Challenges to Implementing
Shared Responsibility under
the Affordable Care Act
California Works Foundation
May 30, 2013
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About the California Works Foundation
The California Works Foundation (CWF) is a nonprofit 501(c)(3) organization dedicated to promoting a just economy
through applied research, policy development, support for organizing and labor-community alliance building. Created
by the California Labor Federation, AFL-CIO, our programs aim to maximize the capacity of labor and community
organizations to support quality job creation, ensure community health and increase social justice for low-income and
working families. CWF believes that a revitalized labor movement, organized and involved communities, and effective
labor-community partnerships are essential to the achievement of equity in California.
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Challenges to Implementing Shared Responsibility under
the Affordable Care Act
Introduction
Over the next six years, the Affordable Care Act is expected to increase percentage of the
Californians with health insurance from 84% to about 89 to 92% of population under 65 years of age.1 The
state’s ability to meet its goals of increased coverage and controlling health care costs rests on a
foundation of shared responsibility amongst individuals, employers, and government. Individuals must
obtain coverage or pay a penalty. Large employers must offer coverage or pay penalties. The federal
government will subsidize coverage bought through the health exchanges. The state will expand Medi-Cal
to cover more low-income uninsured individuals.
Most employers will fulfill their responsibilities by offering affordable health coverage at the
required minimum value or by paying penalties. Some profitable, large employers, however, are avoiding
their responsibilities by reducing their employees’ hours and/or pay to income levels that would qualify
them for Medi-Cal. Under the ACA, there is no penalty for employers whose employees receive coverage
through Medi-Cal or responsibility to offer coverage to part-time workers. When employers fail to share
the responsibility for health care, they shift the burden to the individuals who are least able to pay for
their own care or insurance, and taxpayers, who pay the costs of insurance through Medicaid and safety
net health services at the county level.
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Some Large Employers Undermine the ACA
Most employers are expected to comply or pay fine to fulfill their responsibilities under the ACA.
An International Foundation of Employee Benefit Plans survey of employers found that just 16% said they
would cut hours down to part-time levels in order to avoid the penalties.2 Retail and wholesale industry
companies that are not currently offering coverage are more likely to try to evade the ACA by adjusting
staffing, according to Mercer Consulting. Its survey found that 67% of such firms may “change their
workforce strategy” to fall below the 30 hour threshold.3
At a time when corporate profits have recovered from the recession and worker incomes lagging
behind, some large employers have or are planning to shirk their responsibilities under the ACA and
further profit from public subsidization of their workers. The worker share of national income declined to
61.7% in 2012, while corporate profits rose to its 14.2 percent, a record high since 1950.4 Some of the
same companies that have increased their profits over the last few years have also publicly stated their
interest in or plans for avoiding the ACA.
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Recent news of companies or their franchisees planning to evade the ACA include the following:
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Wal-mart announced it will not cover new employees working under 30 hours and may consider
additional actions for existing employees.5 In the future, its new employees who work under 24
hours will not receive any health benefits and new employees between 24 and 33 hours will no
longer receive spousal coverage.6
Papa John’s may cut hours and increase the price of pizza. The company’s CEO said the ACA would
add 14 cents to the price of each pizza and franchisees may need to cut hours. 7
Regal Entertainment Group reduced hours: The company reduced some workers’ hours to 30 a
week and told “managers to explain the change to workers by telling them that the Affordable
Care Act forced the company to raise its health budget,” according to news reports.8
Krispy Kreme suggested it may avoid the new mandates through staffing changes. The company
said the cost of insuring the 1,300 workers subject to the law would be $5 million before it took
steps "to reduce the number of employees subject to the new requirements."9
Universal Orlando drops plan for part-timers: The 500 part-timers currently on the theme park
company’s health insurance plan will lose their insurance when the company eliminates coverage
for part-time workers beginning in 2014.10
Darden Restaurants, the owner of Red Lobster and Olive Garden, planned to cut hours, but then
backed off because of the negative publicity.11
Some franchisees have publicly stated their intentions to reduce employment, including Burger
King, McDonald’s, KFC, Dunkin’ Donuts, Taco Bell, and Wendy’s but others fear the negative
publicity that may ensue from announcing their intentions.12
Over the last three years, these companies have been profitable and increased their profits:
Company Profits, 2010 to 2013 (Last Three Annual reports available)
Wal-Mart
Darden Restaurants
Krispy Kreme Doughnuts
Regal Entertainment Group
Last FY End
Date
FY Ended in
2012/2013
FY Ended in
2012/2011
FY Ended in
2011/2010
1/31/13
5/27/12
2/3/13
12/27/12
$17.0 billion
$475.5 million
$20.8 million
$144.8 million
$15.7 billion
$476.3 million
$166.3 million
$40.3 million
$16.4 billion
$404.5 million
$7.6 million
$77.6 million
Papa John’s Pizza
12/30/12
$61.7 million
$54.7 million
McDonald’s
12/31/12
$5.5 billion
$5.5 billion
Yum! Brands (owns Taco Bell,
12/29/12
$1.6 billion
$1.3 billion
KFC, Pizza Hut)
Source: Google Finance, www.google.com/finance, downloaded 5/27/13.
