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Going protean - How corporations will avoid Obamacare costs

By Catholic Online (NEWS CONSORTIUM)
February 1st, 2013
Catholic Online (www.catholic.org)

Obamacare has some unintended consequences, of which hapless employees, are bearing the brunt. Employers, scrambling to avoid the costs and fines of Obamacare are downsizing and cutting back employee hours to get themselves out from under the gun of Obamacare. However, novel solutions are on the horizon.

LOS ANGELES, CA (Catholic Online) - Many corporations, such as Darden Restaurants, have drawn public ire for announcing that all employees would become part time, to ensure they did not have to pay their Obamacare benefits. Really, Darden cannot be blamed for doing what corporations do - which is to maximize shareholder value.

Employers acknowledge that there is a very real human cost to their actions. As employers issue pink-slips and smaller paychecks to employees, they recognize that their workforce will be stuck making do with less, and will be less healthy in the process. They also understand their efficiency and productivity will also be impacted to some degree.

However, what else can they do? Faced with costs that could cripple businesses that already struggle with low margins, such as the restaurant industry, employers must sometimes choose between strategic cuts or closing operations altogether. In a sense, employers are choosing the lesser of two evils.

There is another way however, which requires novel that employers rethink how they operate. The new model is referred to as "protean" and refers to a protozoa, a single-celled organism. The concept involves companies focusing exclusively on a core competency, and contracting out everything else.

Going protean means smaller payrolls because the only employees that a business keeps are those dedicated to providing the primary product or service. Other departments such as payroll and accounting, human resources, and such, are contracted out.

So instead of managing a corporation with say, a hundred employees, the business can downsize below 50, while contracting out their other departments. Under the new model,  accountants, marketers, and sales staff, for example, become independent contractors while the only employees that remain would be management. This immediately shifts the obligation of paying for healthcare to the individual.

The only caveat then, is that an employer must relinquish some control over their former employees, who for all intents and purposes, are now their own businesses. However, the cost savings to the employer is substantial and the loss of control marginal at most. In fact, one could argue that control might improve, since a business would no longer have to worry about firing an underperforming employee, and could instead simply choose to contract with someone else.

There are also rules which clearly define the difference between an independent contractor and an employee. Employers who treat contractors as employees can face stiff penalties, so they will need to show greater flexibility than they are used to.

Naturally, this was never the intent of Obamacare, which was designed to make corporations pay these costs, not (former) employees. The thinking was that corporations could bear these costs easier than individuals. However, competent business professionals always find a way, and they have now done so, exposing a major flaw in Obamacare.

Naturally, the sudden migration of millions of former employees from private employer-funded healthcare to government-subsidized healthcare will trigger a response. However, it was long predicted by economists who forewarned that creating a system of mandatory payments and fines for employers would result in precisely this phenomenon.

As the nation's businesses transition to the new model, it will remain to be seen if former employees embrace the opportunity to be owners of their own businesses or if they will balk at paying their share of the Obamacare mandate, which now falls on their shoulders as individuals.

That reaction, particularly if negative, will predicate congressional response. That response could change the Obamacare limits even further, rendering the new model moot by squeezing employers again. But for now, for employers who are seeking to preserve their revenues without laying off employees, going protean just may be the solution they need.

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