A key requirements under the Affordable Care Act (Pub. L. 111-148) is that employees working at least 30 hour have access to an affordable health care plan that offers a certain threshold of value or benefits, Tracy Watts, national leader on health care reform at the consulting firm Mercer, said April 30 at the 2013 WorldatWork Total Rewards Conference in Philadelphia.

Employers that are uncertain about dropping full-time workers from payrolls need to consider all the ramifications, not just the initial cost benefit, said Stefan Gaertner,  a principal at the consulting firm Mercer. 

According to Mercer survey data, more than 90 percent of large employers plan to continue to offer health plan coverage to employees, but many are expecting much higher health care costs starting in 2014, when the mandate comes into effect, Watts said, especially employers in the retail and hospitality and health care services sectors that have high populations of workers that are not covered under an employer plan.

Of those employers most affected by the mandate more than half said they would consider changing their workforce makeup to part time from full time to avoid the coverage requirement, Watts said. About 25 percent plan to offer a lower-cost program, she said.

Watts outlined five strategies employers can consider under these circumstances to potentially avoid higher health care costs, either through applying coverage or paying a penalty for not covering workers:

• Offer only subsidized individual coverage. The minimum value benchmark can be met with more room to design in more value and still have costs below continuing current plans.

• Offer a lower cost plan that meets the minimum essential coverage benefits requirement, though this is not a generous plan. A company could face potential tax penalties because the value would be less than the required benchmark. Employers could avoid the tax if this particular plan were offered alongside a more generous health care option that meets affordability requirements, Watts said.
• Employers could limit eligibility to exclude spouses. Spouses can be excluded from the plan, but dependents cannot be excluded. Watts did not recommend that employers consider this for existing covered populations, however.
•  Employers can segment populations of workers—removing part timers from the equation and not offer health coverage to them.
•  Employers could apply defined-contribution aspects to provide health care coverage via private exchanges. Mercer and other consulting firms and insurance organizations are offering this as an option. Watts recommended that employers package all benefits together, not just health care components, into one package under the defined-contribution plan. Such a move would allow workers to pick and choose the level of benefit for health they desire, all while meeting the ACA’s coverage requirement.

With the 2014 requirement nearing for coverage, employers need to anticipate how employers will be impacted by whatever strategy employed, and effectively communicate the options, Watts said.

While the straight-line cost savings of reducing full-time staffing to part time, employment of less than  30 hours a week is real, employers considering this option need to assess other impacts on the business before embarking on such an endeavor, Gaertner said.

 Employers need to understand that a reduction in the number of full-time workers likely would increase the number of overall workers to administer and likely result in higher turnover and recruitment costs, Gaertner said.

Past experiences and statistics show that productivity levels drop off, and waste and errors increase, Gaertner said. For example, in a recent case study, an employer estimated a direct cost savings of $5 million from reducing staff hours to part-time employment, but ended up losing about $30 million in these other areas, dramatically affecting profitability. Public relations also could affect the bottom line, especially in retail or service establishments, Gaertner said.

Employers can make these assessments statistically by assessing three conditions: the relationship to business results, whether changes can withstand the test of time, and by not considering the single move in isolation, Gaertner said.

Employers need to get the facts before they act, Gaertner said. 

By Michael Baer