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Businesses Weigh Bottom Line of Health Reform’s Employer Mandate

September 23, 2013 at 12:00 AM EDT
Under the Affordable Care Act, employers who have at least 50 full-time employees are mandated to provide affordable insurance or pay a penalty. Most employers already comply, but some business-owners, especially in the restaurant industry, argue it will be a major burden. Economics correspondent Paul Solman reports.
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GWEN IFILL: Next, we return to the impact of the new health care reform law — tonight, how employers are preparing to comply with new rules that require them to insure their employees. Even though some portions of the mandate have been delayed, many employers remain frustrated.

NewsHour’s economics correspondent, Paul Solman, looks at the bottom line for different business owners, part of his Making Sense of financial news.

PAUL SOLMAN: At Rock Bottom Brewery in Omaha, Neb., restaurant owner Greg Cutchall didn’t mince words when it came to the Affordable Care Act.

GREG CUTCHALL, Rock Bottom Brewery: The law, the way it’s written today, I think should be scrapped.

PAUL SOLMAN: Cutchall’s main gripe is with the so-called employer mandate, which obliges firms with 50 or more full-time workers to offer affordable health insurance or pay a penalty of up to $2,000 per full-time employee.

GREG CUTCHALL: I cannot think of any other burden that’s been placed on the restaurant industry in the last 20 years that could have the impact that this one does.

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PAUL SOLMAN: The employer mandate, a burden to some, to others, no big deal.

NEERA TANDEN, Center for American Progress: Most employers think it’s a responsibility of being a good employer to offer health insurance.

PAUL SOLMAN: Neera Tanden, a former health reform adviser to President Obama, points out that the vast majority of large firms already provide benefits to their workers.

NEERA TANDEN: Ninety-five percent of companies that have 50 or more employees offer health insurance today, and so we’re really talking about an order of 10,000 firms in the whole country that are going to face this.

PAUL SOLMAN: So where are the complaints coming from? Businesses with high turnover, like restaurants, which don’t offer insurance to all their workers, and thus consider the act a very big deal. Benefits lawyer Juliana Reno has been advising firms on the law.

JULIANA RENO, benefits attorney: It’s different than, say, a law firm, which traditionally has offered coverage for its employees, but it doesn’t have to suddenly cover or pay the penalty for a whole group of employees that it had not previously helped.

PAUL SOLMAN: Omaha’s Cutchall employs 1,400 people at his 50 restaurants, mostly franchises like Sonic drive-ins, Domino’s, Famous Dave’s, and Twin Peaks.

GREG CUTCHALL: We have employees that work 40 hours one week and 10 hours the next week, and then go away for two weeks. And executing it and monitoring it is going to be a nightmare.

MAN: OK. Fish tacos?

PAUL SOLMAN: Right now, Cutchall only offers health insurance only to those who have been at the company at least a year and work more than 32 hours a week. Under Obamacare, he will have to offer benefits to anyone working more than 30 hours a week.

GREG CUTCHALL: If all of those people wanted insurance, yes, it would be a major financial burden on our company , even if they paid half.

PAUL SOLMAN: An unbearable burden, argued Jamie Richardson of burger chain White Castle at a congressional hearing. Insuring all staffers that work 30 plus hours would make the Affordable Care Act unaffordable.

JAMIE RICHARDSON, White Castle System, Inc.: We can’t foresee a future where we’re able to hire new hires as full-time employees. We’re going to be scheduling part-time at 25 hours a week or less. That’s not what we would do under normal circumstances.

PAUL SOLMAN: It’s something that companies across the country are now weighing, keep employees below 30 hours a week and thus avoid paying for their health insurance entirely. It’s part of Cutchall’s plan.

GREG CUTCHALL: Until we understand the law better, going forward, unless we absolutely have to for staffing needs, we will — we — our plan is not to make any new hires for people that would work over 28 hours a week.

PAUL SOLMAN: More than half of restaurant jobs are part-time already. If hours are reduced even more, won’t Obamacare wind up backfiring?

NEERA TANDEN: You know, what I would actually hope is that most of these companies would try to figure out a way to work with the law. And the idea that people would really try to push workers to part-time work is part and parcel of a way of thinking in which employees are just costs that you’re trying to minimize.

PAUL SOLMAN: Moreover, said attorney Reno at a recent Obamacare Q&A at her synagogue:

JULIANA RENO: It is hard to manage your work force as well as you think you can.

