Will Firms Cut Jobs — or Benefits — Under ACA? Weighing the Evidence

More than three years ago, Whole Foods founder John Mackey presented his “alternative to ObamaCare” in the pages of the Wall Street Journal: Shift more spending power to patients. Reform malpractice laws and Medicare payment. Eat healthier.

Whether well-intentioned guidance or tin-eared political criticism, Whole Foods customers weren’t thrilled. The op-ed helped spark a minor boycott and led Mackey to furiously backpedal within a few days, charging that the Journal had slapped a more controversial headline on his original essay.

But Mackey may have been ahead of the curve. More business leaders — especially in the food and retail sectors — are speaking out about the Affordable Care Act, suggesting that the law is going to hurt their bottom line.

In recent months, the CEO of Papa John’s suggested he’d add an Obamacare surcharge onto the price of his company’s pizzas, an announcement echoed by a Denny’s franchisee. A major Applebee’s franchise owner even said he’d cut back on hiring.  

Changing Definition of Part-Time Work

The main reason that employers are scrambling: Beginning in 2014, large firms will be expected to provide health coverage to full-time workers — or face new penalties under the ACA.

But beyond the broadly reported health coverage mandate, the ACA contains a raft of regulations that will change how businesses operate. For example, the IRS currently defines “part-time” employment as fewer than 35 hours per week; the ACA reduces that threshold to 30 hours. As a result, about 10 million American workers who are currently considered part-time labor would be reclassified as full-time employees.

Taken together, that means Obamacare is emerging as a full-time headache for companies that don’t offer health coverage and tend to employ workers who could conceivably go part-time. Should the companies expand their health benefits, which may lead to reductions in other compensation? Or shrink the number of full-time employees, and possibly replace them with part-time labor?

Restaurants are especially vulnerable to these changes, given their historical employment model. Servers and other staff tend to lack health insurance, and their shifts can be flexed up and down. As a result, companies like Darden Restaurants — which operates Red Lobster and Olive Garden — have openly experimented with new hiring patterns.

Employers in other industries are proactively making changes, too. A campuswide memo issued by Youngstown State University last week starkly spells out a plan to save dollars — by cutting adjunct professors’ hours to ensure that they fall below ACA mandates.

Businesses have another option, of course: Drop health coverage and take the ACA’s penalties. Surveys from Deloitte and McKinsey have suggested that somewhere between 10% and 30% of employers will end employee health benefits.

Possible Shift to More Part-Time Labor

But an emerging school of thought, especially in conservative circles, is that the ACA will lead more employers to shift to part-time labor or shed workers altogether.

Robert Samuelson explores one object lesson in the Washington Post. “Suppose Darden [Restaurants] moves 1,000 servers under 30 hours and avoids paying $5,000 insurance for each,” Samuelson writes. “The annual savings: $5 million.”

But Samuelson concedes that any change to workers’ hours may have ripple effects. Employees won’t be happy to lose compensation. Employers may see a measurable decline in quality by relying on more part-time workers with less familiarity with the business or training.

And writing at the New Republic, MIT economics professor Jonathan Gruber suggests that concerns about Obamacare’s impact on jobs are overblown.

“What few realize is that, by expanding insurance coverage, the law will also increase economic activity,” according to Gruber. “These newly insured individuals will demand more medical care than when they were uninsured,” creating additional demand for health workers with trickle-down effects on the rest of the economy.

Arguments That Coverage Will Remain

Meanwhile, there’s a real question over whether businesses will dramatically cut back on their health coverage, after a long tradition of offering benefits. That hasn’t yet happened in Massachusetts, which remains the forerunner for national reforms.

Writing on the New York Times “Economix” blog, University of Chicago economics professor Casey Mulligan suggests that market forces will lead most employers to keep their health coverage after the ACA is implemented.

RAND’s Art Kellerman adds that while surveys like Deloitte’s and McKinsey’s do a good job of measuring attitudes today, they may be less accurate predictors of what business leaders will choose to do once they’re forced to make an actual decision.

“When I tell [my wife] that I plan to mow the lawn this weekend, she doesn’t accept that as a firm prediction,” Kellerman notes. “Experience has taught her that when the time comes, I may make a different decision.”

Cost to Employers’ Reputations — or Not?

Darden on Monday warned that it may take a hit for the critical media coverage it received for its decisions related to the ACA.

The announcement seemingly underscores a trend that began with Mackey: When food company CEOs talk about Obamacare, it’s a recipe for disaster.

For example, there’s been a measurable backlash against companies that have spoken out against the law, the Washington Post‘s Sarah Kliff writes on “Wonkblog.” Pointing to new data from YouGov that show favorability scores for Papa John’s, Denny’s and other companies, Kliff says there’s a lesson for employers on “how not to succeed in business: Promise to dodge Obamacare mandates.”

But on closer inspection, the long-term impact of criticizing the ACA on an employer’s reputation — or where people choose to buy pizza — may be less than first thought. Papa John’s says that a different branding score compiled by YouGov shows that the company’s reputation has only improved in recent weeks.

And Whole Foods? Its stock closed at $92 on Tuesday — or more than three times where it traded before Mackey opened his mouth back in 2009.

Here’s what else is happening around the nation.

Administration Actions

  • Since the enactment of the Affordable Care Act in 2010, 5.8 million Medicare beneficiaries have saved a total of $5 billion under a provision that requires drugmakers to provide discounts to those who reach the “doughnut hole” in the prescription drug benefit, according to an HHS announcement. The discounts helped beneficiaries save $1.86 billion on prescription drugs in the first 10 months of 2012, compared with $1.51 billion during the same period last year, HHS said (Kennedy, USA Today, 12/3).

Effects on Employers

  • In a recent issue brief, the Urban Institute found that a shift among small businesses to self-insured plans has the potential to “undermine the effectiveness of the [ACA’s] small-group reforms and to destabilize the market” (Rao, “Capsules,” Kaiser Health News, 11/28). Smaller employers might switch to self-insured plans to avoid certain requirements under the ACA, such as the law’s minimum “essential health benefits” and medical loss ratio rules (Reichard, CQ HealthBeat, 11/28).

The Medicaid Expansion

  • As governors prepare their state budget proposals, many are calculating whether they should participate in the Medicaid expansion under the ACA (Alonso-Zaldivar, AP/U-T San Diego, 12/2). In addition, some states are wondering if they could partly expand their Medicaid programs. However, some experts say even if the Obama administration allow a partial expansion, it might not have the legal authority to do so (Aizenman, Washington Post, 12/2).
  • Last week, Arizona Gov. Jan Brewer (R) announced that her state will not create a state-based insurance exchange, instead leaving the task to the federal government (AP/Washington Post, 11/28). Meanwhile, Missouri Gov. Jay Nixon (D) announced that his state will participate in the Medicaid expansion under the ACA, adding that he will include the Medicaid expansion in the state budget proposal he submits to lawmakers (Crisp, “Political Fix,” St. Louis Post-Dispatch, 11/29).

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