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America's health overhaul: choose your own ending

Obamacare: small business uncertainty.

No sooner had the clock struck midnight on March 2 than everyone’s attention shifted away from the impending sequester cuts to the next fiscal crisis date in Washington: March 27, when parts of the U.S. government will shut down unless Congress renews funding for federal agencies.

Eyes, though, should perhaps have focused on another big, and possibly more relevant, element of uncertainty weighing on the U.S. economy this year: the Affordable Care Act (ACA), affectionately and not-so-affectionately known as Obamacare.

The president’s sweeping healthcare reform requires businesses with 50 or more full-time employees to offer health insurance coverage or pay a penalty and is widely expected to affect employers’ cost structures, especially in small and medium-size enterprises. The law doesn’t take effect until 2014, but it will be looking at 2013 payroll and employment records in its first year of implementation. The trouble is, the jumbo legislation has so many moving parts that no one’s quite sure exactly how it’s going to play out.

Employers across the nation, according to the Federal Reserve’s March Beige Book, are planning layoffs or postponing hires due to “the unknown effects” of the healthcare overhaul.

Why unknown? For a number of reasons. First of all, the ACA is 906 pages — and that comes with another 70,000 or so pages of guidance issued by the federal government issued last year. “Trying to make heads and tails of it, even for large corporations, can prove challenging,” says TD economist Michael Dolega, let alone for those who don’t have vast legal departments at their disposal. Not surprisingly, only 18% of small business owners feel they are “very familiar” with ACA, according to a recent survey by the National Federation of Independent Business (NFIB).

The second big problem is that federal and state-level rules necessary for the actual implementation of the law are still being written. Although the ACA lays out a series of detailed provisions in most areas, federal agencies can often still affect the material implications of the law depending on how exactly they write the regulation. The same goes for states, which also have considerable flexibility in how and to what extent they participate in the reform. All of this is open to lobbying efforts, which unleashed what the Wall Street Journal dubbed “round 2” of the health care battle, with health care providers, insurers, drug makers and employers frantically trying to obtain favourable regulatory tweaks. Even with a perfect understanding of the letter and nuances of the law, it’s often impossible to estimate its possible effects with any degree of certainty or accuracy.

That might be part of the reason why small business confidence, according to the NFIB, hasn’t rebounded from the low its reached in December with the fiscal cliff scare.

Admittedly, that collective pessimism could prove unwarranted. The law might well turn out to reduce labour costs for small business. That’s the prediction of the Urban Institute, a nonpartisan Washington-based think tank, which calculated that total per capital employer spending on health insurance would actually decline to around $3,800 from about $4,100 thanks to tax credits and the ability of employers and employees to access more favourable insurance rates in state-run “insurance markets” than are currently available to small groups. (The Institute, however, does predict costs would increase for companies with between 101 and 1,000 employees.)

It’s also quite possible Obamacare will end up depressing wage appreciation rates, says TD’s Dolega. “There’s only so much a small business can afford [in terms of total compensation],” he notes: higher benefits requirements might simply become a bigger share of the mix at the expense of take-home pay.

For now, though, it’s simply too soon to tell. And as they wait for the policy fog to clear, many small businesses are, understandably, choosing to err on the side of caution. Some say they are putting expansion plans on hold. Others, especially in the fast-food business, are reportedly shuffling their payroll structure—laying off people, hiring less or opting for part-time rather than full-time employees—in a delicate limbo dance aimed at staying below federal thresholds that would trigger insurance coverage obligations and exclusion from certain tax credits.

If it’s any consolation, none of the above is unusual for a piece of reform legislation as broad and ambitious as the ACA. Such things are complex, take time to roll out and invariably invite creative attempts to (legally) circumvent the new rules. It is unfortunate that this major, awkward adjustment is happening just when America’s recovery is gaining a bit of momentum. That Washington lawmakers are adding one more layer of uncertainty by playing Russia roulette with fiscal policy…is truly asinine.

Erica Alini is a California-based reporter and a regular contributor to, where she covers the U.S. economy. Follow her on Twitter: @ealini.