PAUL SOLMAN: Even if it’s company policy to work less than 30 hours a week, says Reno, Reno, it may be tough to manage in practice.

JULIANA RENO: I do have a couple of fast food restaurant clients, and they are having a very difficult time managing that.

PAUL SOLMAN: So the plan to cut hours may not end up saving employers that much money, especially when you reckon the other costs.

JULIANA RENO: If you, as an employer, try to crunch down hours below 30, you are going to lose some employees. The second problem is, it’s not going to cost you in terms of penalties, but it’s going to cost you a lot more in terms of recruiting and training and administrative stuff, because now you have to hire more employees to have the same amount of man hours worked.

JODY MANOR, Bittersweet Catering Cafe & Bakery: So this is our expansion project.

PAUL SOLMAN: Jody Manor agrees that there are not-so-hidden costs to treating employees as interchangeable parts. He owns Bittersweet Cafe and catering in Alexandria, Va., and is opening a second location in October.

JODY MANOR: We’re going to do a bar and restaurant out on the waterfront.

PAUL SOLMAN: Manor already offers health insurance to all his 45 employees, but he doesn’t have to. He soon will, however, as the new restaurant vaults him over the 50-full-time-employee threshold. That is an economic concern, he says.

JODY MANOR: The biggest problem, from my perspective right now, is that nobody really knows what it’s going to cost.

PAUL SOLMAN: So what are you going to do with your employees in the new place you’re opening?

JODY MANOR: Full speed ahead, man. You know, life is full of uncertainties, and business has got even more. Yes, it’s going to cost more money, but you have just got to build that into your model. And, to me, health care is a basic human right, and if we’re going — at this juncture, if it’s up to business to provide the benefit, then that’s what we have got to do.

PAUL SOLMAN: You’re not going to put people on part-time in order to avoid going over the 50-employee threshold?

JODY MANOR: I don’t think so. Once we have a little bit better idea about what the costs involved are, maybe I will change my mind about that. But, by and large, we prefer to have a full-time crew. And, you know, that helps build our family. I always say, like, this is like my big Latin family here.

PAUL SOLMAN: Manor’s mom, Alice, helps out at the cafe.

So what’s he like to work with or work for?

WOMAN: It’s an indentured servitude program for mothers.

PAUL SOLMAN: No benefits at Bittersweet for Manor’s mom, who doesn’t need them. But the baker here, Angel Brizuela, has been with Manor for 26 years, in part to get health insurance for himself and his family.

MAN: Health insurance is really, really important for the family.

JODY MANOR: It’s important to provide benefits if you’re going to get people to stick with you. My baker has been here 26 years. And he came to the back door as the skinny, little, shivering kid one day. And I think it’s a great story about our business. I feel incredibly proud of that every day when I show up and see that.

PAUL SOLMAN: You’re tearing up now.

JODY MANOR: Yes, it makes me weepy.

(LAUGHTER)

PAUL SOLMAN: Clifton Stevens had recently been hired as a kitchen manager after years in the commissary at Georgetown University.

So was health insurance a major factor in taking this job?

CLIFTON STEVENS, Bittersweet Catering Cafe & Bakery: It was a major part, because in society today in my field, it’s not offered a lot, you know, to where I can be covered, as well as my family.

PAUL SOLMAN: But health insurance for more people costs more money, and Manor admits he has greater flexibility to raise prices than the fast food joints that are cutting worker hours.

JODY MANOR: I’m not selling the cheapest thing here. You know, I’m not competing with McDonald’s.

PAUL SOLMAN: But Cutchall operates restaurants that do.

GREG CUTCHALL: The last thing we ever want to do is raise prices, because we know it can affect business, but, at the end of the day, we have to maintain profitability, and if our expenses increase, as in any business, we have to raise prices.

PAUL SOLMAN: In July, the Obama administration delayed the implementation of the employer mandate, after companies complained the provision was crushing them. Now folks have another year to comply, another year to try to change the law itself.

JAMIE RICHARDSON: Maybe now it’s time to take a sad song and make it better, because we think this time is giving us a chance to fix the parts of the law that really are unworkable and are really going to make it difficult for us to continue to employ people and create jobs.

PAUL SOLMAN: Whether businesses get a little help from their friends in government or just have to let it be, well, for now, time is on their side.