Effects of Obamacare's employer mandate remain uncertain

MILWAUKEE – Eric Wagner estimates that the cost of providing health benefits at his business could rise at least 50 percent this year, possibly as much as 100 percent.

Yet Wagner, the chief executive of the company that operates five restaurants in the Milwaukee area, is sticking with his plan to add two more restaurants in the coming year. And he has no intention to cut employees' hours, despite the controversial provision in the Affordable Care Act that requires businesses with 100 or more full-time workers to offer health insurance.

"We want to attract the best people possible," Wagner said.

Fears that employers would duck the requirement by reducing workers' hours to make them part-time employees don't seem to have played out on any noticeable scale so far.

But the requirement still is strongly opposed by some businesses, and whether it increases the number of Americans with health insurance remains to be seen.

"There is this element of the unknown," said Rich Yurkowitz, a health benefits consultant and actuary with Aon Hewitt, a benefits consulting company. "For some employers, there is little risk. For others, there is significant risk."

Retailers and restaurants have been among the strongest opponents, particularly of the law's definition of full-time work as 30 or more hours a week.

"Restaurant companies are going to take a big hit here, because they have so many employees," said Wagner, whose company employs 450 to 500 people, with 100 to 125 working full time. "We are probably impacted by it as much or more than any other industry."

Most of the companies affected this year already offer health benefits – 94 percent of those with 100 to 999 employees and 99.5 percent of those with 1,000 or more employees did in 2012.

That will change next year when the requirement applies to those with the equivalent of at least 50 full-time employees.

What might matter more than requiring larger employers to offer health benefits is the law's defining full-time employees as anyone who works on average at least 30 hours a week.

One study estimated that 2.6 million people – or 3 percent of the U.S. workforce – work 30 to 36 hours a week and did not receive health insurance through an employer.

"Employers are struggling with how to manage that, and one way they manage that is to have employees work 29 hours or less," said Leigh Riley, a lawyer with Foley & Lardner.

But that, too, has a cost.

Employers would have to hire more part-time workers, and recruiting and training new employees costs money. It also could prompt some employees to look for work elsewhere, increasing turnover. And employing more part-time workers adds to the challenge of scheduling workers and running a business.

"We certainly are telling our clients that they need to do a cost-benefit analysis," Riley said.

The provision basically requires employers who don't offer health benefits to at least 70 percent of their full-time employees to pay a penalty of $2,084 for each full-time worker this year. Other employers could face a penalty of $3,126 for each worker who receives a federal subsidy to help buy a health plan on a marketplace set up under the Affordable Care Act.

That's the shorthand version. The details are considerably more complicated.

The provision has been a prime target for the law's opponents, and Republicans are almost certain to use their control of Congress this year to push for its repeal. Some Democrats also are receptive to ending the requirement.

Opponents have long contended the employer mandate will limit hiring and hinder the economic recovery.

Some employers have said they were cutting jobs because of the law, according to several surveys. But the economy has shown signs of gaining strength just as the mandate was about to go into effect, last year posting the strongest employment growth since 1999.

In addition to retailers and restaurant groups, the mandate could particularly affect call centers, temporary staffing companies, home care agencies, nursing homes and others with high percentages of low-wage workers. But the effect will vary, even for companies in the same industry, from employer to employer.

"To some extent, it depends on what a business can afford," said Peter Hanson, a spokesman for the Wisconsin Restaurant Association.

Lutheran Home, a memory care assisted living center outside Milwaukee, doesn't expect any real effect from the new requirements, though more employees have signed up for coverage, said Sharon Braun, vice president of employee services there.

Lutheran Home employs about 485 people, with about 350 working full time. About 206 employees are on the health plan. Employees pay about $150 a month for single coverage.

Braun doesn't oppose the requirement that employers offer health benefits.

"I believe it is a positive for employees," she said. "People should have coverage."

But she knows that even with Lutheran Home paying much of the premium, the cost still is high for some workers. Certified nursing assistants, for instance, make about $12.50 an hour on average, or about $26,000 a year.

Newcastle Place Retirement Community, also in a Milwaukee suburb, likewise expects little effect from the new requirement, said Julie Bissonnette, its executive director.

The retirement community employs the equivalent of about 140 full-time employees, and slightly fewer than 100 are eligible for benefits.

The biggest challenge, Bissonnette said, has been the reporting requirements.

"It's just a matter of staying on top of it," she said.

That's a common complaint – or lament.

"It's hard to describe how complicated is," said Wagner, the restaurateur who once worked as a certified public accountant for a major accounting firm.

How does an employer, for instance, account for seasonal employees?

"It seems ridiculous to say, but it gets incredibly complicated to figure out who's full time and who's part time," Wagner said.

As employers wrestle with the provision's complexity, it remains unclear whether the employer mandate will lead to more people having health insurance. For one thing, an employer has to offer only single coverage, not the much more expensive family coverage.

Employers also can avoid the penalty – and much of the cost of providing health benefits – by offering a health plan that meets the law's minimum requirements, but that few low-wage workers sign up for because their share of the premium would be high relative to their wages and the plan would offer limited coverage.

"In my opinion, there is no reason any employer should pay the $2,000 penalty," said Matt Weimer, director of strategic solutions for Diversified Insurance Solutions.

At the same time, some workers may be able to get less expensive coverage by buying a subsidized health plan through the marketplace. Yet under the law, they are not eligible for the federal subsidy if their employer offers health benefits that meet the minimum requirements.

The same goes for their spouses – and here an obvious flaw, known as the "family glitch," exists in the law:

When an employer offers single coverage, meeting the law's minimum requirements, the worker's family isn't eligible for the federal subsidies available to help buy a health plan on the online marketplaces.

In Wisconsin, the glitch will affect spouses but few children, because the BadgerCare Plus program covers children in households with incomes of up to 300 percent of the federal poverty level – $71,550 for a family of four.

That's just one of many fixes needed.

The employer mandate in the law "cries out for repair," Timothy Jost, an expert on the Affordable Care Act and law professor at Washington and Lee University in Virginia, wrote last summer in a post for the website of Health Affairs, a policy journal.

Even as larger employers adjust to the new requirements and costs of the mandate, its future is uncertain given the political climate in Washington.

Thomas Miller, a resident fellow at the American Enterprise Institute, said the provision doesn't have any strong defenders.

"It's one of the more vulnerable pieces," he said.

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