Let's Pretend

Let’s pretend that you own a business, any business. Since we are talking about your imagination, this enterprise could be as small as just you and one employee or it could be as large as G.M. Your pretend business might be a service provider, a manufacturer, or a retail store. You may establish this business in any of the fifty states. It doesn’t matter. The only rule is that your imaginary company must be in a field that is totally foreign to you. So for me, someone who can’t even play an instrument, my fantasy will have me as the leader of a private orchestra. Got it?

I want you to think about your pretend business for a moment. Think about your time, your effort, your sacrifice as I announce that one of your company’s largest expenses is being eliminated. Excited? Did you feel that you are about to be rewarded for your hard work? Have you begun to spend the money?

But this is all an exercise. None of it is real. You can’t know, really know, what you might do in such a situation. Just as I will never be in a band, much less lead an orchestra, the members of the Congressional Budget Office (CBO) have no idea how real businesses function.

In a recently released report, the CBO attempted to predict the possible effects of the Patient Protection and Affordable Care Act (PPACA) on the deficit and the uninsured. It has been widely predicted that employers will dump their company sponsored insurance plans due to the ever-rising costs to comply with the new legislation. That is not new. This COB report unveils a Bad News / Good News scenario that we haven’t seen before.

As reported by Sarah Kliff in The Washington Post, “If employers drop 14 million, currently-insured workers into the exchange, the CBO projects that the federal deficit would actually decrease by $13 billion since those workers could no longer use the current tax deduction for employer-sponsored insurance.” Ms. Kliff’s article quotes the CBO’s numbers and explanation.

The staffers at the Congressional Budget Office imagined a scenario where the owners of businesses would drop the cost of insurance, ignore the government penalty (currently set to be $2,000 per employee per year), and give every employee a raise equivalent to the previous cost of health insurance! If that happened, if all of the employers in the country magnanimously dispersed 100% of the insurance premiums, ignoring personal wants and needs, Social Security tax, unemployment tax, Workman’s Compensation costs, etc…then, and only then, could there be significant deficit reduction from moving millions off employer sponsored group insurance and into the exchanges.

Does this make sense? Sure, if we pretend.

DAVE

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