The ACA Is a Bad Deal for Low-Wage Workers

The Affordable Care Act was sold to the public as an effective means of providing affordable health insurance to millions of Americans who currently do not have coverage, particularly the poorest members of our society. It turns out that the law will push more Americans into part-time jobs that are ineligible for employer-provided insurance, forcing them to choose between purchasing expensive coverage through an insurance exchange or forgoing insurance altogether and paying a fine.

Even before the Obama administration announced it was postponing enforcement of the employer mandate portion of the ACA until 2015, it was clear that the health care reform law was going to hurt low-income workers.

By defining full-time work as 30 or more hours per week, and requiring companies with more than 50 full-time employees to provide adequate, affordable health coverage to those workers (again, beginning in 2015), the ACA incentivizes businesses to cut the hours of employees who currently work between 30-40 hours per week to less than 30 to avoid having to provide them with health insurance (or pay a hefty fine of $2,000 per full-time employee after the first 30). In addition to reducing hours, some companies will likely eliminate some positions altogether in an attempt to get below the 50-employee threshold, increasing the work burden on remaining employees.

Some companies are already taking action. Forbes reported in July that, as firms have been cutting hours for existing employees, “new hiring has been severely altered as well. In 2013, so far, we’ve added 4 new part-time workers for every full-time worker entering the labor force, whereas last year the ratio was nearly 6 full-time workers for every part-time worker. In June, we lost 240,000 full-time jobs even as we gained 360,000 part-time jobs.”

These and other drawbacks of the ACA are so obvious that even progressives like Richard Kirsch, Senior Fellow at the Roosevelt Institute, are coming around to the conclusion the law will be a bad deal for low-wage workers. According to Kirsch, “Big flaws in the bill will mean that many low-wage workers will be forced to choose between paying huge chunks of their income on premiums or on a penalty that leaves them with no coverage at all.”

Back in March, the Wall Street Journal noted that executives at several prominent retail and restaurant chains reported that many employees decline company-offered insurance, opting to pay the penalty for not having health insurance, which will be as low as $95 a year at first, “much less than most employees will be asked to pay through company-sponsored insurance plans.” Even companies that currently offer cheap high-deductible plans to their employees report that participation is very low (less than 10% in many cases).

So, although low-wage workers will lose out as companies reduce employees’ hours to avoid the requirement to provide those workers with health coverage, those employees can just turn around and purchase subsidized insurance through an exchange, right?

Not so fast. Even with the availability of income-based tax credits to subsidize the purchase of insurance, many lower-income adults and families will still be squeezed by the new law. According to this Health Reform Subsidy Calculator from the Kaiser Family Foundation, a 32-year-old single adult making $33,000 in 2014 (ie, a member of one of the groups currently more likely to be under- or uninsured) will have to pay more than 9% of his or her salary on health insurance premiums, even with the subsidy. According to the Kirsch article above, “people who earn more than two times the federal poverty level would be required to pay premiums from 6.3 percent to 9.5 percent of their incomes.

Millions of hard-working Americans are going to have to choose between paying budget-busting insurance premiums or paying a fine and remaining uninsured (the penalty for being uninsured increases to $325 in 2015 and $695 in 2016).

Low-wage employees who work 30+ hours a week for companies that employ 50 or more full-time employees will also potentially take a big hit to their wallets because of the ACA. The law allows these employers to require their employees to pay up to 9.5% of their incomes in premiums. Kirsch says the problem is that the minimum coverage required under the ACA “will have very high out-of-pocket costs, so workers will face high premiums for coverage that they can’t afford to use.” Consider for example, an employee who makes $25,000 a year. Their employer could charge up to $198 a month for insurance that meets the bare minimum requirements for covered services (ie, paying for about 60% of medical expenses while not covering things like hospital stays and surgery).

The IRS has made this bad situation even worse. The New York Times reported the IRS ruled that the ACA provision that says “a worker cannot get taxpayer-subsidized coverage on the new health insurance exchanges, starting in 2014, unless the cost of employer-based health coverage for that worker exceeds 9.5 percent of the worker’s household income” applies only to the cost of covering the individual employee, not the higher cost of a family plan.

This strict interpretation of the ACA could leave “millions of Americans with modest incomes unable to afford family coverage under their employers’ health insurance but ineligible for subsidies to buy coverage elsewhere.” According to the NYT, “some 2 million to 3.9 million non-working spouses and dependents would be harmed by the strict ruling.”

To make this even more complicated, since employers have no way of knowing what their employees’ household income is, the IRS has proposed several safe harbors that use the employee’s monthly wage as a proxy for household income. However, as this analysis points out, these approaches ask employers to “trade convenience or certainty for, potentially, a lower threshold for affordability,” the end result of which is that “the employer will have to pick up a larger portion of the employee’s insurance premium.”

So now we’re stuck with a law that forces employers to choose between cutting workers’ hours or offering insurance (under threat of penalty) that many of their employees either can’t afford or will choose to forego (again, under threat of penalty), leaving millions of Americans either still uninsured or facing additional financial hardship. The people who can least afford even a limited policy will be mandated to fork over their hard-earned cash.

Instead of helping millions of hard working Americans get the affordable insurance coverage they need, the ACA is going to increase economic uncertainty and add additional complexity to an already jumbled healthcare marketplace. The ACA was supposed to help those in low paying jobs unable to get decent health insurance. In reality it will reduce the number of their full time jobs and mandate they pay for insurance they either do not want or can afford. That’s not the idealized outcome promised by the president when he was selling this to the public. What we’ve ended up with instead is bad law, bad economics, and a bad faith deal for America.