Proposals to Change the ACA’s Definition of “Full Time”

Proposals to Change the ACA’s Definition of “Full Time”

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Updated January 13, 2015
Proposals to Change the ACA’s Definition of “Full Time”
Background
Health Coverage of Part-Time Workers
Context. For the purposes of the Affordable Care Act’s
The Kaiser Family Foundation (KFF) publishes employer
(ACA; P.L. 111-148, as amended) employer penalty, “large
health insurance offer rates to part-time workers (defined by
employers” are defined as firms with 50 or more “full-time
their employers) among firms that offer health benefits.
equivalent” employees (FTEs). Total FTEs are calculated
by adding the total number of “full-time” workers (who
As shown in Figure 1, among firms that offer health
average 30 hours per week or more) plus the number of
benefits, the percentage of firms offering health benefits to
part-time, nonseasonal employees converted to FTEs.
part-time workers has remained relatively consistent in
recent years. There was no large drop in offer rates in 2014,
If a firm exceeds the 50-FTE threshold, then it could be
the first year individual insurance exchanges were open and
subject to a penalty if it does not provide health insurance
the baseline for measuring average work hours for the
plans that meet minimum standards of “affordability” and
employer penalty beginning in 2015. As of 2014, the KFF
“adequacy” set forth in the ACA. The penalty amount is
data indicate that the percentage of firms offering health
based on the number of full-time workers (not FTEs).
coverage to their part-time workers is in line with historical
trends.
For employers that do not meet the ACA’s requirements,
the Internal Revenue Service will begin enforcing the
Figure 1. Among Firms Offering Health Benefits,
penalty for firms with 100 or more FTEs in 2015 and for
Percentage Offering Health Benefits to Part-Time
firms with 50 or more FTEs in 2016 and beyond. The
Workers, 1999-2014
penalty will only be levied on large employers that have at
least one full-time worker receiving a health insurance
premium credit in the individual insurance exchange
markets (part-time workers receiving a credit are not
included in the penalty amount calculation).
Legislative Proposals. The Save American Workers Act of
2015 (H.R. 30) would change the definition of full time
from 30 hours to 40 hours per week. The House passed
H.R. 30 on January 8, 2015.
Why Are the Changes Being Proposed? Proponents of
changing the definition of full time from 30 hours per week
to 40 hours per week argue that the current 30-hour per-
week definition is unusually low compared with
“traditional” standards of full-time work in many industries.
A 40-hour work week definition could, arguably, reduce
employer’s calculations and compliance costs. Proponents
of the revision also contend that the 30-hour definition
encourages employers to reduce the number of hours

