Construction Monkey

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Mitigate Risk

Even though the health debate is not yet over and the full scope of health care reform is not known (or even if there will be reform), I think it is important to look at how it can impact the subcontracting industry.

Required Health Care for All
One of the most important parts of the legislation is that everyone will be covered in someway.  I doubt that this provision can be dropped from the bill as the hospitals and more imporantly the Insurance companies need this to ensure that they have an ability to leverage costs across the board.  It is also a very key point in the requirement that Insurance companies will not be able to restrict people with pre-existing conditions.  If Insurance companies have to cover us no matter what our existing conditions are, why would any of pay for insurance until we are diagnosed with a problem?  Thus they have to mandate coverage.  So what does that mean for us subcontractors?  For large firms, it may mean more costs.  Some versions of the bill require employers to pick-up their employees and a large majority of the costs of those plans.  This may increase current costs depending on the state you are located in.  For smaller firms, there are exemptions, but it sounds like there will be fees if you don't cover your employees, which obviously will increase your costs.  For large and small firms there are additional payroll taxes that will impact the cost of business.

Changes in the Industry
If the government re-writes the rules on 1/6th of the US economy, it will have an impact on Construction.  If you have been around and done commercial construction, I am willing to bet you have done something in the health care industry.  I am betting that it will adversely impact construction.  With any type of socialized medicine (what is on the table is not a "socialized medicine", but it is getting closer) you move away from the specialties and into a more uniform delivery system.  Looking at other health care markets that have gone to a government system, the facilities do not compete for patients like they do in the US.  They are fairly typical and they have a steady stream of patients from their geography (there is no competition).  Over the past 20 years, health care has really been transformed into selling quality and experience.  Look at the patient rooms of today versus 1980.  That is because each of the hospitals are competing for your business.  It has also gotten into a lot of specialties (i.e. MRI, birthing centers, etc.) to generate more revenue.

Why do I think it will be bad for Construction?  It really depends on the final bill and then how it is implemented.  Let me take you through the current most plausible scenario.  Smaller companies that do not have health care and have lower skilled workers will not hire employees but will treat them as contractors.  Those people will either buy coverage or will get it from the government.  Medium size firms will have to compete with them and will pay the $750/employee/year fine for not providing coverage to their employees, which is an immense saving from paying for the current Insurance plans.  So what will the larger firms do?  As all of this goes on, more people will go onto the government Insurance plan, which will pay hospitals not by the quality of the service, but under a fixed fee structure.

There will also be more difficult to retain people or differentiate your companies offering to your employees.  The health care benefits will be more consistent from company to company which can allow talent to move from company to company and will make it very difficult to separate one company from another.  Some companies may gamble and provide great insurance plans to differentiate themselves, but that will be a big gamble (especially if the tax the so called "Cadillac" plans).

This is a very personal issue and has become emotional, but lets remember two things.  There is no free lunch on this, if we cover more people for free and charge other people less the money has to come from somewhere.  And if we change the way that 1/6th of our economy operates it will affect Construction.  So ask yourself, if it is clear it will affect construction, don't you think they will find some of the money either directly or indirectly from our industry's revenue stream?

About the Author

Craig Pierce

Craig Pierce has been working in the construction industry for the past 25 years helping subcontractors master their trade. Currently he is President of Atalanta Enterprises which provides consulting services to contractors And software solutions through