Why Changing The ACA Definition of Full-Time to 40 Hours is A Good Idea

As the new Congress enters office, first on the Republicans’ legislative agenda is to alter the ACA’s definition of full-time, so it is consistent at 40 hours for all ACA requirements. This definition is currently used to determine firm size and which companies are subject to the so-called employer mandate. But there are multiple definitions of “full-time” in the law – understandably leading to confusion, higher costs and increased administrative burdens for small businesses, which could have a detrimental impact on employment.

For example, under the ACA’s employer shared-responsibility provision and for participation in the federal SHOP (Small Business Health Options Program) Exchange, full-time is defined as 30 hours per week. However, under the small business tax credit provision (SBTC), full-time is defined as 40 hours per week. And as a further source of potential confusion for businesses, the District of Columbia and each of the 16 states that operate their own SHOP exchanges can make its own determination of what constitutes full-time within their jurisdictions.

The House has passed H.R. 30 and the Senate has introduced S. 30, both bills to set “full-time” uniformly at 40 hours per week.  There is opposition from the White House, which has promised to veto any such legislation.

But the proposal makes sense for a number of reasons – not the least of which is that it would allow small businesses to reduce their tax penalties and administrative costs, promote job growth and increase employment, and facilitate better compliance with the law. Additionally, absent a clear policy rationale for the variation in full-time definition, such unnecessary complexity should be avoided.

First, most employers with 50 or more employees already provide coverage to their full-time workers working 40 or more hours a week so they are unlikely to reduce hours of workers to avoid a benefit that they voluntarily provided long before the implementation of the Affordable Care Act. These same employers have been less likely to provide coverage to their part-time workforce and under the 30 hour definition will be required to pay penalties.  Making the definition of full-time consistent at 40 hours per week would save small businesses approximately $54.7 billion in penalties over the next 11 years (according to estimates by the Congressional Budget Office).  That is a real savings for employers who can then use that money to expand their businesses increasing overall employment.

Second, measuring who is full-time and who is not (using the 30-hour definition) has led to a confusing and convoluted look-back measurement process for employers, which most certainly will cause them increased administrative headaches.  With a single 40-hour definition, they will save many hours in trying to comply with these provisions

Third, many have acknowledged the complexity of the ACA including the employer-shared responsibility provision. An unnecessarily complex law results in an increased administrative burden. Reducing the administrative costs of compliance would encourage better compliance with the law overall. One way to significantly reduce this complexity – is to make the definition of full-time consistent across all provisions of the ACA.

Opponents of this proposal say that this will encourage employers to reduce the hours of their employees to 39 hours a week to avoid the penalty.  This argument misses a number of points. First, 91 percent of employers with 50 to 199 more employees currently voluntarily provide coverage to their workers many of which are full-time employed 40 hours a week.  They do this because most workers seeking “full-time” employment also look for employers to provide health insurance coverage.  Surveys consistently show that health care benefits are an important tool for attraction and retention and thus are considered a “best practice” for employers.  So, the current 30 hour restriction would impose a burdensome mandate to employers to extend their coverage to what most consider part-time workers.  This harms businesses and not only increases their compensation costs but also their administrative burden and thus reduces  their profitability. Getting rid of this restriction would allow these businesses to grow with the economy and thus hire more workers in the future.

Janemarie Muley, Ph.D. is the author of Health Reform: What Small Businesses Need to Know Now!

 

When is "Small" Considered "Large?" Fixing ACA Inconsistencies Will Reduce Administrative Burdens on Small Businesses

 

As a result of the 2014 mid-term elections, the Republicans gained a majority in both chambers of Congress. However, they are still short of the two-thirds of votes needed in both the Senate and the House to overturn a presidential veto of legislation to totally repeal the Affordable Care Act (ACA).  So, potential legislative action most likely will lead to only limited changes to the health reform law in early 2015.

This does provide an opportunity for the new Congress to make some small but important changes to the ACA to help small businesses.  Simply fixing some of the inconsistencies in key definitions across provisions in ACA (such as “full-time” and “small employer”) would be a huge step in reducing the potential administrative burden on small businesses. For example, my September blogpost discussed differences in how full-time is defined across the provisions.  This is one area where there seems to be interest on both sides to provide a consistent and uniform definition of full-time as 40 hours a week. This would not only reduce potential employer penalties (by about $38.6 billion over 10 years according to CBO), but it would eliminate the need for employers to use a confusing and convoluted look-back measurement process to measure who is full-time and who is not.

