WASHINGTON — Is the Affordable Care Act (Obamacare) a job killer? Along with the fate of HealthCare.gov, this question stalks the ACA.
Critics — including me — say "yes." We argue that businesses will try to avoid the requirement to provide health insurance to workers by changing their employment practices. This would include cutting hours to ensure that workers are "part time" under the ACA, exempting them from coverage.
The Obama administration says the facts don't justify the fears. In a study, the White House Council of Economic Advisers found "no economy-wide evidence . . . [of] increasing part-time employment" tied to Obamacare.
Who's right? Maybe we both are.
The case against Obamacare is straightforward. For many employers, the cost of providing required health insurance to mainly low-income workers would be huge. Logically, many firms would try to evade the expense. There are two ways of doing this. First, businesses with fewer than 50 full-time workers are exempt from the insurance requirement (the "employer mandate"). So, don't hire that 50th worker.
The second way is to make workers part time by cutting their weekly hours to less than 30. That's Obamacare's threshold for full-time workers.
Consider an example. A firm has 49 full-time workers. None receives employer-paid health insurance. Each has an annual wage of $30,000. The company adds another worker. Its wage bill totals $1.5 million (50 workers times $30,000).
But it must now offer health coverage; in 2011, the average cost of a policy for a single person was about $5,000. For 50 workers, that's another $250,000 (50 workers times $5,000). If the firm had a pretax profit of $250,000, its profits would be wiped out. There's a powerful incentive to avoid Obamacare, either by not hiring or by pushing full-time workers under the 30-hour cap.
Companies with lots of part-timers, often working more than 30 hours a week, will face intense cost pressures. Restaurants, retail stores and hotels/motels top the list. In 2012, these three industries had almost 9 million part-time workers, estimates the Bureau of Labor Statistics. The BLS cutoff is 35 hours a week for part-time work.
"Our industry has low operating margins [profits as a percent of sales] of 3 percent to 5 percent," says Scott DeFife, executive vice president of the National Restaurant Association. "Any drastic increase in costs — for fuel, food, labor — can have a [big] impact." Katherine Lugar, head of the American Hotel & Lodging Association, worries that the ACA will "force employers to adjust hours downward."
Unsurprisingly, these groups and the National Retail Federation, representing stores, favor raising the ACA's full-time cutoff to 40 hours a week. For Obama, this would increase the number of uninsured and the ACA's costs. Companies would have an incentive to hold workers' hours just below 40.