As you may have read in the news this week, another larger employer, Target Corp., announced that it will stop providing health insurance coverage to its part-time employees beginning in April. Similarly to Home Depot and Trader Joe’s, who both previously announced they would stop offering health insurance coverage to those working less than 30 hours per week, Target Corp. blames the Affordable Care Act for its decision.
Many times announcements such as the one from Target create a negative media storm against the company making the announcement. However, in some cases, a company no longer offering a group health plan to its lower paid workforce is actually doing those employees a favor. How is this you ask? Because any individual who is offered a plan that meets the minimum value and affordability test (even if it isn’t actually “affordable” to that individual) is not eligible for a subsidy if they instead choose to purchase their coverage on the exchange.
The fact that an employer offers single coverage that is affordable and a minimum value keeps the employee from qualifying for any subsidy even if the employee needs family coverage and the family coverage is not affordable. In fact, the employer can charge 100% of the cost of the family coverage to the employee and the employee would still not be eligible for a subsidy as long as the employer made single coverage available to the employee.
As an example, take a single mom with 1 daughter working 25 hours a week for $12/hour at a retailer. Before taxes, this employee makes $300/week. Assume this retailer offers coverage to anyone working 20 or more hours per week. They charge $15/week for minimum value single coverage but charge $150/week for family coverage. Even though this $150/week is almost certainly unaffordable for this single mom, she is unable to qualify for a subsidy because her employer offers her an “affordable” single coverage plan. Unless this employee or the child qualifies for Medicaid or another governmental assistance program in their state, she most likely won’t be able to get coverage for her child. If on the other hand, the employer no longer offers coverage to those working under 30 hours per week, she will be able to get a substantial subsidy on the exchange to apply towards coverage for herself and her daughter.
While of course every family situation is different and dropping coverage may not be helpful to all employees, not providing coverage to part-time employees is a strategy employers with lower paid workers may want to consider. Employers can take other steps to help alleviate the blow of dropping coverage. For example, Target is now giving each part-time employee $500 to make up for the loss of coverage and is also bringing in a consultant to help these employees sign up for exchange plans. This one-time subsidy is likely still cheaper for Target. Many of their employees will qualify for assistance on the exchange. They are publicly stating that they will not cut anyone’s hours below 30 to avoid providing those individuals coverage. They aren’t subject to the employer mandate penalty for dropping the coverage of part-timers because they are only cutting benefits for those working under 30 hours per week. In this case, it seems like Target may have created a win-win situation for all…or at least most.