I recently received an email pitch for a Change.org petition:
My name is “Sue,” and I work at Staples. I can’t tell you my full name because I’m afraid I’ll lose my job for what I’m about to tell you: Staples recently decided to cut part-time employees’ hours just so they won’t have to provide health care benefits under Obamacare.
Staples is taking advantage of a loophole in the health care law that says employers don’t have to provide coverage for employees who work less than 30 hours a week. Staples also told managers to hire more part time workers if they need people to cover the schedule.
I’ve worked as an Easy-Tech Representative for 9 years now, selling thousands of computers, protection plans, and services. I typically work 30-35 hours in a week, so when I was told that my hours would be cut, I was heartbroken. I recently got married and we have a baby on the way — 25 hours a week is not enough to make ends meet, let alone start a family.
I’m sorry to hear that Sue’s hours have been cut, especially with a child on the way, and especially if she’s a real person and not just some activist concocting a scenario to gain sympathy. She has my sympathies, and I hope she is successful at finding ways to improve her income. But I don’t much care for her letter.
It’s disingenuous to say “Staples is taking advantage of a loophole.” The cutoff for requiring coverage is not a loophole; it’s an intrinsic part of the design of the Affordable Care Act (ACA). The basic problem is that health insurance costs the same fixed amount of money per week regardless of how many hours you work.
For example, Glassdoor.com reports that Staples EasyTech employees like Sue earn as much as $14 per hour. If she worked a full 40-hour week, that would multiply out as a cost to Staples of $560 per week.
Assuming Sue started work at the age of 18, she’s about 27 years old right now. Making a few more guesses about her, I got a quote at ehealthinsurance.com for the cheapest coverage I could find, a Blue Cross Bronze PPO with a $6000 deductible for $122 dollars per month. If Staples paid for that coverage, it would work out to an extra $30.50 per week (using 4-week months to simplify the math). If she worked a full 40 hours per week, that would raise her hourly cost to Staples from $14 to $14.76, an increase of 76 cents an hour or about 5.5%. That’s fairly high for a non-merit raise these days, but it’s not too absurd, and it works out to a weekly cost for 40 hours of labor of about $590.50.
On the other hand, if Sue only worked 20 hours per week and the ACA still forced Staples to buy her health insurance, she would cost Staples $280/week in wages and $30.50 per week in insurance, for a total of $310.50, which works out to about $15.53/hr, equivalent to giving her an almost 11% raise. To get a full 40 hours worth of work done, Staples would also have to hire another 20-hour worker for another $310.50 a week, for a total cost of $621 (up from $560 for Sue without insurance).
Pushing the example to the limits of absurdity, consider what happens if Sue only works 1 hour a week. An entire week’s worth of health insurance would get charged to that hour, raising her effective wage to $44.50/hour, an almost 218% increase in costs. Getting 40 hours worth of work done with 40 employees working 1-hour each would cost a whopping $1780 per week. When you compare that to the $560 it costs to fill 40 hours without insurance, it’s clear that this would be unsustainable. No company could afford such a huge increase in labor costs. They’d have to lay people off or go out of business.
The point is that requiring an employer to provide health insurance is equivalent to giving that employee a raise, and since health insurance costs do not diminish with hours worked, the fewer hours an employee works, the greater the equivalent raise, and the greater the burden of providing health insurance, compared to hiring the same employee for the same amount of time without providing insurance.
So forcing a company to give health insurance to full-time 40 hour/week employees might be reasonable, but forcing them to give health insurance to 1 hour/week employees would be destructive. Consequently, if we’re designing a law requiring employers to provide health insurance, we have to pick a point somewhere in between 40 hours and 1 hour where we’ll stop requiring health insurance if we want to avoid causing too much unemployment.
(We probably also want to set the threshold fairly high to handle the situation of people with two jobs. There’s no need for someone receiving insurance from their 30-hour day job to also receive insurance from their 12-hour night job.)
In any case, for whatever reason, the folks designing the Affordable Care Act decided to put the cutoff at 30 hours per week. For my hypothetical Sue, this raises her employer’s cost by just over 1 dollar per hour, or 7.26%.
Apparently, Staples didn’t want to give Sue a other workers like her a raise that large, so they cut her hours to bring her under the cutoff for mandatory insurance.
Note that I chose the numbers for this estimate conservatively. For example, if I assumed Sue was 10 years older and earning minimum wage, the math would be even worse: Giving her coverage at 30 hours/week would increase costs by more than 16%, which would have an even more severe effect on Staples’ staffing decisions. Also, I’m neglecting taxes, unemployment, workers comp, and other payroll costs to keep the math simple, but the basic principle still applies.
By signing my petition, you’ll be amplifying the voices of thousands of Staples employees across the country who are afraid to speak out and can’t afford to have their hours cut. Click here to sign my petition demanding Staples follow the law and provide health care instead of cutting part-time employees’ hours.
Staples is following the law. The relevant provisions of the Affordable Care Act are usually described as forcing employers to provide health insurance to employees working 30 or more hours, but there’s another equally valid way to describe it, and that’s to say that it prevents employers from letting uninsured employees work 30 or more hours per week. In other words, if you work more than 30 hours per week, and your employer doesn’t give you health insurance, the ACA makes your job illegal. Employers may choose to fix this by giving you healthcare, but they can also choose to fix this by eliminating your job or reducing your hours.
This is a common feature of many similar laws that require one group of people to provide benefits to another group of people. For example, the accessibility rules for wheelchair users in the Americans with Disabilities Act (ADA) are usually described as requiring places of public accommodation to be wheelchair accessible, but those rules can equally be described as preventing places that aren’t wheelchair accessible from being open to the public. When the ADA was passed, some businesses complied with it by remodeling, but other businesses complied with it by going out of business.
In the simplest terms, the ACA divides all employees into two classes: (A) Those who work less than 30 hours a week, and (B) those who work 30 or more hours per week. Then the ACA adds an insurance requirement for class B which makes employees in class B more expensive to hire. It’s a basic rule of economics that when the price of something goes up, the quantity purchased goes down, so it’s no surprise that making it more expensive to hire people for 30 or more hours per week will cause a reduction in the number of people who get hired for 30 or more hours per week.
This was a completely predictable consequence of the Affordable Care Act that critics (and honest proponents) have been predicting ever since the law was proposed.
Another way to look at it is that when the ACA forced Staples to provide health insurance to its employees, management had to figure out where to get the money to pay the premiums. They had only a few possible sources — stockholders, customers, suppliers, and other employees — and each of those groups is going to resist taking the loss, with various levels of success. Analyzing where exactly the burden will rest is a difficult economic problem, but clearly Staples has decided that at least some of the money used to provide health insurance to Sue’s coworkers will come from Sue.