US Cities Cut Employees' Work Hours to Avoid Paying for Obamacare

By Melissa Barnhart, Managing Editor Friday, August 23, 2013

Local governments across the country are facing the dilemma of cutting part-time employees' work hours to below 30 hours a week to avoid paying the increasing cost of health care under the Affordable Care Act (ACA).

Even though the Obama administration has postponed, until January 2015, the employer mandate that requires all companies, school districts and municipalities to provide health care for employees who work 30 hours a week or more, or face a penalty of $2,000 to $3,000 per worker, many have decided to reduce their employees' work hours this year.

In Middletown, N.J., for instance, Township Administrator Anthony Mercantante told the Asbury Park Press that part-time employees' hours have been reduced since May 1 to less than 30 hours a week, because, he said, "it's not clear how far back the federal government will look at employee hours. So to stay on the safe side, the township is making the move to reduce hours now."

Township officials estimate that without adjusting employees' hours, heath care costs would have increased by $775,000 per year.

Under the ACA, best known as Obamacare, working 30 hours a week is considered full-time employment.

Last month, Florida Today reported that employees in Brevard County who work an average 30 hours a week are already having their hours cut to avoid the $1.38 million annual costs to pay for employees' health insurance under the ACA.

Brevard County Library Service Department Director Jeff Thompson told Florida Today that 37 of his department's employees have already had their hours reduced to 28 hours, opposed to the recommended 25 hours per week.

"Obviously, what I'm hearing is that people are unhappy," Thompson said. "They naturally were very concerned. It is regrettable."

The impact is also being felt in Bee County, Texas, where part-time employees' work hours will be reduced to 24 hours a week starting Oct. 1. Similar accounts can be found in Virginia, where thousands of employees who work 30 hours a week will also have their hours cut.

In Chippewa County, Wis., County Administrator Frank Pascarella told WPR that because of the costs of the ACA, the county is "restructuring the departments to eliminate three-quarter time positions, and basically go to a part-time position," in order to avoid $163,000 in added insurance costs under the new law.

Douglas County, Wis., Administrator Andy Lisak also told WPR that officials are even more worried about the ACA's tax on Cadillac health plans, which is the term used to describe health care plans that cost more than $10,020 per year. These plans are expected to be taxed at 40 percent. According to Lisak, the tax would cost the county an additional $300,000 by 2018.

The Christian Post reported last month that for employers who are already making adjustments before the employer mandate goes into effect, some are hiring more part-time and fewer full-time workers to avoid the mandate, while others might decide its best for them to dump their current health care plans and pay the fines instead.

Ironically, the U.S. Supreme Court decision that saved the ACA by finding that the individual mandate is constitutional might have made this decision easier for companies. The Court decided that the mandate was constitutional, but not under the Commerce Clause, as Congress intended. Rather, the fines, Chief Justice John Roberts wrote for the majority, are a form of taxation. The individual mandate is, therefore, allowed under Congress' taxing power.

While companies may be reluctant to avoid the employer mandate if it is considered breaking the law and subject to fines, simply paying a "tax" makes avoiding the mandate more palatable.

Some companies will find it more cost-effective to pay the tax and let their employees get the government-subsidized insurance than provide the insurance itself. This will further increase the costs of the law.