Also problematic are inconsistencies across ACA provisions in the definition of “small” and “large.”  One area where inconsistencies lead to an unfair advantage for certain employers is the interaction of new federal insurance requirements for the individual and small group market with the employer-shared responsibility payments for “applicable large employers.” Specifically, businesses with fewer than 100 employees are considered part of the “small group” insurance market in 2016 and hence subject to new federal insurance requirements (including essential health benefit requirements and premium rating restrictions). These insurance requirements are not levied on larger employers with 100 or more employees.

However, those small employers (with between 50 to 99 FTEs) currently not providing health insurance coverage would have to meet the new federal insurance requirements for any newly purchased health insurance policies for their workers and themselves. The irony is that these small employers may also face potential financial penalties for not providing health insurance coverage to their full-time workforce in 2016 and beyond. This is because, for purposes of the employer-shared responsibility provision, an “applicable large employer” is a firm with 50 or more employees (including FTEs).  In addition, so-called “applicable large employers” must also report to the IRS the details of their insurance coverage (or lack thereof) for each and every full-time worker (referred to as IRC Section 6056 and 6055 reporting requirements).

So this leaves a “Catch-22” for those firms with between 50 to 99 FTEs.  They will be penalized in 2016 if they don’t provide “adequate and affordable” coverage, yet the insurance requirements they must adhere to are more stringent than those of their larger counterparts. And to add insult to injury, they must file the IRS Information reports for each and every full-time worker.  

The Fix:  Classifying those firms with between 50 to 99 FTEs as “small” rather than as an “applicable large employer” will not only eliminate their exposure to potential employer penalties but would also significantly reduce their administrative burdens associated with the IRS reporting requirements.  

Janemarie Muley, Ph.D. is the author of Health Reform: What Small Businesses Need to Know Now!

When is Full-Time Really Not Full-Time? Inconsistencies in the New Health Reform Law

Among the most controversial and widely misunderstood parts of the new health reform law are so-called shared-responsibility payments for employers with 50 or more full-time equivalent (FTE) employees. 

The penalty calculation is a two-step process. First, employers must determine how many FTEs they employ at a given point.  Unfortunately, this is not a straightforward calculation, as some workers are aggregated to a FTE (e.g., part-time workers) while others are not included in the FTE calculation at all (e.g., seasonal workers).  For purposes of the employer penalty FTE calculation,   the Affordable Care Act specifies a 30 hour a week definition for full-time. There are many other caveats that must be considered when calculating FTEs. But even more vexing is that the definition of full-time and thus the formula for calculating a FTE is not consistent across the employer shared-responsibility payments, the Small Business Tax Credit and the SHOP Exchanges. 

Definition of Full-Time in Full-Time Equivalent (FTE) Calculation for Different ACA Provisions
Provision Definition of Full-Time
Small Business Tax Credit 40 hours a week
SHOP Exchange-Federally Facilitated 30 hours a week
SHOP Exchange-State Operated At State’s Option
Employer Penalty 30 hours a week

The second part of the penalty calculation is to determine which employees actually trigger the penalty and then how much is owed per employee.  Once an employer is determined to have 50 or more FTEs, only certain “events” can trigger the penalty.  For example, an ACA penalty would not be automatically triggered just because an employer does not offer health insurance coverage.  The employer who does not offer health insurance or the coverage they provide is not considered “affordable” or “adequate” would be required to pay a penalty only if one of their full-time workers entered the newly-established insurance exchanges and received a premium tax credit.  And here lies another inconsistency. In this case while full-time is still defined as 30 hours or more a week, the monthly hour count to determine whether a worker is really full-time and thus triggers the penalty is 130 hours a month (not 120 which is used to determine FTE above). 

So beware of online calculators to compute FTEs.  Each calculator will differ depending on which provision of ACA it covers.  Many small businesses have neither the time nor the resources to wade through thousands of pages of federal regulation to figure out whether they may owe penalties and if they do, how much they owe.  As I wade through these regulations myself, I am finding many of these inconsistencies like in the definition of full-time.  I will continue to share my insights into other nuances in future blogs.   

Next time: When is Small Not Small?

Janemarie Muley, Ph.D. is the author of Health Reform in 2015 and Beyond: A Guide for Small Businesses (coming this Fall 2014).