Obamacare’s rhetoric vs. its reality

By Robert J. Samuelson,

Just recently, the Internal Revenue Service issued an 18-page, single-spaced notice explaining how to distinguish between full-time and part-time workers under the Affordable Care Act (“Obamacare”). The difference matters, because the act requires employers with 50 or more full-time workers to provide health insurance for those workers. At the same time, no company has to buy insurance for part-time employees, defined as those working less than 30 hours a week.

Here’s a sample:

This notice expands the safe harbor method described in a previous notice to provide employers the option to use a look-back measurement period of up to 12 months to determine whether new variable hour employees or seasonal employees are full-time employees, without being subject to a payment under section 4980H for this period with respect to those employees.

Obamacare has faded as a campaign issue, perhaps because it doesn’t suit either the president or Mitt Romney. It’s not popular, a minus for Barack Obama. Its resemblance to Romney’s Massachusetts program is a minus for him. But Obamacare’s relentless march to full-fledged introduction in 2014 demonstrates that, for all its good intentions, it will make the health-care system more confusing (see above), costly and contentious. It won’t control health spending — the system’s main problem — and will weaken job creation.

Consider the treatment of full-time and part-time workers as an object lesson.

Exempting part-time workers is a concession to practicality. If companies had to provide insurance for all part-time and seasonal workers — often unskilled and poorly paid — the high costs (a worker-only insurance policy can run more than $5,000) would eliminate many jobs or inspire mass evasion. On the other hand, exempting too many “part-time” and “seasonal” workers would make achieving near-universal insurance coverage much harder.

So there’s a balancing act: preserving jobs vs. providing insurance. The problem isn’t small. In September, 34 million workers, about a quarter of total workers, were part-time, reports the Bureau of Labor Statistics. But the bureau defines part time as less than 35 hours a week; Obamacare’s 30 hours a week was presumably adopted to expand insurance coverage. There are now 10 million workers averaging between 30 and 34 hours a week. To the bureau, they are part-time; under Obamacare, they’re full-time.

Employers have a huge incentive to hold workers under the 30-hour weekly threshold. The requirement to provide insurance above that acts as a steep employment tax. Companies will try to minimize the tax. The most vulnerable workers are the poorest and least skilled who can be most easily replaced and for whom insurance costs loom largest. Indeed, the adjustment has already started.

As first reported in the Orlando Sentinel, Darden Restaurants — owners of about 2,000 outlets, including the Red Lobster and Olive Garden chains — is studying ways to shift more employees under the 30-hour ceiling. About three-quarters of its 185,000 workers are already under, says spokesman Rich Jeffers. The question is “can we go higher and still deliver a great [eating] experience.” The financial stakes are sizable. Suppose Darden moves 1,000 servers under 30 hours and avoids paying $5,000 insurance for each. The annual savings: $5 million.

As a reaction to Obamacare, this makes business sense, but in other ways, it doesn’t. Waiters and waitresses going below 30 hours a week will lose income. They make about $15 an hour with tips, says Jeffers. A server who drops five hours would lose $75 a week. Although some servers under the limit might increase their hours and incomes, jobs will become less attractive because earnings will be effectively capped. Turnover, already 50 percent annually, might rise, as would Darden’s training costs. On average, servers receive 35 hours of training, says Jeffers.

Many companies, especially in the fast-food, retailing and hotel industries, will explore similar changes. Some workers will resent the limits on their wages. Others will think that companies have illegally denied them insurance, even though the IRS guidelines permit much flexibility in calculating who exceeds the 30-hour limit. That’s why the IRS notice is so long and complex. Still, some firms will cheat; enforcement will be hard.

The argument about Obamacare is often framed as a moral issue. It’s the caring and compassionate against the cruel and heartless. That’s the rhetoric; the reality is different. Many of us who oppose Obamacare don’t do so because we enjoy seeing people suffer. We believe that, in an ideal world, everyone would have insurance. But we also think that Obamacare has huge drawbacks that outweigh its plausible benefits.

It creates powerful pressures against companies hiring full-time workers — precisely the wrong approach after the worst economic slump since the Depression. There will be more bewildering regulations, more regulatory uncertainties, more unintended side effects and more disappointments. A costly and opaque system will become more so.

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