampening effects on the economy from Obamacare, too. The Washington Post reminded readers this week that the employer mandates will soon come into force for most businesses, which now have to make decisions on staffing, hours, and benefits for their 2015 budgets. The Post focuses first on a restaurant chain in Idaho to see how the employer mandate has impacted staffing and benefit decisions.

The owner of Bardenay in Idaho, Kevin Settles, had to put expansion on hold – and the new revenues and jobs it would create – while tracking employee hours and setting up health-insurance options for those who worked enough hours to qualify. He even offered to get more of them insured if they worked at least 39 hours a week – and was shocked when only a handful accepted. Others quit to work at higher-paying part-time jobs. "To my surprise, having had this program in place for nearly a year," Settles told The Post, "I don't think the staff cares that much" about health-insurance coverage.

Businesses care about it, though, especially the cost. Investors' Business Daily has documented over 400 mid- to large-sized employers that will or have already cut worker hours to avoid the full-time classification that will force them to provide health insurance or pay fines for non-compliance. Not all of these are private-sector employers, either.

The list recently added seven public school districts that intend to cut hours for non-teaching personnel, moves that will save them millions of dollars in benefit costs. The Post also reports a move by French food-service company Sodexo to reclassify 3,000 workers as part time in order to drop their health benefits.

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Evidence is mounting that the practice has become widespread even among companies that don't announce their intentions. When asked about this rational response to incentives, White House economists suggested watching payroll data to see whether distribution of part-time hours remained steady or shifted as the mandate approached, and last year published a study claiming no effect had been seen.

However, the study relied on a method of rounding up that made workers averaging 29.5 hours (which does not qualify as full time for the ACA) to 30 hours (the threshold for full-time designation in the ACA). In reality, the numbers of workers getting 30-34 hours of work a week has dropped 6.4 percent since the end of 2012, while those getting 25-29 hours a week has risen 10.8 percent.

As businesses cut hours and postpone or cancel expansion plans, fewer jobs are created and workers who do have jobs earn less money. That soft labor market also hampers wage growth and has a dampening effect on consumer spending. That's before the cost of Obamacare hits the workers themselves, with a new report suggesting that the brunt of those costs hit middle-aged women hardest.

The Obama administration has already postponed the employer mandate once to delay the inevitable economic damage of these options. They could do so again to try to get this past the midterm elections, but that would generate even more economic impact.

The ACA needs the employer mandate in place to raise around $150 billion a year to pay for the premium subsidies that mask 76 percent of the average premium cost to the individual, according to the same report above. Nearly 9 in 10 exchange enrollees are receiving those subsidies, and without that revenue, Obamacare's red ink will soon turn into a tsunami that cannot possibly be hidden.

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The expected revenue is another part of the same problem, too. The $150 billion a year that will get sucked out of operating revenue and capital would otherwise have gone into expansion and job creation, which means that Obamacare has the White House between an economic rock and a fiscal hard place.

In the next few months, all businesses employing 200 or more people will have to make the decision whether to cough up that cash, or to cut hours and save some for growth. Don't be surprised when businesses choose the latter, and don't be surprised to see more "unexpectedly" bad economic news when the mandate becomes fully active.

Edward Morrissey, The Fiscal Times

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