OPINION: For Employers, Obamacare Penalties Abound
When is a win-win actually a lose-lose?
When it comes to the increased trend of adding part-time jobs under Obamacare.
That argument is taken from the position of the employer, usually the small-business owner who has to adjust her growth plans to not cross the 50-worker, full-time threshold that requires companies to provide qualifying health plans to its workers or face the penalties known officially as the "shared responsibility payments." By hiring more part-timers, in theory, companies save money by paying workers less and not paying for health insurance.
That immediate benefit visited on the employer is easy to understand. But the part-time worker doesn't necessarily suffer. It's a more complicated argument, but the flip side is that employees may not want to work full-time hours anyway because, under the economics of Obamacare, they can bring home the same amount of money working part time as they did full time -- and still get benefits.
From an employee's perspective, full-time work traditionally is preferable for two reasons: you make more and you receive benefits. But, under Obamacare, part-time workers conceivably can have the same amount of take-home pay and health insurance to boot, according to University of Chicago economist Casey Mulligan, who wrote about the situation recently in The New York Times.
It all comes down to the cost of private insurance. A person who makes $42,000 a year working 40 hours has an actual employer cost of $56,000, because private health insurance costs the company $9,333 a year while the employee pays an additional $4,667 in premiums. After factoring in health and work expenses, that employee takes home $34,000, according to Mulligan.
But, cut that same employee to 30 hours, and that employee costs the employer $42,000 (a "savings" for the company of $14,000), since there are no benefits to support. Because of caps and incentives in Obamacare, even with contributions from the employee, these workers would take home $33,908 a year, or almost the same as if they worked 40 hours.
It actually gets crazier the wider you define what qualifies for part-time status. Mulligan notes a proposal to define part-timers as those working 39 hours or fewer. Using his same model, that same employee who took home $34,000 working full time would take home $41,063 simply by shaving an hour off his workweek.
So, is that a win-win? After all, employers avoid the Obamacare penalties while also lowering the cost burden of hiring workers. At the same time, the workers themselves see no impact in their paychecks. If anything, they can knock off an hour early on Fridays and bring home more money.
Actually, it is a lose-lose. For employers, absent a marked increase in per-worker productivity, they find themselves with lowered output and the need to add additional staff, which, because of the restrictions of Obamacare, will undoubtedly have to be more part-timers. From a budget perspective, that hiring would otherwise be unnecessary and would therefore hurt profitability.
For the employee, Mulligan's model suggests an economic disincentive that isn't sustainable. "It's one thing for public policies to present workers with a small reward for working full time," Mulligan wrote. But, Obamacare risks putting "millions of people in the position of having to pay -- in the form of less disposable income -- for the privilege of working full time," he said.
Most importantly, for both the employer and the employee, there is the reminder that someone always pays something. So, if an employer is not paying for health benefits, and an employee is paying less for those same benefits herself, does it magically mean that no one bears that cost?
Of course not. The federal government ultimately assumes that burden. Governments derive their revenue from taxation. The more employers and employees transfer the cost of care to the government, the higher taxes need to be to support that growth.
Lawmakers traditionally hit businesses first when it comes to higher taxes. Corporate profits are the low-hanging fruit of tax hikes. For the business owner, that means less profit to reinvest in equipment, marketing, sales and, yes, workers -- part-time or otherwise.
You can only go so far taxing companies. Invariably, individual income taxes would have to rise, as well. That means less disposable income for the employees, as the IRS takes more of take-home pay. That would, for the worker, wipe out any benefit of getting health insurance under Obamacare.
Perversely, the only way it works is by penalizing companies into hiring more full-timers. Workers who face higher individual rates may decide it is preferable for lower salary and wages to avoid taxation, so they go back to looking for full-time work with benefits. Businesses can then reduce part-time positions into fewer full-time ones, boosting productivity while also saving the government the cost of paying for health benefits.
Of course, they have to be careful not to hire more than 50 workers or they are penalized again. And then the cycle starts anew.
That's why businesses have been so critical of Obamacare. And why, while the debate rages over its efficacy, few will argue with the contention that, from an economic-modelling standpoint, the Affordable Care Act really hasn't been that well thought out.