Redefine ACA’s Definition Of Full-Time Employee To 40 Hours Per Week, Hearing Witnesses Say

Reductions in employees’ hours, increased costs, and reporting burdens are some of the consequences for employers as a result of the Patient Protection and Affordable Care Act’s (ACA) definition of full-time employee, according to witnesses at a House Committee on Ways and Means hearing on the impact of the definition on jobs and opportunities. The ACA defines full-time employment as 30 hours per week for purposes of the employer mandate, which takes effect on Jan. 1, 2015.

Background. The ACA requires that employers with more than 50 full-time employees (FTE) offer health coverage to their workers or be subject to one of two new penalties. First, employers that do not offer qualified health insurance and have at least one employee receiving a tax credit for insurance through an health insurance exchange are subject to a $2,000 penalty for each FTE in excess of the first 30. Second, employers who offer insurance that fails to meet an affordability standard are required to pay a penalty for every employee who receives a tax credit to purchase coverage through an exchange. This penalty will equal the lesser of (1) $3,000 per employee who receives subsidized coverage in the exchange; or (2) the penalty tax the employer would have to pay if it did not offer health insurance (described above).

Workforce changes. Hearing witnesses testified that the 30-hour rule impacts employers’ economic incentives to hire or retain workers. Peter Anastos, owner and co-founder of Maine Course Hospitality Group, stated in written testimony that “a recent study of franchise owners by the International Franchise Association revealed that 31 percent of franchise owners have already reduced worker hours and 27 percent have already replaced full-time workers with part time ones, a full year before the employer mandate is set to take effect.”

“These statistics are discouraging, and they show that the employer mandate provides perverse incentives for many employers who are now forced to choose between covering their employees and making workforce changes to stay competitive in business,” according to Anastos.

Thomas J. Snyder, president of Ivy Tech Community College, echoed Anastos’ comments about the 30-hour rule’s impact on staffing. The college has an adjunct faculty team of more than 4,500. To comply with the rule, the college has limited the hours that adjunct faculty can teach. As a result, they are facing the challenge of finding additional credentialed faculty in certain disciplines. Failure to do so would result in classes being cancelled, Snyder noted.

Not everyone agrees about the rule’s impact, however. One witness testified that there is considerable evidence that the concern about creating an incentive for firms to keep workers’ hours below 30 has been overstated. Citing labor market studies on the impact of health insurance mandates in Hawaii and Massachusetts, Helen Levy, research associate professor at the University of Michigan Institute for Social Research, School of Public Health, and Gerald R. Ford School of Public Policy, said in a written statement that “the best evidence that we have suggests that the ACA—including the 30 hour rule—is likely to have very little effect on labor demand, relative to the size of the labor market. Moreover, the evidence suggests that there may be significant positive effects on the labor market, primarily through the alleviation of job lock. Any costs to the labor market must be weighed against the benefits that the ACA offers not only for the millions of uninsured who will gain coverage, but also for labor markets.”

Cost increases, administrative burdens. Additional concerns raised at the hearing included the increased costs and reporting and recordkeeping burdens due to the 30-hour rule.

One witness noted that costs will go up because employers that currently offer coverage must extend it to additional employees. “Given the individual mandate and the anticipated expense of plans in federal and state-level health insurance exchanges, employers may see many of their employees who are working between 30 and 40 hours per week electing coverage. For employers, these costs are added to expected increases in health costs caused by other components of the ACA, and health inflation more generally,” said Lanhee Chen, Ph.D., a research fellow at the Hoover Institution.

Employers also face significant new recordkeeping and reporting requirements in complying with the 30-hour rule, Chen said. Pursuant to IRS regulations, employers must determine whether each employee averaged at least 30 hours of service per week during a “measurement period” and then apply that determination during a subsequent “stability period.”

“Furthermore, recordkeeping requirements vary based on whether employees are ‘new’ or ‘ongoing’ employees and, in the case of new employees, whether they are expected to work full- time or are ‘variable’ or ‘seasonal’ employees. Thus, many employers—particularly larger ones—will be faced with the administrative difficulties associated with tracking many different initial measurement and stability periods,” according to Chen.

Definition of full-time. The majority of witnesses urged the committee to redefine full-time employee in the ACA to 40 hours per week. They noted that the 40-hour workweek standard has been in place for decades and is consistent with federal overtime rules. Several bills have been introduced to make the change.

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