Editor’s Note: This is one in an occasional series of stories on health care reform.
La Belle Terre Bread’s business is rising as steadily as the sourdough that brackets its ham-and-Brie sandwiches.
The west-side bakery’s French breads, strawberry crepes, chocolate-almond croissants and coffee macarons have lured in so many customers since it opened on Dec. 4 that managing partner Brian Hager-Many is already weighing evening hours. And a big Strip hotel just signed La Belle Terre to supply breads and pastries.
To handle surging business, La Belle Terre is adding three employees to its 12-person workforce. By the end of 2013, it could have 20 staffers. With Hager-Many’s plans to eventually open new locations, could a roster of 50 be far behind?
Hager-Many — who said startup costs mean he won’t take a paycheck for at least a year — is eyeing 2014’s federal employer insurance mandate. The law won’t apply immediately to his business because it exempts companies with fewer than 50 full-time-equivalent workers. But as La Belle Terre grows, Hager-Many fears there may be consequences.
“I’m definitely not going to want to go past 50 people,” he said. “I will have to figure out how to do more with less. Think of it like a pie: You can only cut the pie in so many ways. How am I going to get the job done? How am I going to pay the people I’ve got?”
Those are questions many businesses are asking these days. The Affordable Care Act, or Obamacare, gives most companies a choice come Jan. 1: Offer government-approved health insurance to every employee who works more than 30 hours a week, or pay a fine of up to $3,000 per worker. To say companies are concerned would be like saying the Strip is kind of bright.
“Let’s face it: We’re not really out of the worst recession in my lifetime, and now we’re asking employers that may not yet have recovered financially to have another burden on them,” said Michael Caparso, an employee benefits specialist with National Healthcare Access in Las Vegas. “There may be an issue there.”
Still, Caparso said insurance coverage will be status quo for most companies, with the smallest and largest businesses seeing few changes in how or whether they insure workers.
But that doesn’t inoculate those companies against all of the mandate’s side effects. Worse still, it leaves some of the biggest drivers of economic growth — midsized businesses with 50 to 150 workers — with few affordable options beyond cutting hours and hiring fewer people, though labor experts say companies may be overstating the possible fallout.
If they’ll talk about it at all.
Few people were willing to discuss for this article how or whether they plan to work around the mandate.
Few companies returned calls or emails seeking statements, including Caesars Entertainment and Boyd Gaming Corp. MGM Resorts International responded that they’re “analyzing” the law’s effects and have no further comment. Even local restaurant and retail trade groups ducked requests to speak in general terms about how the law would change members’ staffing plans.
That reticence may grow from the painful lessons learned by businesses owners who have spoken out.
After Olive Garden and Red Lobster parent Darden Restaurants said in the fall it would cut workers’ hours rather than insure them, advocacy groups organized boycotts. Executives said in December that the backlash may have contributed to a big fall in quarterly earnings.
But even if they won’t talk about it publicly, companies are scrambling to figure out how to deal with the law.
“The question I get the most is, ‘How can I get out of this?’ ” said Callan Carter, an attorney who represents local casinos, restaurants and social services agencies as a partner in the employee benefits practice group of labor law firm Fisher & Phillips. “For large employers for whom it is obvious that they have to comply, the question ends up being, ‘Let’s go through the financial aspects and compare what it costs to pay (a fine) versus to play (by extending insurance).’ ”
Carter said she routinely hears business operators say they plan to hold employees to 29 hours a week to avoid the 30-hour full-time threshold, which is lower than the 32 hours many businesses require people to put in for benefits. Some national media have even given a name — “29ers” — to the coming wave of part-timers.
Caparso gets similar feedback.
“It’s the first thing we hear from employers: ‘I’m just going to cut everyone between 30 and 40 hours down to 29 and be done with it,’” Caparso said. “They also tell us they’re going to freeze hiring, because they don’t want to risk going over that (50-worker) threshold.”
Nevada businesses either have done or are considering doing both.
Take JJ of Reno Inc., which owns and operates Jimmy John’s Gourmet Sandwiches shops in Northern Nevada.
Timothy Wulf, a retired economics professor who owns JJ of Reno, said he began cutting workers 18 months ago, as soon as he realized his staff of more than 100 put him in the law’s coverage bulls-eye. He sold one of his three stores, retrained workers to handle more duties and invested in labor-saving technologies. Automated online ordering, for example, replaced the equivalent of two full-time workers. In all, JJ of Reno pared 20 percent from its payroll. Include the part-time nature of his workforce, and the company is down to 42 full-time-equivalent workers. And where Wulf once dreamed of owning seven stores, he said he’s content with two for now.
“Why would we bother opening more stores now? You’re just opening a store to pay health care benefits,” Wulf said.
