“Forty Hours is Full-Time” Plan Would Only Make the Problem Worse
As part of the Republicans’ alternative to a minimum wage increase, Sen. Susan Collins (R-Maine) wants to move the threshold of who is covered by the employer responsibility provisions in the Affordable Care Act (ACA) from 30 to 40 hours a week. She and Sen. Joe Donnelly (D-Ind.) are the sponsors of a proposal, the Forty Hours is Full Time Act, that would do just that. They contend that this will keep employers from cutting work hours to avoid providing insurance or paying the employer penalty under the ACA. However, this so-called solution isn’t one at all. It would only lead to more workers having their hours and pay cut while increasing the number of workers who will lose job-based coverage – and shifting costs to the federal government.
Larger firms that do not offer affordable job-based coverage to employees working 30 hours a week or more must pay a penalty beginning in 2015 if any of these employees receive subsidized coverage through the new marketplaces. The provisions are designed to reduce the incentive for employers to drop coverage in response to the newly available health care subsidies and to help pay for the cost of the subsidies.
Under current law, we at the UC Berkeley Center for Labor Research and Education expect cuts in work hours to be restricted largely to people working just over 30 hours a week. It is not economically efficient for most employers to cut employees’ work hours to avoid the penalty. Doing so for workers currently working well above 30 hours a week would result in more turnover and expense for hiring, training, supervision and unemployment Insurance. We estimate that 2.3 million workers (1.8 percent of the workforce) would be especially vulnerable to work-hour reductions. These are people who work just above 30 hours a week, earn enough to make them eligible for federal programs, and do not already have coverage through their employer.
While this is a real problem for the workers who will be affected, the kicker is the Collins-Donnelly proposal would put millions more workers at risk. Overall, we estimate that 6.5 million employees would be immediately vulnerable to hour reductions under their proposal, nearly three times the number under current law. That’s because the cost of cutting hours from 40 to 39 hours a week would be negligible for the vast majority of employers and many more employees work 40 hours a week or more compared to those who work close to 30.
By effectively eliminating the employer penalty, this proposal would also result in more people losing job-based coverage. In July, the Congressional Budget Office estimated that the one- year delay in the employer penalty would mean one million fewer Americans with job-based coverage. Half would shift into subsidized coverage through a state or federal marketplace or onto Medicaid. The other half would become uninsured.
The Collins-Donnelly plan also has important implications for the federal budget. The CBO estimates that the employer penalty will bring in $140 billion in revenue between 2014 and 2023. Little if any of this revenue will be collected if the 40-hour change is made. Meanwhile, the additional federal cost of health care for those workers suddenly without coverage through their job would add to the fiscal pain.
The Affordable Care Act is a vital step toward expanding access to health coverage. Like any big new law, it is not perfect. To remove any incentive for firms to reduce work hours, Congress should pro-rate the penalty by hours worked and include part-time workers, as proposed in the original House health reform bill. A requirement by the City and County of San Francisco, for example, for firms to spend a minimum amount per worker per hour on health care, including part-time workers, has not measurably affected employment.
The Forty Hours is Full Time Act has the dubious distinction of making the problem it sets out to solve worse—while increasing the number of uninsured and increasing the federal deficit.