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TheStreet Open House

ObamaCare Really Is Encouraging Unemployment and That's a Good Thing

Stocks in this article: WMT

NEW YORK (TheStreet) -- There was a shock in the April unemployment report that was otherwise filled with good news for the economy.

The labor participation rate dropped .5%, to 62.8%, a 36-year low. Economists estimate that means 806,000 people dropped out of the labor market.

Blame ObamaCare. Republicans will, and maybe Democrats should plead guilty, because this is actually good news.

April represented the end of the open enrollment period for the ObamaCare insurance exchanges. The administration says about 8 million people signed up.

Who were they? Some never had insurance before. Some were kids who, like my 26-year-old daughter, had finally exhausted their parents' coverage.

But some were people who decided they no longer had to be tied to a job to get health care and took advantage of the knowledge.

Think of the 55-year-old computer programmer who runs the numbers and finds she can retire early, if she can find health insurance. She found it.

Or the 35-year-old salesman who wants to open a business but couldn't, because of health concerns. Now he can.

What the ObamaCare exchange means is people can quit the jobs they hate. It means they can start a new business without putting their families in danger. It's the first leverage workers have gained over their bosses in many, many years.

Employer-paid plans started in the 1940s as a way for war plants to keep employees from bolting while wages were frozen.

If an employee is making $50,000, and a policy costs $7,500/year, that's a 15% bump in compensation, which lowers the employer's profits. It also lowers the taxes they must pay. The employee does not pay taxes on that $7,500 policy -- they still make "just" $50,000.

The purpose of the ObamaCare "subsidies" is to replicate these tax advantages for the new marketplace created by the exchanges.

So what about an employee making minimum wage at WalMart (WMT)? The Obama administration has delayed until 2015 the implementation of its employer mandate that would require firms with more than 50 fulltime employees to provide them with insurance coverage. 

At $7.25/hour, 40 hours a week, with no vacation, a Walmart worker makes $15,080. A $7,500 health insurance policy represents a 50% increase in Walmart's costs for that employee. It doesn't pay for Walmart to give that, even with the tax break, and thus they don't want to give minimum wage workers insurance. 

With the ObamaCare exchanges, they don't have to.

In most states, that employee is eligible for free insurance under Medicaid, which gives them the benefits employers would otherwise bank. And if this newly insured person doesn't like the wages or working conditions at Walmart, they can quit! The insurance is portable. 

Even if the employer mandate is implemented, Walmart is on record as saying it would rather reduce employee hours to less than 30 per week, making the workers no longer fulltime and thus sidestepping the company's insurance obligation. 

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