Will Obamacare Turn America Into a Nation of Part-Time Workers?http://www.fool.com/investing/general/2013/04/25/will-obamacare-turn-america-into-a-nation-of-part.aspx Sean Williams
April 25, 2013
In eight months and a hair over one week the Patient Protection and Affordable Care Act, also known as Obamacare, will go into full effect. The PPACA is a sweeping reform of our current health-care system aimed squarely at keeping premiums from skyrocketing; holding insurance companies accountable for the premiums they bring in by insuring they spend at least 80% of those dollars on patient care; and mandating that individuals and large businesses take responsibility for themselves and their employees by carrying health insurance or providing group coverage.
Obamacare: Friend or foe?
On a personal level, the insurance mandate is pretty clear. By law you are required to carry insurance -- buy it or face a tax penalty, which will incrementally increase to 2.5% of your adjusted gross income by 2016. Looking at it from a business perspective is where things get a lot trickier.
For businesses with fewer than 50 employees, no such rules are in place to require them to provide health coverage to employees. Where things go a bit haywire is when you get into larger corporations. Large corporations, under the PPACA, will be required to provide insurance to full-time employees that meet the basic minimum standards under the new law. Employers aren't required to pay for any of a full-time employees' insurance; however, they will be penalized between $2,000 and $3,000 per employee for each situation where health costs wind up exceeding 9.5% of that employee's income. If these businesses choose not to offer health insurance whatsoever, they will face a stiff $2,000 fine per employee.
As you might imagine, the reaction among the nation's largest businesses has been mixed in response to the passing and upholding of the PPACA by the Supreme Court.
Now hiring, part-time only
One industry where this move is readily apparent is in the fast-food industry. CKE Restaurants -- owner of Carl's Jr. and Hardee's, which was purchased by Apollo Management in 2010 -- began hiring considerably more part-time workers last year to replace any full-time turnover. Similarly, but on a smaller scale, 11 franchised Wendy's (NASDAQ: WEN) locations in Nebraska cut back hours for about 300 non-management employees in January of this year in order to skirt the increasing costs associated with Obamacare.
However, this isn't just limited to the fast-food industry. Darden Restaurants (NYSE: DRI), which operates Red Lobster and Olive Garden, was one of the first companies last year to state that while it would not shift full-time workers to part-time status, it was testing a strategy that involved hiring more part-time workers. Regal Entertainment (NYSE: RGC), the nation's largest movie theater chain, reduced hours for thousands of non-salaried employees this month to put them under the 30-hour full-time threshold -- and it blamed Obamacare as the direct culprit for the cost-saving maneuver.
The problem for employees being bumped back to part-time is threefold. First, reduced hours will mean a reduced paycheck. Chances are that these are employees already being hurt by the rollback of the payroll tax holiday, and they likely won't be welcoming a cutback in hours. Second, it potentially reduces their chance of having part of their insurance paid for by the company they work for. Certain individuals will fall under the Medicaid expansion based on their income, but middle-class individuals being moved into part-time status will be stuck in individual mandate limbo. Finally, part-time schedules -- and I speak first-hand here from my college days -- are incredibly unaccommodating. You don't make enough at one job, but finding a second job can be nearly impossible because of the ever-changing hours.
These companies are standing their ground
One such company is warehouse retailer Costco (NASDAQ: COST), which pays reasonably high wages to its workforce and offers health benefits to full- and part-time employees. The PPACA actually fits in perfectly with what Costco has been doing for employees all along. Another prime example, according to The Wall Street Journal, is Marriott International (NYSE: MAR). The hotel business is all about building personal relationships, and Marriott's management understands that full-time, trained, employees are the key to building rapport and long-term relationships with their guests.
Further supporting these "good guys," as my Foolish colleague Steve Heller dubbed them in December, is a study from the Minneapolis Fed released last month that showed only 4% of employers had shifted their hiring to more part-