Affordable Care Act may harm Spokane’s economy
November 22, 2012 Leave a comment
There is an assumption that the Affordable Care Act (ObamaCare) will lead to an increase in health care usage and this will be a boost to Spokane’s economy, which has a large health care segment.
Based on recent news reports, ObamaCare might be an economic mess for Spokane as there are forecasts that low wage jobs will see loss of employer provided health care benefits. That does mean this will happen for sure – it is just one hypothesis that some have proposed. Read the full set of headlines, below (and click through to read the original articles). Updates are added at the top of the list as recent news seems to confirm this trend.
Updates December 2013:
Updates April 24 2013:
Since this was originally written:
- Regal Cinemas is cutting the hours of non-salaried workers to less than 30 hours per week, nationwide.
- The State of Washington is considering moving part time state employees out of the State’s health care programs and forcing them into purchasing their own health insurance which would then be subsidized by other insurance purchasers and taxpayers.
- These actions from many employers will likely increase unemployment in Spokane County and reduce take home wages (after taxes and insurance costs) which will have a spill over effect into other areas of the local economy as residents have less money to spend.
Updates Feb 5-9 2013:
- State of Virginia limited part time workers to 29 hours per week to escape ObamaCare requirements
- Financial Times: US restaurants and retailers planning to cut hours, cut employees to avoid high costs of ObamaCare. Says Kroger, Dunkin Donuts, Wendy’s and Taco Bell are all considering cutting worker hours.
- Valley Walmart to reduce store hours, closing 11pm to 6 am – no longer open 24 hours
- 7.9 million workers moved into part time work without benefits
- Allegiant Air wanted to use part time flight attendants on new flights to Hawaii (from Spokane) to get out of providing health care benefits
- CBO estimates more workers to lose employer health care benefits, especially those in low wage jobs (see last paragraph)
- Those who retire at 65 will need a quarter million dollars saved to pay their out of pocket health costs. Which is not good news for Spokane local retailers as retirees will have less to spend.
- Worker cutbacks have already begun, says the WSJ. The government will determine “average number of employees” for current employers based on their 2012 head counts. Smaller businesses are working hard to stay below 30 hour workers, and below 49 employees.
- Nebraska school districts may cut back part time workers due to ACA
- Applebee’s franchise manager may layoff workers due to Obamacare costs
- Community college cuts hours of 400 workers to reduce ObamaCare costs
- CEO of Papa John’s Pizza says that by the numbers, franchisees will have to raise prices or reduce workers and hours or both.
- Sears announced it will end direct health care benefits and instead provide a subsidy to employees to buy their own.
- Darden Restaurants (Olive Garden, Rob Lobster and others, with over 2,000 restaurants in all) says it is experimenting with replacing full time workers with part time workers to reduce health care costs.
- Natl council of chain restaurants says chains will close less profitable locations, reduce worker hours or number of workers (side effect – restaurants and grocery stores likely to open later and close earlier to reduce hours)
- Operator of 40+ Denny’s restaurants says he will cut employee hours to cover costs of ObamaCare
- Many restaurant owners agree with Papa John’s CEO’s comments on health benefits
- Small businesses plan to keep their workforce below 50 employees
- 1 in 10 employers say they will stop providing health benefits and another 1 in 10 say they are considering ending health benefits
- Total hours worked in retail hits 3 year low – as workers find hours cut or moved to part time
- Health care prices likely to go up due to ObamaCare
- “People are often surprised at how expensive health insurance is once they have to pay for their own” – by 2019, premiums of those with subsidies will climb 4x faster than the subsidies. A typical “family coverage” policy costs $12,000 to $19,000/year. At $16,000/year, that works out to $8 per hour for each hour worked (40 hours per week times 50 weeks).
- Individuals and small businesses who have purchased their own health insurance will be required to purchase more expensive packages
- How much more expensive? Washington’s Premera Blue Cross expects most individual policy customers to see “staggering” price hikes of 50% to 70% by January 2014.
- Health care
- Retail and #4 restaurants and lodging
Here’s an old chart from a year ago, flipped and turned vertical so that it is easier to gauge the relative sector sizes.
CNBC report: “restaurants and hotels are among the industries likely to be squeezed the hardest by the law because they are low-wage industries that do not offer coverage to most of their workers.”
- If the trends outlined in news reports above spread, many Spokane workers maysee their hours cut or their jobs eliminated.
- Simultaneously, many will be forced (by law) into purchasing more comprehensive health insurance on their own (some will see subsidies but these will not be as large as many expect).
- As more household spending is mandated to be spent on health insurance, less money will be spent at local retail (in 2012, taxable retails sales per household in Spokane are -20% less than in 2007 and presently less than in 2004).
- Many “part timed” workers may not be able to find a 2nd part time job for reasons explained here – work in the restaurant and lodging industry may be limited to the busiest hours of need when you’ll already be working the 1st part time job.
- Local wage base would then shrink further. The Congressional Budget Office forecast a 1/2% reduction in the workforce due to the ACA.
The Affordable Care Act could be yet another blow for Spokane’s economic engine – and not the savior of the local economy as local cheerleaders portray it.
The rich in Spokane (health care providers) will get richer while many of Spokane’s residents may be worse off. Government workers will rest comfortably with rich benefits and pension programs that are non existent in the private sector.
Based on the recently published indicators, Spokane’s economy may be in for a hell of a ride – downhill – for another several years.