Affordable Health Care Law Loophole Could Hurt Low-Wage Workers

Part-time workers who don’t have health care insurance are supposed to have an easier time finding insurance next year when the Affordable Care Act takes effect.

Their employers may have other ideas, thanks to a few loopholes in the ACA law.

Few part-time workers get health insurance from their employer now, with proponents of the new law expecting the numbers to increase next year. A study by the ADP Research Institute of 300 large employers covering 2 million workers and dependents found that 23% of employees work part-time, and only 8% get health care benefits from their employer.

The law doesn’t take effect until 2014, but the number of workers an employer has this year are being used to measure if employers must provide health insurance next year. Employment figures are also be used to determine if companies will be fined for not offering health insurance, or if they have a low number of part-time workers that exempts them from the law’s penalties, says Bob King, an attorney and founder of Legal Nanny, a law firm that specializes in domestic employment and home care agencies.

“The Affordable Care Act poses a massive new cost on employers,” King says.

If the cost is greater than the operating margin for a business, it could get around ACA by laying off employees or cutting their hours. Businesses that are most likely to do that are low-wage industries such as restaurants and other service jobs, King says.

The law calls for “qualifying and affordable” health insurance to be provided to be provided to employees. Coverage is considered “affordable” as long as it doesn’t exceed 9.5% of an employee’s household income.

Companies with 50 or more full-time employees (including full-time equivalent employees) working 30 or more hours per week that don’t provide the insurance must pay a penalty of at least $2,000 per employee per year to the federal government.

To get around the law and avoid the penalty, businesses could lay off workers so that they only have 49 part-time workers, each working 29 hours or less per week, says Angela Reddock, a lawyer in Los Angeles who specializes in employment law.

But the loophole’s existence doesn’t mean companies are going to “respond knee-jerk” to ACA and cut employees to part-time so the company can save on health care costs, says Reddock, adding that companies should know the high value of having a consistent workforce that doesn’t require constant retraining because new workers are being added all of the time.

King agrees, saying he doesn’t expect businesses that already offer health insurance to change.

“Employees who work for companies that already provide health insurance will probably continue to receive health insurance,” he says.

But businesses that don’t already offer health insurance may cut jobs or hours and use more independent contractors as they try to determine if not complying with the law is cheaper than providing health insurance, King says.

A $2,000 fine per employee for not offering health insurance is cheaper than the $7,225 per year in health care premiums that the average employer contributed for each employee in 2012, according to the ADP Research Institute study.

“I have not seen one client of mine that’s not offering insurance now that’s going to start offering insurance as a result of the Affordable Care Act,” he says.

“It’s far, far more expensive to offer insurance,” King says his clients tell him.

Employers that are likely to cut jobs and hours are ones with a lot of low-wage workers, he says, such as restaurants, retail and home care. King says some of his clients, which include home care agencies, are cutting workers’ hours to 29 or less per week so they can avoid the new law’s penalties.

Low-wage jobs with few hours doesn’t sound to appealing, especially without health insurance. “Nobody wants that job,” King says.

Cutting a worker’s hours so they’re not eligible for employer health insurance would have a domino effect, forcing low-wage workers to get insurance through an exchange, Reddock says.

“I think what you then end up with is a very unhappy employee who now has health care” through a health care exchange where they can apply for government subsidies to help pay their premiums, Reddock says.

“If you’re a minimum wage earner, and you are forced into this exchange, it can really be a burden on the employee and their household,” she says.

However, if ACA helps companies save 30% to 40% on health insurance premiums, “then I think you might even find the large bread and butter companies reconsider their health care options,” Reddock says.

Comments are closed.