Wulf said he’s even been approached by other operators asking to “go halfsies,” or split half-time workers in job-sharing arrangements to stay below the 50-worker threshold. (He said no.)
Randi Thompson, director of the Nevada chapter of the National Federation of Independent Business, said numbers indicate legions of smaller companies have already decided to slash staff because of Obamacare. In 2010, the last year with available statistics, Nevada companies with 20 to 99 workers cut 30,000 jobs, while businesses with one to four people gained more than 8,000 jobs.
It’s not just hospitality businesses looking to stay small.
The prospect of adding costs “in an already tough economy poses a real threat to our bottom line” at Las Vegas staffing agency Resource Associates of Nevada, founder and CEO Stephanie Shirit said. It’s especially daunting for a staffing agency, because the company has to constantly monitor the hours of a fluctuating workforce to determine who qualifies for coverage in a given month. On top of that, Shirit’s premiums doubled in January, making coverage all the harder to afford.
“We want to be able to grow our business, put people to work and increase our workforce, but being forced to pay additional amounts when we meet the threshold will impact us financially,” Shirit said. “We will not be able to be competitive with larger firms who are able to offer lower margins due to their higher volume of business.”
So Resource Associates will be “very strategic and creative” in the next year to ensure it doesn’t break 49 employees, Shirit said. Instead of hiring in-house, the company may use more contractors or outsource work.
“Every single position within the company has to be directly tied to profit making and completely justified,” she said.
Businesses aren’t just thinking about jobs levels. They may change their structure, Carter said. The law creates an incentive for companies of more than 50 to break into smaller pieces with separate ownership, though that may not help if owners are related or linked in a trust.
The smaller-subsidiary idea is on Hager-Many’s radar.
He said if his business gets close to 50 employees, particularly with multiple locations, he might start a different corporation.
And while that might not mean fewer jobs overall, it does make the stated intent of Obamacare — coverage for all — tougher to achieve, Thompson said.
“We’re not going to meet that goal, because the burden on businesses is so high,” she said.
Breaking into 49-worker segments isn’t practical for businesses with thousands of employees, but big companies do have incentive to cut hours under the law, Carter said.
That’s because there’s a mandate on people to buy insurance, too, and that means some workers who aren’t on the company plan today will join in 2014 to avoid their own federal fine. If they’re part-time, the company doesn’t have to offer coverage.
It’s hard to say how company maneuvers will affect state and local jobless rates, which ran at 9.7 percent and 10.2 percent in January.
Jeff Waddoups, a professor and labor economist at UNLV, said he doesn’t think there are enough companies hanging around that 49-worker threshold to make a big difference.
“Sure, these are theoretical possibilities, but I don’t think they are likely to have a significant negative impact on either the incidence of full-time work or job creation,” he said.
But one jobs indicator could change. In addition to official unemployment, the government tracks discouraged workers who have quit looking for jobs and underemployed part-timers who would rather work full-time.
If enough businesses reduce work hours to avoid the law, that broader jobless measure could increase. That rate averaged 20.3 percent in Nevada in 2012.
Some discount concerns about a surge in part-timers and unemployed workers.
For starters, a company that thinks it can cut hours to escape insurance costs needs to be careful. Barbara Taylor, a business process analyst with the state Department of Employment, Training and Rehabilitation, said slashing time on the clock could boost a company’s unemployment insurance rate.
If hours drop to the point that gross wages are less than someone’s weekly jobless benefit would be, the employee could file a partial claim.
So, a full-timer who is eligible for $400 a week in benefits, but is cut to part-time and now makes $300 a week, can qualify for payments if he’s also looking for other work. The state could then raise the company’s employment-insurance tax to recover what its downsized worker takes out of the jobless-benefits trust fund.
Partly because of such bureaucratic hurdles, labor experts don’t think many companies will actually cut hours or stop hiring.
Businesses may also be reluctant to slash hours because their best workers might leave, Waddoups said.
What’s more, both Carter and Caparso said businesses may be overreacting.
“There’s a big hoopla right now because few employers were focused on this. They thought the Supreme Court would overturn it, or they thought President Obama wouldn’t get re-elected,” Carter said. “Now, there are real rules they’re just starting to look at. That’s why there’s an outcry.”
While hospitality and restaurant businesses with a lot of part-timers might make quick cuts, most companies will wait and see, Carter predicted.
Some employers say they don’t yet trust the state exchanges to provide a good alternative, and they don’t want to “dump employees on the exchange just to bring them back in a few years.”
Caparso said “in excess of 80 percent” of businesses will see hardly any effect from the mandate.
“I just think the more information people get, the better they’ll feel. I don’t believe either one of those (cuts in hours or staff freezes) will hold true over the long term,” Caparso said. “Employers by and large do not want to be mandated on what to do with their business, but we’re still a capitalistic country. I don’t believe employers will cut off their nose to spite their face, or say they don’t want to grow to avoid being in a certain category for health reform.
