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February 3, 2015

Giving Workers Freedom

Unemployment has been falling but the number of Americans not working – or working fewer hours – has remained stubbornly high since 2008. The Affordable Care Act (ACA), also known as “Obamacare,” is part of the reason for this. By requiring businesses with more than 50 full-time workers to provide health insurance to those workers, the ACA encourages small firms to reduce the size of their workforces or reduce the number of hours each employee is permitted to work each week.

Recently, the House of Representatives passed the Save American Workers Act of 2015, a bill that changes the definition of full-time work in the employer mandate from 30 hours per week to 40 hours. Changing the definition of full-time would mean that firms unwilling to provide health insurance that meets the government’s specifications will be able to increase the hours of many workers without penalty. Such a change, if enacted, would undo a small portion of the economic damage caused by the Affordable Care Act.

In response to this legislation, one Democratic Congressman argued, “This bill will allow you to work 10 more hours without health care.” Without the change, the ACA requires large firms to provide employer-sponsored insurance to almost everyone working between 30 and 39 hours per week. The Urban Institute estimates that the employer mandate will do little to increase health insurance coverage, since the vast majority of firms already provide coverage for full-time workers. Many firms that did not provide coverage in the past have been reducing hours rather than providing health insurance, particularly to low-wage workers.

It is costly for businesses to provide health insurance to their workers, thus firms that pay for health insurance pay lower wages than similar firms that do not. If enough workers prefer employer-sponsored insurance to additional cash compensation then firms are better off paying lower wages and providing the insurance. Some firms choose not to provide health insurance because many of their workers would rather have a bigger paycheck than health insurance. Mandating that such firms provide health insurance makes those firms and those workers who would prefer cash compensation worse off. It also makes workers whose hours are reduced worse off.

Firms that pay wages close to the minimum do not have the option of reducing wages to cover the cost of health insurance. This is illustrated by survey results described by John Goodman in a Wall Street Journal article. The survey revealed that managers of fast-food restaurants have been reducing the hours of most of their employees to less than 30 per week. And those fast-food workers who are still full-time cannot afford to pay their share of the premiums for standard health insurance policies offered by their employers. Instead, they choose Minimum Essential Coverage policies. These cover little more than preventive care and resemble the mini-med policies that many fast-food chains offered before the passage of the ACA. The result is that fewer workers are now covered by insurance.

Opponents of increasing the definition of full-time to 40 hours, such as the Commonwealth Fund, point out that this will motivate firms to reduce the hours of workers who work 40 or more hours so they do not have to provide insurance for them. If that is the case, then a better solution is to get rid of the employer mandate entirely so that firms will not be motivated to reduce anyone’s hours.

Even if there were no employer mandate, the Affordable Care Act would reduce employment. The Congressional Budget office estimates that the biggest effect of the ACA on employment is likely to be from workers voluntarily reducing their hours so they can take advantage of subsidies provided through health insurance exchanges.

The best way to reform the Affordable Care Act is to repeal it and replace it with reforms that move health care in the direction of a free market. Therefore, it may be just as well if, as expected, the president vetoes this bill. If his veto is not overridden, it will demonstrate the unwillingness of the president or Democrats in Congress to consider even small changes in the Affordable Care Act that would help workers. For substantive changes in the Affordable Care Act that would give workers freedom to work as much as they want without being dependent on government health care subsidies, we may have to wait until a Republican is in the White House.

Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.

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