Firms With Many Part-Time Workers Weight Response To ACA Coverage Requirement

from Spencer’s Benefits Reports: As companies with large populations of part-time employees determine how they will proceed in response to the Patient Protection and Affordable Care Act (ACA) requirement to provide health insurance benefits to employees working at least 30 hours per week, they should consider the effect of their employment decisions not just on human resources costs but also on worker productivity and business results. This was a major recommendation from John Derse, a senior partner in the Chicago office of Mercer, during a Mercer-webcast on Hourly Workforces and Health Care Reform: Angst Or Opportunity? in mid-September.

Beginning in 2014, employers with at least 50 full-time employees working at least 30 hours weekly or 130 hours monthly, on average, must extend health care coverage to these employees or pay a penalty. One-fourth of the respondents to a Mercer survey of 1,203 employers said they will have to act to avoid penalties—ranging from 16 percent of financial services employers to 46 percent of retail and hospitality industry employers.

Firms with low populations of part-time employees likely will make those employees eligible for the full-time employee plans or add new, low-cost plans (68 percent). However, employers with large part-time employee populations that do not currently offer coverage to these workers are more inclined to change their workforce strategy so that fewer employees would be eligible (67 percent of these employers, compared with 41 percent of manufacturing industry firms), Mercer found. At two-thirds (66 percent) of employers in retail and hospitality industries, part-time employees represent at least 10 percent of their workforce. About half (51 percent) of these employers said they will change their workforce strategy so that fewer employees work 30 or more hours weekly.

However, a company that switched workers from full-time to part-time status saved $5 million in compensation and benefits, ultimately lost $30 million in productivity, possibly due to turnover and lower motivation, Stefan Gaertner, a principal in the Mercer Los Angeles office, reported. “It’s a cautionary tale, as a result of very dramatic changes to work processes,” he noted, suggesting that employers contemplating changes in workforce scheduling do scenario planning and consider the benefits along with the cost of full-time employment. “Understand your business model and how human capital affects the business,” Gaertner concluded. “Evaluate all the facts and consider the collateral benefits or damage using a labor and productivity analysis,” agreed Derse.

More than two-fifths (43 percent) of the retail and hospitality firms responding to the Mercer survey said their health care coverage will be considered unaffordable; thus, 60 percent said they will add a less expensive plan with lower employee contributions. The most common option (cited by 69 percent of the respondents) for the default plan for auto-enrollment will be their current health plan. About half (48 percent) said they would turn to a high deductible health plan (HDHP) with a health reimbursement arrangement (HRA) or a health savings account (HSA) and 29 percent already had such a plan in place. Thirty percent of these respondents said they would implement an HDHP with either and HRA or HSA as the only option.

In IRS Notice 2012-58, the IRS describes safe harbor methods that employers may use voluntarily to determine which employees are treated as full-time employees for purposes of the ACA shared employer responsibility provisions. For variable hour and seasonal employees, the safe harbor provides the following:

• Allows a “look-back” measurement period of three to 12 months to determine the average hours employees have worked;
• Requires a “stability” period of at least six months (but no less than the measurement period) when an employee who is determined to work 30 or more hours must be offered coverage; and
• Allows an administration period of up to 60 days to the date when the employee coverage must be effective.

It is to employers’ advantage to obtain a more balanced view of work patterns to use a longer look back and measurement period to determine full-time status and eligibility for health insurance benefits, commented Amy Berner, a Mercer partner and attorney in the Washington, D.C. office.

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