With only days to go before the President elect settles into the White House, the hand wringing and speculation is in full force. Transitions are always fraught with uncertainty and although Donald Trump has promised this to be a smooth one, there are stark differences between the new administration and the one on its way out the door. With everything from taxes, to trade, to the regulatory environment on the table, Americans, and particularly American businesses, are soon to be reminded that elections do make a difference. With Mr. Trump and his cabinet members having stated his top priorities as being a repeal of the Affordable Care Act, tax reform and regulatory relief, there are no doubt big changes ahead for businesses nationwide.
Affordable Care Act
Speaking at the capitol last week, Vice President-elect Mike Pence stated that Donald Trump’s first order of business will be to “repeal and replace Obamacare.” The process has already begun, but thus far, no plans for a replacement have been laid out. Trump has, however, indicated that he would be in favor of keeping certain aspects of the Act that have been generally popular, such as allowing young adults to remain on their parents’ insurance until the age of 26, and continuing to bar insurance companies from discriminating based on pre-existing conditions. However, it seems almost certain that the individual mandate will disappear.
While controversial, and costly to many consumers, the mandate did minimize the risk to insurers and incentivized them to participate in the exchanges. Even so, according to McKinsey’s Center for U.S. Health System Reform, only 25 percent of insurers made a profit on individual divisions in 2015, with costs exceeding income by ten percent.
“Insurers in the individual market are already losing millions of dollars each year, and many have exited the exchange market as a result,” noted Greg Seifert, CEO of Vancouver based Biggs Insurance Services. “In most scenarios, guarantee issued insurance without some kind of mandate will be financial suicide for insurance carriers.”
While plans for 2017 are already finalized and cannot be changed, insurance carriers have until May to decide whether they will participate in the exchanges for 2018. It is likely that without a mandate, many young, healthy individuals, which do not cost insurance carriers much to insure, will opt to forego insurance, and insurers, who, as in Seifert’s case, have already invested heavily in complying with and adapting to the new regulations of the ACA that drastically changed the industry, will be looking at a situation with even less potential for profitability.
“Most [insurance carriers], if not all, are likely to exit the exchange marketplace in my opinion,” said Seifert. “I believe this will be a financial decision, and that few will see any alternative to losing money.”
While agreeing that most, if not all of the ACA is likely to be repealed, Seifert said that during this transition, the new administration can best protect both insurers and consumers by “allowing for transition time, so that individuals have the time to change plans as needed, and carriers need time to modify products and possibly pricing models. I would say to not do anything abruptly in the very least.”
Several Republicans in Congress have offered a timeline of at least 18 months for any transition to take place.
Another of the President elect’s first moves will be to begin dismantling the Dodd-Frank financial regulations that were implemented as a response to the Great Recession, but which many financial institutions find burdensome and a hindrance to business.
Steve Mnuchin, Trump’s appointee to head the Treasury Department, said in a statement that he will begin working on repealing Dodd-Frank immediately, focusing first on the regulations that prevent banks from lending.
James C. Johnson of Q10 National Mortgage Co in Portland believes that a repeal of Dodd-Frank could be a positive thing for some businesses, stating “a repeal of Dodd-Frank, specifically in regard to the lending requirements, could have the effect of allowing small banks to become more competitive with the larger banks, which could allow for an easier financing process for both residential and commercial real estate.
“Overall, however, I think real estate finance will always be dictated by the market conditions … and market cycles will play a major role in all of the banks’ appetites for risk,” he added.“But again, the process should be smoother if there is less regulation.”
When it comes to regulation, it is not only Dodd-Frank that the new administration will be targeting. Trump has proposed a moratorium on any new regulations and has stated that 70 percent of the current regulations can go. In general, business owners seem to agree, at the very least, that excessive regulations often strangle businesses, with 45 percent of business owners saying that they consider regulations a very serious business problem today, according to the National Federation of Independent Business.
On Trump’s chopping block are new overtime regulations, which were due to go into effect in December but have been frozen by an injunction. The new rules would raise the threshold for employees eligible for overtime pay to almost twice the current amount, and would make millions of Americans eligible for overtime pay.
Andrew Puzder, Trump’s nominee for Secretary of Labor, has made clear that he is opposed to the new overtime rules, to which Washington Senator Patty Murray stated in a press release, “I am alarmed at Mr. Puzder’s vocal support for eliminating the new overtime rule and other basic protections the current Department has worked to finalize. If President-elect Trump truly wants to stand up for workers and retirees, he and Mr. Puzder will commit to ensuring these protections are fully implemented.”
Other sectors facing uncertainty include marijuana growers and sellers, who continue to have difficulty accessing the banking system due to federal illegality. Retailers in general worry about how Trump’s actions in regard to trade agreements and tariffs will affect the global supply chain, and many businesses could also be impacted by policies limiting immigration.
The new administration has made repeated promises that one of the primary areas of focus will be on enabling and promoting business growth, but it is so far debateable whether the impacts of some of Trump’s first orders of business will have positive or negative results.