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May 14, 2010 02:00 AM

What Obamacare means to the plastics industry

Peter Mooney
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    When Congress passed and President Barack Obama signed the Patient Protection and Affordable Care Act (dubbed Obamacare) in March, much of the public reaction was directed to the unscrupulous steps taken to “cram” this 2,000-plus page leviathan and its companion reconciliation bill to legislation despite an absence of bipartisanship and in the face of majority popular disapproval. The more compelling issue is, what does health-care reform mean for U.S. business in general and for the U.S. plastics industry in particular?

    During the past decade-and-a-half I have been researching and publishing reports covering all the major North American plastics processing businesses. So I consult on a regular basis with officials at plastics processors of all sizes. It is important to understand that as the U.S. economy slowly, tentatively recovers from the Great Recession of 2008-2009 the large, highly capitalized companies are benefiting to some extent. Smaller companies don't see as much light at the end of the tunnel since bank lending is effectively frozen, particularly with respect to commercial paper on which small companies rely to finance new part programs and roll over existing debt.

    The vast majority of U.S. plastics processors are small and privately owned. It is some consolation to these companies that this act exempts (at this stage) firms with fewer than 50 employees from the obligation to provide health insurance. Small companies can also avail of insurance exchanges when they are eventually set up. Be that as it may, in every U.S. plastics processing business the majority of output and sales revenues is generated by companies with 50 employees or more. These companies — along with the majority of resin and machinery manufacturers, plastics compounders, plastic material distributors, et al. — need to adjust their business models to comply with the new regulations. The officials I consult at all these companies are uniformly concerned regarding the implications of this new government mandate for the health of their business.

    There are numerous aspects of this act that smack of economic madness, stemming from either an ignorance of or antipathy to business. By now everyone in the plastics industry is presumably aware that most of the costs associated with implementing Obamacare are imposed immediately whereas most of the benefits only come in 2014. So we will essentially have 10 years of additional taxation set against six years of additional benefits.

    In the same way everyone is presumably aware that the only way the Congressional Budget Office could determine that the bill would lower the federal budget deficit by $143 billion in 2020 was to: 1.) swallow the fanciful assumption that Congress will not increase Medicaid reimbursements to doctors (the “docfix”), and 2.) blink at the savings attributable to the last-minute insertion of a federal government take­over of the student-loan program into the bill.

    Obamacare actually reverses the trend in private-sector health insurance unfolding over the past half-century. In response to the wage and price controls legislated by the U.S. government after WWII, employers began offering health insurance as a supplement to pay. Over time this component of their costs rose. These incremental costs were easy enough to support at a time when U.S. international trade was a small fraction of gross domestic product. However, as globalization proceeded and U.S. companies began confronting increased competition from foreign countries unburdened by health-insurance obligations for their employees, it created a daunting competitive disadvantage. In response, the percentage of U.S. employees covered by company health-care insurance programs has steadily declined. At the same time, U.S. manufacturing wage rates have steadily stagnated in real terms. What Obamacare does is lock in place this dysfunctional system.

    Health economists are united in promoting the concept that health is enhanced when individuals take responsibility for their health care. When someone else pays the doctor and hospital bills — be it their employer or their government — health-care costs soar. The current concern over obesity among children and adults in our country is a perfect manifestation of this phenomenon.

    In the end the most disturbing aspect of the yearlong debate over health care is that, whereas it may have been perceived as serving short-term political ends (to the party in power these ends somehow justified the means), ultimately the economic benefits may prove illusory. It produced a costly detour from the No. 1 priority for a country emerging from the longest and deepest recession since the Great Depression — namely, job creation to restore the U.S. economic growth dynamic and get the unemployed back to work. The unemployment rate is currently a shade under 10 percent. Economists anticipate it will remain at that level for another four to five years. Obamacare did nothing to change this worrisome forecast.

    There are many other ways in which Obamacare is perverse. Compared to other developed countries against which we compete, the federal government taxes business owners too much and consumers too little. Obamacare imposes additional taxes on businesses, worsening the imbalance in our fiscal policy and eroding our competitive position further.

    Today the only V-shaped recovery plastics processors are experiencing is in resin pricing. As for the pace of consumer and producer spending on which they depend, the way ahead resembles an inverted hockey stick — a steep downturn followed by many years clawing back to full recovery. To impose a vast new set of costs and regulations on industries struggling to regain their footing on domestic and foreign markets was truly unconscionable — a triumph of politics over sound economic policy.

    Mooney is president of Advance, N.C.-based Plastics Custom Research Services.

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