A Looming Crisis — and a Call for Solutions

Most Americans have no ideas it is coming. But it is just around the corner. It’s one of those technical changes that only wonks pay attention to, so few people realize how big this will be.

In fact, it’s a serious crisis in the making. And unlike the Y2K scare in 1999, this crisis is a sure thing.

The crisis is this: In January, many companies will be required to extend Obamacare health care to their employees.

The costs of this are significant, and will force many small and larger business to make some very tough choices. The result will be a lot of layoffs, downsizing, reduced pay, and outsourcing. Service will suffer, and response times will plummet.

Most families and individuals plan on a yearly basis, running January 1 to December 31, so they may not know how that a lot of businesses run on a fiscal year — from April 1 to April 1, July 1 to July 1, or October 1 to October 1.

This is very important, because we just witnessed the first big round of businesses (whose fiscal year is April to April) factoring in the costs of the January 2014 Obamacare requirements. The number of layoffs and cuts is a serious concern.

But those who run April to April have only had to factor in three months of Obamacare costs so far, so the damage has been minimal.

It’s going to get increasingly worse on July 1, and then by October 1 it will start having a major impact. By the first of January, when everyone will have to pay the higher costs, the effect will be huge.

Again, because this is a numerical concern, most people aren’t paying attention. Here’s the crux of the problem:

• Our economy is already struggling with a weak recovery.
• The increasing tax and regulatory burden on business has dampened innovation.
• The schools seldom teach innovation or initiative — indeed they usually promote the opposite.
• International innovation is on the rise.
• Business is reticent to invest or spend, because the current environment in Washington is highly uncertain.
• Big business, which has a high surplus right now, is finding better political environments in other nations — so the money will naturally flow to where business is treated better.
• The Obamacare requirements are making business a lot more costly, and they mostly kick in this coming January.

A lot of businesses are scrambling. For example, in the past few months I’ve received email from a number of friends who are business owners or who consult with small businesses, saying that their only choice is to either lay off a lot of employees or shut down their business.

One company, for example, is trying to prepare for next year, but has realized that the additional cost of Obamacare for their firm will be at least $18,000 a month.

This is a fairly small company, with close ties to its people. The last thing it wants to do is lay off employees. But what to do? The costs are simply prohibitive. Laying off is the obvious option; and after digging deeper, it may be the only option.

How would you counsel companies in this predicament? (Note that most companies are dealing with this right now.) What ideas do you have? I’m sincerely asking for input.

What can they do?

Thousands of companies are asking the same thing right now, and many others will do so before the end of 2013. This is going to be a real shock to the economy.

But back to the question. How can small companies that are already financially tight comply with the new regulations — without laying off or cutting salaries?

I’m hoping you see some real solutions. The obvious one is to innovate — to expand sales into new markets and make a lot of extra cash. The regulatory challenges of such a strategy are, alas, a serious problem — at least in the United States.

So, thinking like an owner, what would you do? I know you don’t have financials or details in front of you for any one company facing this challenge, but take a stab at this problem anyway — because almost all businesses are doing the same thing right now. It’s the only realistic way to look at Obamacare, because it’s the way pretty much every business owner is looking at it.

Specifically: Costs are going up significantly, with no offsetting increases in income. In fact, higher taxes and increased regulations make growth even more difficult.

In this environment, how can you absorb the Obamacare costs without laying off a bunch of employees? Or letting them go and hiring all new people who are desperate for jobs and will work for much lower pay? Or simply taking your business to Brazil or India or some other country where growth is actually rewarded?

Please send me your responses. What can be done?