A few years ago after the Affordable Care Act (ACA) passed, I wrote an article entitled “ObamaCare Is the Worst Legislation in 75 Years.” As more of the implications of the bill have become apparent, that assessment has only been reconfirmed.
I wrote, “The recently passed health care legislation marks a crucial turning point in the economics of our country. It is impossible to predict all the unintended consequences that will result from such a sweeping increase of federal powers.”
Three years later, some of the unintended consequences of the ACA have revealed themselves. In particular, it isn’t good for multiple-location restaurants and the starter jobs they create.
The ACA encourages everyone to get health care insurance by punishing those who don’t. The premium costs and health care coverage of these insurance policies are regulated. Anyone who refuses to buy health insurance or doesn’t get it through their employer must pay a fine of 2.5% of their income or $2,085, whichever is larger.
Businesses with at least 50 full-time equivalent (FTE) employees are required to provide health care for their full-time workers or pay a total yearly fine of $2,000 per each employee they have in excess of 30.
Full time is defined as working 30 or more hours per week. Part-time workers are also counted toward the 50-employee cap by taking the number of hours they work per month divided by 120 hours.
Although part-time workers are counted to determine size, they are not counted when determining the penalty to the firm. As a result, firms have an incentive to keep part-time workers, thus avoiding paying a fine for them, even if they have over 50 FTE employees.
Companies with fewer than 50 FTE employees are exempt from these fines as well as many other burdensome federal employment regulations. Economically, this is fortunate. Most hiring happens in smaller firms, whereas larger firms often consolidate their workforce to reduce expenses. Burdening small firms would have extended unemployment even longer.
These smaller companies have a great incentive to keep their employees under this magic number. We heard that one local firm told the business manager that if he allowed the hiring of a 50th employee, he would be fired to bring the number back under the limit.
Multiple-location restaurants are caught in the worst situation. Like smaller firms they are locally owned and run. But unlike small firms, they are employee heavy and often exceed 50 FTEs. These firms are required to comply with the Obamacare regulations for all of their full-time workers.
These regulations require either purchasing health care for each full-time employee or paying the $2,000 fine per each full-time employee over 30.
If firms don’t purchase health care, they are subject to the penalty. Even smaller companies with just 20 full-time employees or 50 FTE employees will owe a $40,000 annual fine. Larger businesses with 530 full-time employees will owe $1 million. Purchasing health care for employees is even more expensive because government regulations more than double the cost of health care on younger workers.
Because the penalty does not apply to part-time employees, economic self-defense has many firms forcing their employees to work less than 30 hours a week regardless of their preference or availability. This trend seems to be universal even here in Charlottesville.
We hesitate to name all the businesses in town that are cutting employee hours below 30. Even though the list includes almost all major franchises, most firms have been smart enough to keep the changes as quiet as possible.
When employers have revealed these changes, the backlash and boycotts have been harsh and vitriolic from liberals. Their reaction lacks any sympathy for the economic burdens dumped on business owners.
Imagine a business that pays $10 an hour for each employee. Three workers working part time at 27 hours per week cost $810 per week plus the additional cost of training each of them. Two workers working full time at 40 hours per week cost $800, and their training costs comparatively less.
Before Obamacare, businesses made the obvious choice of giving fewer people full-time employment to reduce the cost of training additional people. This was a win for everyone. The employee had the ease of only working one job, and the business had fewer training costs.
However, under Obamacare, if the business has more than 50 employees, there is a $2,000 fine on each full-time employee. Suddenly, two full-time workers cost an additional $4,000. Even if a 50-employee firm can change just 20 of their full time workers into FTE employees, they can save themselves $40,000 per year.
The $4,000 fine can be avoided by shifting the two full-time employees to part time and then hiring and training a third. These workers have to respond by finding a second employer to pick up their extra hours.
This is part of the reason why employment statistics show part-time employment on the rise while the number of hours being worked remains constant. It also explains the economic benefits of outsourcing, sending jobs overseas or using technology to replace workers. These alternatives to employment can save money by avoiding the Obamacare employer mandates even if they appear to cost more on paper.
The news media has mostly missed connecting the dots on this larger story. And critics question how companies can take these steps in good conscience. But companies did not force such absurd laws on the country.
The government has invented a coercive method of compliance in the form of a corporate fine, and it is completely understandable that corporations are trying to find a plan within the legislation that benefits them and allows them to remain in business despite the massive tax increases this year on entrepreneurs.
Most liberal reactions to stories like this are to rant about high corporate profits. Or they suggest the legislation is really doing businesses a favor by trying to keep their employees healthy and happy. I wish they would spare helping any more with such employment advice. Only the government can create legislation designed to increase health care coverage whose effect has been to reduce the likelihood that people will be covered.
Meanwhile, over the past three years, the harm to employment has caused countless families to foreclose on their homes, fail to achieve their economic goals and patch together subsistence employment. The ACA has made health insurance less universal and less affordable. So much for trying to meet the health care needs of the people.
This blog post is part of “The Economics Of Healthcare series“.