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Thursday, January 15, 2015

Behind the Full-Time Worker Debate: An Attack on Employer-Based Health Coverage

The first significant challenge to the Affordable Care Act in the new Congress—redefining a full-time worker from 30 to 40 hours a week—is headed to the Senate, where it has limited bipartisan support. Because it could prompt some employers to cut hours, changing the definition of full-time under the ACA could create a shift toward part-time work and increase government spending. Underlying this proposal is a fundamental opposition to the idea that employers bear responsibility for their employees’ health coverage. In today’s blog, we describe why employer-based health coverage is important and provide background on the ACA’s requirements for employers. 

The importance of employer responsibility for health coverage

For years, most Americans have obtained health insurance through their jobs. While the percentage of workers who get coverage this way is diminishing, a significant portion—54 percent, according to the U.S. Census Bureau—still gets health coverage through employers. Employer-based health coverage is a quirk of U.S. history; many nations provide coverage in other ways. But at this point, reducing employer responsibility would increase the number of uninsured Americans and federal spending on health care.

Background: What the Affordable Care Act requires of employers

Recognizing the significance of employer-based health coverage, the ACA requires large employers to either offer decent coverage to their full-time employees or make payments to the government that help offset the cost of insuring those employees under the ACA. If employees do not have offers of job-based coverage, they may instead buy coverage in the health insurance marketplace established by the ACA, where they may be eligible for financial help from the federal government in paying their monthly premiums. The employer responsibility provisions are therefore important protections that help preserve current coverage and limit costs to the government.

The law defines a full-time worker as one who works at least 30 hours per week on average. In 2016, when provisions are in full effect, the law applies to employers with 50 or more full-time employees (including full-time equivalents). These employers will be subject to penalty payments if they either:

  • Fail to provide coverage at all to at least 95 percent of their full-time employees and the dependents of those employees, and at least one full-time employee receives premium tax credits on the marketplace; OR
  • Fail to provide coverage that is affordable to their full-time employees (that is, coverage costs more than 9.5 percent of their wages), or fail to provide decent coverage that meets minimum standards, causing employees to instead apply for and receive premium tax credits to buy insurance on the marketplace.

For employers who don’t provide any coverage, the penalty is calculated based on the size of their workforce. For employers who fail to provide coverage that is decent and affordable, the penalty is based on the number of employees who receive premium tax credits, up to a cap. 

Rules give employers time for a gradual transition. For 2015, employers with 100 or more full-time employees must provide coverage to just 70 percent of their full-time employees (rather than the 95 percent that will be required after 2016) to avoid penalties.

Additionally, the rules give employers with 50-99 full-time employees (including full-time equivalents) until 2016 to comply. 

Changing the threshold for full-time to 40 hours would lead to more part-time work 

As we explained last week, changing the full-time threshold under the ACA from 30 hours to 40 hours per week could lead some employers to cut worker hours in order to avoid providing employees with health insurance, which would push many more Americans into the ranks of the uninsured. More workers would rely instead on publicly funded health programs such as Medicaid, CHIP, and premium subsidies from the health insurance marketplaces. Advocates for workers, such as the AFL-CIO, recommend that Congress act instead to strengthen employer responsibility requirements, not weaken them. [See the AFL-CIO’s letter to lawmakers urging them to vote against the proposal.]

Contrary to what supporters of the bills in Congress claim, there is no evidence that the ACA has caused an overall shift to part-time work. According to Census data, the share of employees with full-time work grew in 2013. An Urban Institute analysis of Current Population Survey data and a Center on Budget and Policy Priorities analysis of Bureau of Labor Statistics data reached similar conclusions.

Employers must do their part

The success of the ACA relies on a strong employer responsibility provision. Large businesses must do their part by covering employees. And if they do not, they should help pay for the cost of health insurance on the marketplace.