$52.6 million
$4.9 billion
$1.2 billion
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Part-Timers and Health Care
Millions of workers want to work full-time, but employers have reduced their hours and
subjected them to unpredictable scheduling in order increase profits. In California alone, the involuntary
part-time workforce has increased 126% in CA from 585,100 in 2006 to 1.3 million in 2013. Nationwide, it
increased 80% to 7.9 million in the same time period.13 Through heavy use of part-time work, employers
have not only created unstable work and home lives for workers, but also in effect received subsidies
from taxpayers in the form of income supports, food stamps, and Medicaid benefits for which their lowpaid workers are eligible.
The problem is particularly widespread in the retail and hospitality sectors. Nationwide are 3.1
million part-time retail and hospitality workers who would prefer to work full-time. These part-time
workers often are unable to put together enough hours to make ends meet even if they would like to
work more hours or obtain a second job.14
Workers in retail and wholesale have been particularly vulnerable to the increasing trend of parttime, unpredictable work schedules. According to the retail consulting firm Strategic Resources Group,
the sector shifted from 70-80% full-time to 70% part-time over the last twenty years in part due to
retailers competing with Wal-mart and adopting its practice of using part-time workers to cut costs.
Overall the retail and wholesale sector lost one million full-time jobs since 2006, but gained 500,000 parttime jobs. Scheduling software has made it easier and less time-consuming for managers to schedule
many employees on shorter shifts and even enables them to use data about the weather and peak
customer traffic to make more precise estimates of staffing needs. Jamba Juice’s savings of 4 to 5
percentage points off of labor costs translated to millions of dollars annually.15
The New York Times reported that even after asking for more hours, part-time workers found
that their employers chose to hire more workers instead. They were trapped in their unpredictable
schedules, unable to take a second job, because they had to stay available at a moment’s notice for last
minute scheduling requests or risk losing future shifts for being unavailable. The companies responsible
included large, well-known employers such as Fresh-and-Easy, Wal-mart, Jamba Juice, and Express. In
return for their flexibility, the part time workers in the service sector were paid less in benefits and wages
than full-time workers. Full-time service workers on average received $4.93 in benefits and $12.25 in
wages, while part-timers received $2.02 in benefits and $8.90 in wages. Since they receive less in wages
and benefits than full-time workers, they were more likely to use public assistance programs such as food
stamps or Medicaid.16
In California, Wal-mart’s use of public assistance has already cost the state a substantial amount
in health care, food stamps, subsidized school lunches, and subsidized housing. A UC Berkeley report
estimated that Wal-mart workers receive an average wage of $9.70 an hour, which is about 31% lower
than the $14.01 average wage for large retailers. Wal-mart covers 48% of workers with its insurance plan,
while other large retailers cover 54% of their workers on average. As a result, its workers use 40% more
public health care assistance than the retail average. The company’s use of public assistance costs
California $86 million per year, including $32 million for health care. The 19% of Wal-mart workers who
are uninsured cost the state $10 million and the country $202 million. If other companies followed Walmart’s practices, it could cost the state $410 million. 17 18
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During most of the last decade, California was above the national average in employers offering
coverage, but now the figure has since fallen to about the same as the national average. From 2002 to
2012, the percentage of California employers offering health insurance decreased from 71% to 60%.
Firms with fewer part-time workers and those having some union workers were more likely to offer
coverage.19
The ACA and Medicaid Expansion
As part of the state’s role in the Affordable Care Act, California is expanding Medi-Cal coverage to
include incomes up to 138% of the Federal Poverty Line (FPL), which translates to $15,856 for a single
individual and $32,499 for a family of four in 2013, and adds the categories of adults up to age 65 without
disabilities or children. Under current Medi-Cal rules, the already-eligible groups are low-income children,
pregnant women, parents, seniors, and people with disabilities. Under the expansion, the newly-eligible
will include parents between 100% of FPL (the current limit) and 138% of FPL and “childless adults” up to
138% of FPL.20
When the state conducts its massive outreach and education effort to inform Californians of their
health care coverage options, many people will learn of their Medi-Cal eligibility and the requirement for
individual coverage, and subsequently enroll in Medi-Cal. Medi-Cal will enroll a total of 1.2 to 1.6 million
new people, including those who are already eligible under current rules as well as those for who fall
under the expanded eligibility rules.21
The state must pay its usual 50% share for the “already-eligible” population that enrolls in
Medi-Cal. There are now 2.5 million eligible, but not enrolled in Medi-Cal. Of this number, between
240,000 and 510,000, are predicted to enroll in Medi-Cal as a result of the ACA’s outreach and enrollment
efforts. The state’s 50% share of the new spending on Medi-Cal costs will cost between $188 and $453
million in 2014. For the expansion population of “newly-eligibles,” the federal government will pay 100%
of the cost for the first three years and at least 90% in subsequent years, but the state will need to cover
the remaining 10% of the costs.22
If large employers add their employees to the Medi-Cal program, the costs can quickly add up for
the state and federal government. On average, a non-disabled adults on Medicaid spent $4,362 in 2011.23
Under the ACA, they would be able to shift their costs to the government program without penalty.
