Las Vegas Review-Journal reporter Jennifer Robison recently wrote about the concerns of a few Nevadans that the employer insurance mandate in the Affordable Care Act (Obamacare) is “creating a conundrum for businesses” concerning what they do with part-time workers. She quotes local business owners and union leaders describing their issues with the mandate:
“The Affordable Care Act says employees who work more than 30 hours a week qualify as full time, and employers have to offer them insurance or risk fines of $2,000 to $3,000 per worker. The regulation applies to any company with more than 50 full-time-equivalent workers.
Observers say the threshold is causing unintended consequences as employers drop workers below 30 hours to avoid the cost of coverage.”
Some employers and union leaders are indeed concerned about what the employer mandate will mean for them. Their concerns, however, are based on very unlikely scenarios and misinformation about the law.
Business owners are busy running their businesses. They read and see stories about the employer mandate in the news, but rarely do they know exactly how the law affects them. They just hear the talking points and fear tactics, and it makes them worry.
There are compelling reasons, especially for larger companies, to provide these benefits to their employees regardless of the current law. Nearly all of them already do (explained later).
There are some smaller businesses that are on the cusp of having just over 50 full-time equivalent employees who are worried about providing health insurance. In the RJ story, Metro Pizza is mentioned as one. Let’s say for example that they have 30 employees who work more than 30 hours, and 42 part-time employees who work less than 30. Under the law, Metro Pizza then has more than 50 full-time equivalent employees. What does that mean for Metro Pizza?
- First, the employer penalty has been delayed until 2015. So if they do nothing in 2014, nothing happens.
- In 2015, they would face a fine of $3000 per employee enrolled on the health insurance exchange; or $2,000 per FTE employee after the first 30 full-time workers.
That’s right, you are allowed to exempt the first 30 full-time employees you don’t insure (even when you have more than 50) – see official IRS memo (page 3).
Under this scenario, Metro Pizza still avoids any penalties for not providing health insurance for up to 30 full-time employees. They likely already cover some of their full-time employees. Thus any fear is unfounded in this case.
The unions’ concerns are a bit more nuanced. Granted, no one can predict with certainty what employers will do, although there is quite a bit of data, history, and practical reasoning to suggest there isn’t likely to be much of a difference in full-time versus part-time employment as a result of the employer penalty in 2015.
First, almost all employers with more than 50 employees already provide insurance to their full-time employees. According to the Kaiser Family Foundation, here’s what we do know about health insurance coverage among employers with over 50 employees:
- 91 percent of employers with 50-199 employees offer health insurance to employees
- 99 percent of employers with over 200 employees offer health insurance to employees
- In firms that do offer insurance, about 80 percent of all employees are eligible for coverage.
- In firms where 35 percent or less of the employees are part-time, part-time employees are covered 84 percent of time.
- In firms where more than 35 percent of employees are part-time, part-time employees are eligible for coverage 52 percent of the time.
Note that the data varies about how employers define “part-time” so much that no definition is given. This data includes coverage of part-time employees working less than 30 hours per week. Many business already consider over 30 hours a week “full-time” when it comes to benefits. While the above numbers indicate that even a high percentage of part-time employees are already covered, data (cited below) shows that 80% of employees working between 30-36 hours have insurance.
Employees who work for companies where most are part-time are at greatest risk of having their hours reduced. However, there are costs to hire and train new people. There’s every reason to believe the incentive to cover existing employees outweighs the incentives to cut hours.
While the risks are low, there will inevitably be a small number of people at risk. What do we know about people with the highest risk of having hours reduced?
- 9.2 percent of the U.S. workforce work between 30-36 hours per week.
- Only 20 percent are uninsured (workforce w/ between 30-36 hours per week).
- Just 1.8 percent of the U.S. workforce works between 30-36 hours per week and are uninsured
So only 1.8 percent of the workforce is even at risk of losing hourswhen the employer penalty goes into effect one year from now. I emphasize “at risk,” because as I’ve mentioned before, that entire premise is questionable.
No one has a crystal ball. All of those employees MIGHT have their hours reduced. Perhaps none of them will. The likelihood is that some of them will… but how many?
As Josh Barro of Forbes explains, “even if this effect is real, its impact is relatively small, and it must be weighed against the benefits of expanding coverage.”
Luckily we actually have a real life case study to give us an idea. This report from the Urban Institute on the 2006 rollout of Romneycare in Massachusetts will give us some data:
In Massachusetts, employers with more than 10 FTE employees are mandated to provide health coverage, much less than the 50 employee threshold under Obamacare. So in Massachusetts, the impact of the employer mandate was on a greater percentage of the workforce.
Data shows that the health care law in Massachusetts had no negative job consequences. When compared to the nation and four other states, there was no significant difference in part-time versus full-time jobs from 2006-2010.
Factcheck.org did a full write-up on the impact of the employer penalty on jobs. They note that the new health care law will create 890,000 new jobs in the health care sector, and that most of the projections on reduced hours are very low in comparison.
Politifact has several reports about claims made by Republicans that we are turning into a part-time economy (false), that Obamacaredecreases full-time employment (mostly false), or that most new jobs are part-time jobs (again false).
Even conservative commentator Reihan Salam at the National Review, of all places, had positive things to say about the employer mandate, saying it is “likely to spur the kind of innovations that will make medical care cheaper and more accessible.”
In the final analysis, there is little basis for the fear expressed by union leaders and business owners over the employer penalty. We know that there aren’t many people even potentially at risk of losing hours because of the employer penalty. Massachusetts didn’t experience any loss of hours as a result of the employer penalty after their rollout in 2006. The penalty under Obamacare only applies to FTE employees not covered after the first 30 full-time employees. That should take any penalty off the table for smaller business right around the cusp of 50 FTE employees.
It’s understandable why major media outlets prefer to cover only the controversies, but we must always remember to square the hype with reality.
Next week, we’ll look at cancellation claims. Some pundits claim 100 million people will lose their employer-provided health insurance because of Obamacare. Some also claim to have beachfront property in Arizona. I’ll have the facts for you then. Stay tuned and subscribe in the widget to the right.