Dick Murphy of Elk Grove Village, Ill., founded his small manufacturing business 29 years ago. He tells National Review Online that he put every asset he had into the company, then leveraged that money to borrow more and expand the business. Now, Murphy finds himself across the 50-employee threshold.
Murphy already provides health insurance for his workers, who earn between $10 and $12 per hour, and that benefit is a major expense. Last year, the company’s insurance provider raised costs to $707 per employee per month — a change that cost him around $28,000 per month in total. Even so, the coverage may not meet federally mandated standards, so Murphy might be forced to pay the employer mandate, too.
And the business can’t be exported, he says. DLP Coatings provides decorative and functional paint for fabricated metal. Murphy beats out the foreign competition because of his proximity to clients; when they ship him an order, he can have it processed and returned in a matter of days.
Yet other companies are relocating abroad, and that hurts Murphy, too.
“At one time, we did a great deal of work for General Electric,” he says. “A lot of that material moved out of the country down to Mexico. It’s frustrating and irritating. You’re losing your customer base. We just continuously see that manufacturing base dwindle. We’re geared entirely to manufacturing, and it gets so competitive for those who remain here — very difficult to make money.”
American manufacturers are already struggling to recover, never mind expand. In that context, the Obama health law’s employer mandate proves especially counterproductive.
The Census Bureau doesn’t calculate how many manufacturing firms are near the 50-employee threshold. But its numbers do show that the majority of them are small enough that the employer mandate may be a significant problem. Of America’s total 258,662 manufacturing companies, 197,701 had fewer than 20 employees in 2010, around the time when hiring growth picked up. Another 46,005 had between 20 and 99 employees.
And it doesn’t matter that most manufacturers already provide health care: The National Association of Manufacturers (NAM) estimates that 97 percent of its members already do so. Employers’ plans must cover at least 60 percent of employees’ average health expenses, and workers can’t contribute more than 9.5 percent of their family income, or the fees kick in anyway. That $2,000-per-employee penalty falls on top of the stiff taxes, trade barriers, and environmental limitations that manufacturers already have to contend with.
“The employer mandate is part of the overall negative business climate that manufacturers have been facing,” NAM spokesman Matt Lavoie observes. “It’s 20 percent more expensive to manufacture something in the United States than in our major trading partners, and that’s before you add in labor costs.”
As the Obama administration has argued, the employer mandate is one of the critical components of the health-care law. But too little consideration has been given to its consequences. The employer mandate is already having an adverse effect on the growth of U.S. companies and U.S. employment. Many existing businesses will scale down or avoid expansion. Meanwhile, would-be entrepreneurs may observe Schanstra, Murphy, and other business owners as a cautionary tale, realizing the risks they incur may not yield the payoffs they expect.
— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.