allotted to some workers (thereby reducing their pay) to
Source: Kaiser Family Foundation, 2014 Annual Survey of Employer
decrease the number of full-time workers and lower
Health Benefits, p. 47.
employers’ compliance costs. In addition, with fewer full-
time workers, the size of an employer’s penalty would be
Analysis of Changing the Definition to 40
smaller because the penalty is based on the number of full-
Hours per Week
time workers.
Revenue Effects. The Congressional Budget Office scored
Some firms that have dropped health coverage for their
H.R. 30 as costing $52.3 billion over 10 years. Some of the
part-time workers claim these employees can purchase
budgetary cost is due to changes in direct spending
more comprehensive or lower-cost policies in the individual
associated with more individuals seeking government-
health exchanges. Depending on their income, some of
subsidized coverage in the individual exchanges, Medicaid,
these workers may be eligible for an insurance premium tax
or the Children’s Health Insurance Program (CHIP).
credit.
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Compliance Costs. Larger firms have two main
Other Policy Options
compliance advantages. First, they typically have more
technologically sophisticated ways of tracking the average
Policies intended to reduce the severity of the employer
hours worked by each of their employees (or they contract
penalty could decrease the compliance costs of the ACA,
out their payroll analysis). Second, any compliance costs
thereby reducing the distortionary effects the penalty might
are likely to be a smaller share of larger firms’ revenue
have on payrolls. However, these options could decrease
compared with smaller firms. Because employers with
revenue and increase either the share of uninsured or the
fewer than 50 FTEs are exempt from the penalty, firms that
number of workers enrolling in individual exchanges.
are near the 50-FTE threshold and firms that employ more
than 50 FTE employees but do not have a simple method to
Change the Definition of Full Time to 35 Hours per
track employees’ work schedules (especially if these
Week. This option could more closely align the ACA to
weekly schedules vary) bear a disproportionate share of the
traditional definitions of full-time work but would still
total compliance costs of the FTE provision.
require a significant change in work hours (from the typical
40-hour standard) to avoid the employer penalty. Based on
Firms have had several years to plan for the implementation
the Bureau of Labor Statistics data cited in Table 1,
of the employer penalty. According to the ACA, employers
employees who worked 35 hours or more per week in 2013
were to measure their workers’ average payroll as of
worked an average of 42.6 hours per week. As shown in
January 2013 to establish a baseline for compliance with
Table 1, fewer workers are clustered around 35-hour than
the employer penalty in 2014. On July 2, 2013, the Obama
40-hour average work weeks.
Administration announced a delay in implementation of the
employer penalty for all applicable firms until 2015. On
Increase the Exemption for the Employer Penalty to the
February 10, 2014, the Department of the Treasury further
First 49 Full-Time Workers. Currently, the employer
delayed the employer penalty for firms with 50 FTEs to 99
penalty is triggered by the hiring of the 50th FTE worker, but
FTEs from 2015 to 2016.
the first 30 full-time workers are exempt from the penalty
amount calculation. In other words, a firm that employed 49
Redefine Full Time as 40 Hours per Week. Changing the
full-time workers and then hired a 50th full-time worker
definition of full time from 30 hours per week to 40 hours
would be subject to a penalty based (in part) on 20 full-time
per week would shift, not eliminate, the incentive for
workers. This 30-worker exemption could be increased to
employers to move more workers to part-time status, and it
49 to reduce the cliff that firms could face at the hiring of
may create greater incentive for firms not to offer health
their 50th FTE worker, thereby reducing the marginal
insurance to their employees. More employers could be
disincentive for firms near the 50-FTE threshold to hire.
inclined to shift workers to part-time status (in terms of the
ACA) under a 40-hour definition because the disruption to
However, this option would have a limited effect on the
the employers’ workforce would be smaller when changing
decisions of employers that are well above the 50-FTE
work schedules from 40 hours to 39 hours than from 40
threshold. For these employers, the penalty paid on the first
hours to 29 hours.
20 full-time workers becomes smaller, relative to aggregate
health coverage costs, as firm size increases. Additionally,
As shown in Table 1, more workers are clustered around
this option would have little to no effect on employer
the 40-hour-per-week threshold than the 30-hour threshold.
decisions to offer coverage to part-time workers because
If the incentive to retain workers on full-time status is
these workers are not used to calculate the penalty amount.
diminished, then the employer penalty could compel fewer
firms to offer health care coverage relative to current law.
Modify the Exemption to the First 30 FTE Employees in
Penalty Calculation. The employer penalty exemption
Table 1. Persons at Work in All Industries, 2013
could be revised such that it was based on FTE employees
to reduce the incentive for firms to hire more part-time
Average Hours
Number of
workers or change full-time workers to part-time status. In
of Work per
Workers (in
Percentage
this case, hiring two part-time workers to substitute for one
Week
thousands)
Distribution
full-time worker would not change the calculation of the
penalty.
1 to 14
6,563
4.7%
15 to 29
17,014
12.2%
This option could be combined with the exemption increase
option, described above, to offset some of the revenue loss
30 to 34
10,237
7.4%
associated with increasing the exemption. For example, the
35 to 39
9,645
6.9%
employer penalty could be revised to exempt the first 49
FTEs instead of the current exemption of the first 30 full-
40
60,891
43.8%
time employees.
41+
34,577
24.9%
Sean Lowry, Analyst in Public Finance
Total
138,926
—
Jane G. Gravelle, Senior Specialist in Economic Policy
Source: U.S. Bureau of Labor Statistics, “Labor Force Statistics from
the 2013 Current Population Survey,” at http://www.bls.gov/cps/
IF10039
cpsaat19.htm.
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Proposals to Change the ACA’s Definition of “Full Time”

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