Work-A-Geddon: Preparing for ObamaCare
In 2014, the Patient Protection and Affordable Healthcare ACT (ACA) will mandate that companies employing more than 50 FTE employees provide healthcare coverage, or send employees to a subsidized insurance exchange and pay a penalty of $2000 per employee per year (with a few exemptions), or create a hybrid health insurance plan. Employers electing to provide health insurance may be subject to a penalty for any employee who finds it unaffordable (as defined by legislation) and receives an Exchange subsidy. Companies are faced with what a few describe as a cataclysmic choice to either pay, play or pray – play, by extending coverage or offer it for the first time to all employees, pay by electing not to provide coverage and simply pay a penalty or develop a hybrid plan. Some employers are considering more radical approaches, like the restructuring of the workforce itself by employing part-time and special workers – and by doing so, praying to avoid the costs AND penalty scenarios altogether.
The Affordable Healthcare Act (ACA) looms like a heavy cloud over hourly Corporate America with an impending gloom. For some, it's arguably worse: a giant benefits driven Doomsday comet speeding towards a frail economy just now awaking from its recessionary hangover. This regulatory comet is ready to impact the tenuous return to profits of weary hourly worker based businesses. Like any theatrical doomsday movie, the saga playing out in Corporate America is itself replete with Survivor mantras (“if this legislation isn’t repealed, we’re firing our workforce”), bunker-type mentalities (“we're waiting to see what happens”) and outright doomsayers holding signs proclaiming the “end is near” (or slapping a few nickels or quarters of “social” tax on the price of their pizzas).
Doomsday scenarios always produce a lot of noise, a lot of doom, and a lot of panic (remember the Millennial Y2K scare anyone?). The Affordable Healthcare Act is a bit different though – it’s a challenge worthy of concern, or at least apt contemplation. First, it’s not a theory or hypothesis or VW Minivan sized space rock hurtling towards the Earth, it’s the law - a Federal one at that - and its effects are already in motion. Effective 2014, companies meeting certain thresholds will need to offer their employees a minimum health benefits package or opt to pay a penalty. The preferred start time for initial planning for implementation of the Act’s provisions has passed – six months ago. We’re in countdown mode now.
What scares us most about this “Work-A-Geddon” (defined as a "workforce-related 'Armageddon-like' panic and sense of impending doom created by the passage of sweeping federal legislation with gigantic healthcare benefit requirements, rules and costs paired with relatively vague guidance”) is that there is already a mounting consensus amongst companies that there are only three responses:
Plan (a) - pay the freight and cover everyone mandated (even dependents if they’re included in the mandate);
Plan (b) - pay the penalty, or
Plan (c) – significantly restructure the workforce (i.e., replace full time employees with 29ers (that’s folks working less than 30 hours per week as a way to sneak under the 30-hour threshold triggering mandatory coverage or penalties). The other equally dramatic response we hear bantered about is targeting segments of the population that already carry alternate healthcare benefits around with them (like retirees, returning or retiring military, ex law enforcement etc.) Seems like a good idea, too good an idea, the kind of idea everyone is already on to – the kind that might evaporate before it’s even initiated.
These Plan (c) responses are gaining momentum, attention and early stage buy-in, and at Designs on Talent we’re particularly worried. Not because the solutions are unworkable, but because of the predictable “unintended consequences” of such ad hoc workforce restructurings – the kind of knee-jerk cost-driven hiring schemes that hinge on the implied principle of driving cost avoidance come what may and not worrying about the workforce effects of tomorrow. I read an article recently that challenged the very notion that hourly workers are scarce in manufacturing because of a “skills gap;” instead the article pressed the rational notion that hourly workers might be simply more interested taking a job for $14 an hour as a shift manager at a fast food restaurant than having to be retrained to work in a factory for $9 per hour. What happens to the aspirations and actions of those same hourly job pool candidates when we cut hours to part time to avoid healthcare benefits? How competitive does the field become then, and what kind of advantage attaches to the employer who maintains or extends coverage?
So, what’s a rational hourly employer with more than 50 employees and subject to the provisions of the ACA to do in the midst of all this hype, worry and benefits anxiety?
Consider the long-term cost trajectory as well as the short-term expense hit: The idea that hourly workers are interchangeable is workforce hogwash. Indeed, in world where 17 year olds know how to blog or tweet a bad experience at hotel or restaurant and force remuneration from management, the idea that workers are going to get duped out of benefits with a few workforce optimization restructures and an invitation to work part-time seems like the fantasy of finance analysts with over-eager spreadsheet tools. Workers won’t relish the idea of having to juggle multiple jobs just to claim minimal pay and basic benefits in an era when the new social expectation is that coverage of everyone is the new standard. Those employers standing outside the coverage circle, may also end up out-of-luck with affordable, committed hourly workers – and the cost of losing that worker trust may well exceed the cost of implementing or extending coverage under the ACA.
Half the hours and double the trouble: For those seriously considering adding part-time workers who fall below the 30-hour weekly water mark, the workforce implications deserve due attention. Adding part-timers means added headaches, added scheduling issues, added recruiting and hiring, added absenteeism, added attrition, etc. And that’s just the employer side of the equation. Consider the candidate side. If you’re choosing between a $14 per hour shift manager role at McDonald’s and two 25 hour per week part-time gigs paying $10.50 an hour, that’s not much of a choice.
Despite the downside, some employers may still have no choice but to restructure. If your benefits costs are set to rise 5%-20%, maybe this kind of solution is a bit extreme. If you’re facing a 20%-60% benefits cost rise, this may be the only option that can bend your “cost curve” long term, but you'd have to be pretty confident in the ability to attract, manage and retain part time workers.
Take a Deep Breath: Despite the regulatory and financial pressures, the ACA holds the promise of long-term workforce bonuses that come from a healthier and thus more stable and productive hourly workforce. Employer have slowly been adopting the concept of encouraging healthier lifestyles and activities for workers, and the ACA provides yet another incentive for employers to incentivize workers to be healthier.
In the last Act of every Armageddon movie, some unexpected hero (like Bruce Willis) takes some unexpectedly heroic act that changes the trajectory of the outcome (the comet misses Earth, the aliens change their collective mind). In this healthcare saga, the heroes need only avoid panicking or penalizing workers– the concept of a healthier, more stable and covered workforce is ultimately good for all of us. This saga will, eventually, have a happier, healthier ending.