From the August 2011 issue of Benefits Selling Magazine • Subscribe!

Bad business or bad reform?

Was reform legislation really the tipping point for the health industry, or is it—and always has been—the economy?

Which came first?

The economy is weak. Unemployment numbers are staggering. Business is bad. Pessimism has replaced optimism. And this is all two years after the Great Recession supposedly ended. Like every other industry, the economy is taking its toll on the broker business.

Take this for example: Employee Benefit Research Institute statistics show that the recession had significantly affected health coverage of workers in various job categories. “During a recession, some employers will drop coverage, some will increase the worker share of the premium, and some may change eligibility requirements,” the EBRI report says. “Structural changes in the economy during a recession, such as the substitution of part-time workers for full-time workers, reduce the number of workers eligible for health benefits.

This reflects the fact that while unemployment is rising, an increasing share of workers may decline coverage for a number of reasons.” “Employee benefits are not immune from fluctuations in the economy. When employers are tightening belts, brokers and carriers feel the pinch,” says Alan Katz, principal of the Alan Katz Group and past president of the National Association of Health Underwriters.

To CAP OR NOT TO CAP
Tightening budgets is such an issue that lawmakers are in heavy debate about whether or not to cap the nation’s spending level. U.S. Sens. Bob Corker, R-Tenn., and Claire McCaskill, D-Mo., have introduced the Commitment to American Prosperity Act, which would phase in hard caps on government spending over a 10-year period and impose sequestration, or an automatic spending cut, if the caps were breached. But not everyone is keen on the cap.

In two studies, Economic Policy Institute experts say the CAP act could severely harm both the social safety net which millions of Americans rely on, and the economy, especially during downturns like the Great Recession. “Spending caps are much better rhetorically than they would be in practice,” says Rebecca Thiess, policy analyst at EPI. “Rhetorically they sound very reasonable and responsible; [but] in practice they would decimate what government can spend on really important programs.” One such program is Social Security. 

In one EPI study about unbalanced budgeting, the institute found that the CAP act could severely harm Social Security, finding that across-the-board cuts would reduce Social Security outlays by 13.6 percent by 2021. If cuts were triggered by sequestration, outlays could fall 16.4 percent by 2021.

In both scenarios, these cuts could lead to major benefit cuts, as well as job losses in the hundreds of thousands. Additionally, the EPI reports, national health care expenditures are considerably higher today than over 1970–2008, and health care costs are expected to keep growing faster than the economy.

Along with rising economy-wide health care costs will come rising costs for Medicare, Medicaid, the Childrens’ Health Insurance Program, and the health care exchange subsidies to be established in 2014 under the Affordable Care Act. The Congressional Budget Office projects that federal spending on health care will rise from 5.6 percent today to 7.7 percent by 2022 (when the cap proposed in the CAP Act would be fully phased in), and rise further to almost 11 percent by 2035. And the debt limit uncertainty is taking its toll on employers too, not just lawmakers.

President Barack Obama says the uncertainty over whether lawmakers will raise the nation’s debt limit is keeping businesses from hiring. The economy generated only 18,000 net jobs in June, the fewest in nine months, shattering assumptions the economy will rebound in the second half of the year.

And the unemployment rate rose to 9.2 percent, the highest rate of the year. In general, unemployment has topped 8 percent for 29 months, the longest streak since the 1930s. And the numbers aren’t putting anyone at ease.

BYE, BYE, OPTIMISM
After the economic report was released July 8, stocks plunged. The Dow Jones industrial average fell 132 points in the first hour of trading. Broader indexes also declined. The numbers speak for themselves: Businesses added just 57,000 jobs in June—the fewest in more than a year.

Governments cut 39,000 jobs. Over the past eight months, federal, state and local governments have cut a combined 238,000 positions. Companies have pulled back on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up with population growth.

And at least twice that many jobs are needed to bring down the unemployment rate. Not surprisingly, Republicans and GOP presidential hopefuls are using the dismal report to slam Obama’s economic agenda. But perhaps more surprisingly is the fact that young people—the very ones who voted for “change” under Obama in record numbers in 2008—are also questioning their hero’s economic policy and their own future’s fortune.

Generation Opportunity, a nonpartisan, nonprofit youth-outreach group, compiled polling data showing decayed economic confidence among the so-called millennials (ages 18-29): More than half say that the United States is seriously on the wrong track, and a similar number say they are not optimistic about the nation’s economic future. More than half also assert that they’re not confident that the country will be the global economic leader in 10 years.

More than three-quarters say that, given the current state of the economy, they have delayed or will delay buying a home, paying down student debt, obtaining more education, saving for retirement, changing jobs or cities, getting married, or making some other major life decision. People need real solutions, not more rhetoric, says Generation Opportunity President Paul Conway.

“As they continue to look for work and new opportunities to use all their talents — they expect those who they elected to do their jobs and fully address the debt, decrease federal spending and regulation and create an economic environment where individuals have the freedom to pursue their dreams,” Conway says.

JOB GROWTH? WHAT JOB GROWTH?
According to research from McKinsey & Co., it will take the United States until 2016 to replace the 7 million jobs that were lost during the 2008-09 recession. And to gain full employment—finding work for the unemployed and accommodating the 15 million Americans expected to enter the labor force this decade—the U.S. economy must create 21 million jobs by 2020.

A return to full employment will occur in only the “most optimistic job growth scenario,” according to the McKinsey Global Institute’s report, “An economy that works: Job creation and America’s future.” “Progress on four dimensions will be essential for reviving the U.S. job creation machine,” report authors say.

Those dimensions are: developing the U.S. workforces’ skill to better match what employers are looking for; expanding U.S. workers’ share of global economic growth by attracting foreign investment and spurring exports; reviving the nation’s spark by supporting emerging industries, ensuring more of them scale up in the United States, and reviving new business start-ups; and speeding up regulatory decision-making that blocks business expansion and new investment.

McKinsey analyzed the causes of slow job creation in the period before the recession and during the recovery and the implications of these forces for future job growth. They surveyed 2,000 business leaders as well as more than 100 business executives, public-sector leaders, educators and other experts on U.S. labor markets. The U.S. workforce will continue to grow until 2020, McKinsey finds, but under current trends, many workers will not have the right skills or education for available jobs.

Their analysis suggests a shortage of up to 1.5 million workers with bachelor’s degrees (or higher) in 2020. At the same time, nearly 6 million Americans that don’t have a high school diploma will likely be without a job. Technology is changing the nature of work: Jobs are being disaggregated into tasks, work is becoming virtual and firms are relying on temporary and contract labor. “These trends offer new opportunities for creating jobs in the United States, a trend that some companies do not fully appreciate,” the McKinsey report says.

Some 58 percent of employers say they will hire more temporary and part-time workers. Additionally, six sectors—health care, business services, leisure and hospitality, retail, construction and manufacturing—will be most important for job growth potential. Today, they account for 66 percent of employment, but are projected to account for 85 percent of new jobs created through the end of the decade.

SO WHAT'S TO WORRY ABOUT?
“Business succession planning or agency sales will likely also be affected by this murky environment,” says Brian Robertson, executive vice president of Fringe Benefit Group. “How will agents get the most for their business when they are ready to sell? Or how do they bring their next generation into an ever changing benefits world?” And with less people employed, that means less business for brokers.

But there’s always some good news to fall back on. “When the economy expands so do the number of employers adding benefits,” Katz says. “Since the worst of recession is most likely behind us, producers should see their business recover, too.”

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