This morning we detailed that since President Barack Obama passed his $787 billion stimulus package, the United States economy has shed nearly 2.8 million net jobs, the nation’s unemployment has gone up from7.6 to 9.4%. and nationwide a total of fifteen states are now suffering from 10% unemployment. But not only is Obama’s stimulus failing to halt job losses, it is also making it harder for employers to create new jobs. The USA Today reports:
A federal subsidy designed to make health insurance more affordable for laid-off workers has led to a doubling in the number of people who have opted to continue their former employer’s coverage. The coverage, known as COBRA, allows people who leave their jobs to continue their former employer’s health coverage for up to 18 months. … The economic stimulus package signed into law in February subsidizes 65% of COBRA premiums for some recipients — workers laid off between Sept. 1, 2008, and the end of this year. The result has been a doubling of enrollments, according to an analysis by Hewitt Associates, a human resources consulting firm.
How does the stimulus’ COBRA expansion kill job creation? The New York Times explains:
First, employees who initially turned down Cobra have another chance to say yes (if they became eligible for it after Sept. 8). Second, business owners who have more than 20 employees and offer health insurance are now required to lay out 65 percent of any Cobra payments for employees who qualify for the benefits (this, too, applies to employees who took Cobra after Sept. 8). In addition, employers also must collect the 35 percent that employees still have to pay.
This represents a significant new burden to small businesses. Yes, the government will eventually reimburse employers for these Cobra payments through payroll tax credits. But that can take months.
Let’s think about what’s happening here. There is an assumption that an employee who is laid off is going to need help making those Cobra payments, and that may well be the case. But what about the employer? If a company is laying off people, there’s a pretty good chance it’s losing money. Possibly a lot of money. In some cases, it may be fighting desperately just to stay in business.
So here’s my question: Why do we automatically assume that these companies are in a position to be fronting money for anyone. Why are they automatically in a better position than the insurance company, the employee, or the employee’s relatives?
It gets even worse when the employee files for unemployment. A lot of people — including a lot of business owners — don’t understand how this works. Because the government cuts the unemployment check, it is widely assumed that it’s the government that pays the unemployment benefits. In reality, those benefits are funded by employer taxes. And here’s the killer: The more unemployment benefits your former employees collect, the higher your taxes go.
It works like insurance. If the government pays a claim, your rates go up. In fact, if your former employee collects $10,000 in unemployment payments, you can expect to pay close to twice that in increased premiums. At least that’s how it works in my state, Illinois.
Thus, this becomes another cost of doing business that smart owners attempt to control. How do you control it? By making as few hires as possible, by making sure that those hires you do make are as strong as possible, and by combining documented rules with good management.
And now, thanks to the stimulus package, unemployment insurance has been extended as much as an additional 20 weeks. If you’ve had to lay off 10 people, this could easily result in additional taxes of $10,000, $50,000, or even $100,000. It’s a time bomb that won’t go off until after employers get their contribution-rate increase in November, but it will go off.
And therein lies the final irony: Even after the economy improves, I’m going to think long and hard before I hire anyone. Thanks to the stimulus package — the stimulus package — the costs, paperwork, and legal exposure associated with hiring employees is on the rise.