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Workforce Rx: A Second Opinion

Why Congressional passage of health insurance reform will likely prove, once again, the law of unintended consequences.
 
 
By Elliot Clark
 
So Washington is done. All the stürm and drang has ended, and our two party system is once again the embarrassment for the common voter. The bill got passed, but not before everyone remembered Winston Churchill’s famous remark that, “Democracy is the worst form of government except for all the others.” The questions, in the wake of healthcare—or, more particularly—health insurance reform are twofold: What happens to the worker, and how will this impact the practice of HR?
 
 
Some of the impact is too early to assess. Here is what we do know.  
 
 
Corporate benefit costs will most certainly rise in the short term and in the long term due to increased regulation, reporting, and compliance issues. These additional costs imposed on large and small businesses are woven into the legislation. We have already seen some major companies take accounting charges to offset these costs related to the elimination of the tax deduction for retiree drug benefit expense—rendering that benefit less attractive.
 
 
These factors will all impact the HR, HRO, and HR service delivery functions.  That is a given.  I see that part.  Everyone sees that part. What worries me is whether this is a tree in the larger forest.
 
 
My good friend and fellow columnist Mike Beygelman makes the valid point this month (see opposing page) that many companies might abandon the provision of healthcare as a benefit and allow their employees to go into the exchange and pay the $3,000 penalty (he references $2,000, but the final version made it $3,000).  While this might be true in the short term, many fear the $3,000 penalty will not hold as the government finds that it cannot deliver care at far lower costs than the private sector and has to charge higher penalties. It could choose other taxes, but while Beygelman might have a point in the short term, in the long term it is almost inevitable that the penalty will rise and by quite a bit. Though companies want to use benefits to manage and incent behavior, they might find it increasing hard as various parts of their own packages, such as prescription benefits to retirees, are not tax deductible.  So in 10 or 20 years—when government penalties are higher, filing requirements for each FTE are more onerous, and the taxes on “Cadillac pension” plans and other benefits are higher—what happens?
 
 
I am not going to get into the social justice issues of national healthcare.  I am just not qualified. And, certainly, I have heard and recognize the argument that higher costs to business could mean higher unemployment.  A fair point, but it’s another tree.
 
 
The big forest is labor economics.  In this forest, things happen in generations, not in Congressional election cycles (don’t yell partisanship I don’t like either party very much). The higher cost of American labor will incent employers to shift workers overseas. The law most often passed in Washington is the “Law of Unintended Consequences”. This is a recurring theme in legislative shortsightedness. That’s more than a tree, but even the transfer of labor overseas might just be a grove. 
 
 
A bigger problem and this may be the whole forest, is they have just created a disincentive for hiring full-time employees in favor of contingent labor. You can argue this disincentive existed before, but each extension on the plank labor walks becomes a more likely influencer on the trend. In many European economies, it has become more advantageous from a tax and regulatory perspective to hire contractors or contingent labor on a long-term basis. Contingent labor is a far larger component of the European workforce than it is in the U.S. Most companies have already learned how to manage around the co-employment issues raised in the 1997 U.S. Court of Appeals for the Ninth Circuit decision in Vizcaino v. Microsoft. This legislation is very likely going to shift the ratio in the U.S. labor force toward a higher component of contingent workers. 
 
 
For HR, this means different issues in recruiting and engaging your workforce and managing incentives, productivity, payroll, and performance.  Whether this bill is the tipping point remains to be seen, but it is a game changer.   This legislation will have an impact, more use of contingent labor will be one result.  HR needs to plan for this long term trend, and the work force needs to recognize that, in the future, the number of chairs available for full time career positions will be much fewer when the music stops. 
 
Elliot Clark is the CEO of SharedXpertise.

Tags: Benefits, Contributors, Engaged Workforce

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