“It’s not going to be nearly as bad as people think, but it will be an additional cost. It’s the fear of the unknown. It makes everybody a little concerned. But like everything else, this is a headline. It’s a hot topic in business and it has everybody’s attention. In two years, it won’t.”
But all that uncertainty makes it likely companies will follow through on their threats, said Thompson, of the National Federation of Independent Business.
“The reaction is sincere, because the costs are an unknown,” she said. “If businesses are overreacting, it’s because they don’t know what their costs will be. After we see the costs, if they are doable, you might see some rehiring. But most business owners are conservative by nature. They want their business to be around after Obamacare is implemented, so they’re taking steps now that can lower their risk.”
Some members of Congress have jumped into the fray, proposing bills that would erase mandates. Reps. Mark Amodei and Joe Heck, both Republicans from Nevada, are co-sponsoring the Healthcare Tax Relief and Mandate Repeal Act, which would lift both employer and individual coverage mandates.
Brian Baluta, Amodei’s spokesman, said: “We hear from numerous employers who will have no choice but to reduce hours and switch employees to part-time in order to comply with the ACA to keep their businesses up and running.”
Contact reporter Jennifer Robison at firstname.lastname@example.org or 702-380-4512. Follow @J_Robison1 on Twitter.
HOW IT WORKS
On the surface, it’s simple: Any business with 50 or more full-time-equivalent workers has to provide health insurance for employees or pay a fine. But the Affordable Care Act has more twists and turns than the Spaghetti Bowl. Here’s a basic primer, but you should consult with a tax or insurance expert for additional advice:
What the heck does full-time-equivalent mean?
The law counts full-time-equivalent workers, not just full-time ones. That means businesses need to add up part-time workers’ monthly hours and divide them by 120, or 30 hours per week. Add that number to full-timers to get full-time-equivalent staff.
Take a business with 20 full-timers, and 60 part-timers working 25 hours a week, or 100 hours a month. Averaged out, the part-timers count as 50 full-time-equivalent employees. Tack that onto the 20 full-time workers, and the company has 70 full-time-equivalent employees.
OK, so what if my business has fewer than 50 full-time-equivalent employees?
Not only are you exempt from the mandate, but you may even get a federal tax credit on premiums for coverage you do offer. If your business has fewer than 25 full-time-equivalent employees averaging less than $50,000 a year, and you pay for at least half of their premiums, you can qualify for a credit of up to 35 percent on those premiums.
What if my business has more than 50 full-time-equivalent employees?
If it doesn’t offer coverage, and even just one full-time employee receives a federal individual tax credit to buy a plan on the state insurance exchange, the company will pay a $2,000 penalty per full-time-equivalent employee. Workers qualify for the credit if they earn up to 400 percent of the annual federal poverty wage, or $45,960 for one person and $94,200 for a family of four.
I already offer coverage, so I’m good, right?
Not necessarily. Premiums can’t cost more than 9.5 percent of any employee’s W2 income, and the plan has to pay for at least 60 percent of the cost of services it covers. If you meet those criteria — and almost all larger businesses today do — then the law will have “zero effect” on you, said benefits consultant Michael Caparso. Fail to meet those standards, though, and fines are $3,000 per worker.
Yikes! A fine on every worker?
The law lets companies exclude the first 30 full-time-equivalent employees. Take that scenario with 70 full-time-equivalents: The employer would pay the penalty on 40 people. That’s $80,000 in penalties if it doesn’t offer coverage, or $120,000 if it provides inadequate coverage. And the penalty isn’t tax-deductible, like coverage premiums are.
What else do I need to do?
Companies buying through small-group plans must make sure coverage pays for federally mandated “essential benefits,” including treatment for mental health and substance abuse, maternity and newborn care, preventive wellness and rehabilitative services and devices. Self-insured or large-group businesses aren’t required to cover essential benefits, but if they do, they can’t put yearly or lifetime dollar limits on those benefits.
If you offer coverage, you need to meet with every employee to explain their options. If they don’t want to buy company-sponsored coverage through you, they have to sign a waiver saying you offered them coverage, but they didn’t want it. As long as you can prove to the IRS that you offered it and the employee rejected it, you won’t get a penalty. Nor will the worker qualify for subsidies to buy coverage through the state exchange.
What should I be doing to get ready?
Start by talking to an expert. Your labor attorney, benefits consultant, insurance broker or accountant should be able to tell you how and what rules apply.
Also, start budgeting. Caparso said he tells his clients to prepare for as much as a 20 percent jump in the number of workers who buy company coverage as the individual purchasing mandate kicks in, also in January.
Finally, be ready for new surprises. The federal government is still writing the regulations that shape how it will implement the bill, and no one really knows how the IRS will be able to enforce it, Caparso said.