After receiving heavy criticism, Darden Restaurants—parent company of Olive Garden, Red Lobster and Longhorn Steakhouse—has retracted its threat to cut employee hours part time in order to avoid offering health insurance. In October Darden announced its plans to “experiment” with limiting most employees to 28 hours per week, freeing it from the Affordable Healthcare Act’s requirement that employers provide health insurance to employees working at least 30 hours per week or face fines of up to $3,000 per employee.
Darden employees about 185,000 people nationwide and is one of the top 30 employers in the US. The company currently offers health insurance to its employees, but the limited-benefit plans offered to many will be illegal under ObamaCare. Had Darden continued with its experiment, employees with reduced hours would have ended up with no employer-sponsored health insurance at all.
After heavy media coverage of its plans, in early December Darden announced a resulting loss in business. On Dec. 13 Darden announced it would not change any employees’ status to part time, and it will continue to offer all full-time employees’ the same health care coverage currently available.
“None of Darden’s current full-time employees, hourly or salaried, will have their full-time status changed as a result of health care reform,” it said in a statement describing policy through 2014. “In 2014, all of Darden’s full-time employees, including hourly, salaried and executive employees, will have access to the same insurance plan coverage.”
It remains to be seen if Darden’s reversal in opposition to employee care will rub off on other companies who have either formally announced or hinted at similar tactics to avert the health-insurance mandate.
“The flight from the group insurance marketplace will [be] most acute in industries where the employees tend to be modestly paid, hourly workers,” insurance executive Edward Fensholt told the House Subcommittee on Health, Employment, Labor and Pensions in May. “Employers will opt to pay the relatively modest $2,000 per full-time employee penalty for offering no insurance, rather than pay larger subsidies for health insurance for the employees and their dependents. Congress can also expect to see many employer sectors transition full-time employees to part-time status, to take the employees out of the penalty equation.”
Underemployment is already a widespread problem in the United States, as many—especially in the retail and food service industries—have a job but are not offered enough hours to support themselves and their families. According to the Employee Benefit Research Institute, the percentage of employees who are part-time workers increased from 17 percent in 2007 to 22 percent in 2011. And, according to the Henry J. Kaiser Family Foundation, only 28 percent of all companies offer health benefits to part-time employees.
“The percentage of part-time workers has been increasing for the past four or five years, and that’s happening because of business conditions,” Paul Fronstin, a researcher at EBRI, a nonprofit that tracks trends in workplace benefits, told the Huffington Post. “That’s something that may happen anyway, even independent of the Affordable Care Act. Or maybe the Affordable Care Act will cause it to happen even more.”
Some government offices are even planning to reduce employees’ hours in order to avoid the insurance requirement. According to the Insurance Journal officials in Cedar Falls, Iowa plan to reduce dozens of part-time public employees’ hours in order to avoid the insurance requirement of the Affordable Care Act set to take effect in January 2014. Cedar Falls Administrative Services Director Richard McAlister told the Waterloo-Cedar Falls Courier the reduction in hours for 59 employees is necessary because if they all opted for insurance it would cost the city $855,000 per year. The additional cost would require employee layoffs. To make up for the reduced hours, the city will hire more part-time employees.
“I think the employees were obviously disappointed,” McAlister said. “It’s something we can’t contain, and we felt the best decision was to spread the impact out among the employees rather than lay people off.”
Higher education is not exempt from the backlash. According to the Huffington Post, the Pittsburgh’s Community College of Allegheny County will cut hours for some of its instructors to avoid paying for their health insurance. CCAC President Alex Johnson told employees in a November email the school would cut course loads and hours for about 200 adjunct faculty member and an additional 200 employees. Part-time staff members will be limited to 25 hours per week, and adjunct professors will only be able to teach 10 credit hours per semester. The college estimates it will save about $6 million.
“While it is of course the college’s preference to provide coverage to these positions, there simply are not funds available to do so,” David Hoovler, executive assistant to the president of CCAC, told The Huffington Post. “Several years of cuts or largely flat funding from our government supporters have led to significant cost reductions by CCAC, leaving little room to trim the college’s budget further.”
Employers’ actions to dodge insurance requirements are an unfortunate side-effect to the Affordable Care Act, which was designed with employees such as retail and food service workers—those who work in industries where a health plan isn’t provided, is inadequate or simply too expensive—in mind. According to a Kaiser Family Foundation survey, retail workers are the least likely to have access to job-based health benefits, with only 45 percent of retailers offering health insurance to employees compared to a national average of 61 percent.
“Reducing hours is an option that hasn’t gotten a lot of traction at the moment but I would expect that to be a real consideration,” especially for retail, restaurant and grocery chains, Towers Watson senior consultant Jeanne Wyand told the Huffington Post.
Still some small business owners say the new law has enabled them to provide benefits to their employees for the first time—they just needed to do their homework. Denver’s Lisa Goodbee is one of them. She offered her20-year-old firm’s 15 employees health coverage for the first time this year—a move not required by the ObamaCare mandate that applies to businesses that employ 50 or more workers. Still, Goodbee attributes the Affordable Care Act for the change in policy. Although the quotes she got from health insurers in the past were “ridiculous,” she told the New York Times this year she found them far more reasonable.
“We’re an engineering company and we need to hire the best of the best,” she told the Times, acknowledging that not offering health insurance made that difficult.