Employers’ conversion of jobs from full-time to part-time has been a driving force behind the
increase in the uninsured population over the last two decades. Now with the ACA about to take effect,
they stand to benefit even further from the expansion of Medi-Cal and the state’s outreach and
education to inform low-income Californians of their health options. Most employers and individuals will
fulfill their responsibilities to provide or obtain coverage, but some large employers—those who are most
able to contribute to health care coverage—are seeking an advantage at the expense of taxpayers and
low income residents—those who are least able to afford the cost of health care—by pushing even more
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of their employees onto the Medi-Cal system. This will only add to the challenges facing the state in
successfully implementing the new health care law.
1
Ken Jacobs et al., Nine Out of Ten Non-elderly Californians Will Be Insured When the Affordable Care Act Is Fully Implemented
(UC Berkeley Labor Center, June 2012), http://laborcenter.berkeley.edu/healthcare/aca_implemented12.pdf.
2 International Foundation of Employee Benefit Plans, ACA 2013 Preliminary Survey Results, April 2, 2013,
http://www.ifebp.org/pdf/research/ACA%202013%20Survey%20Results%20Summary.pdf.
3 “ObamaCare and the ‘29ers’,” Wall Street Journal, February 22, 2013, sec. Review & Outlook,
http://online.wsj.com/article/SB10001424127887324616604578304072420873666.html.
4 Nelson D. Schwartz, “Corporate Profits Soar as Worker Income Limps,” The New York Times, March 3, 2013, sec. Business Day
/ Economy, http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html.
Jed Graham, “Retail Workweek Hits 3-Year Low As Firms Evade ObamaCare Mandate,” Investors.com, February 1, 2013,
http://news.investors.com/print/ibd-editorials-perspective/020113-642941-retail-leisure-jobs-hours-down-obamacarelooms.aspx.
5 Sally C. Pipes, “Under ObamaCare, Many Will Lose Their Coverage,” Investor’s Business Daily, Dec. 27, 2012
6 Steven Greenhouse and Reed Abelson, “Wal-Mart Cuts Some Health Care Benefits,” The New York Times, October 20, 2011,
sec. Business Day, http://www.nytimes.com/2011/10/21/business/wal-mart-cuts-some-health-care-benefits.html.
7 Sally C. Pipes, “Under ObamaCare, Many Will Lose Their Coverage,” Investor’s Business Daily, Dec. 27, 2012
8 Regal Entertainment Group Cuts Employee Hours, Explicitly Blames Obamacare In Memo: Report,” The Huffington Post, April
17, 2013
9 Jed Graham, “Retail Workweek Hits 3-Year Low As Firms Evade ObamaCare Mandate,” Investors.com, February 1, 2013,
http://news.investors.com/print/ibd-editorials-perspective/020113-642941-retail-leisure-jobs-hours-down-obamacarelooms.aspx.
10 “Universal Orlando's Obamacare Response: We're Dropping Health Insurance For Part-Time Workers,” The Huffington Post,
February 21, 2013.
11 Graham, “Retail Workweek Hits 3-Year Low As Firms Evade ObamaCare Mandate.”
12 “ObamaCare and the ‘29ers’.”
Vanessa Renderman, “Hold the fries: Obamacare may drive up fast-food costs,” The Times (Munster, Indiana)
13 Ricardo Lopez, “Pitfalls Seen in Growth of Part-time Work,” Los Angeles Times, February 6, 2013,
http://articles.latimes.com/2013/feb/06/business/la-fi-part-time-workers-20130207.
14 Steven Greenhouse, “A Part-Time Life, as Hours Shrink and Shift for American Workers,” The New York Times, October 27,
2012, sec. Business Day, http://www.nytimes.com/2012/10/28/business/a-part-time-life-as-hours-shrink-and-shift-foramerican-workers.html.
15 Ibid.
16 Ibid.
17 Arindrajit Dube, Ken Jacobs, and Steve Wertheim, Internal Wal-mart Memo Validates Findings of UC Berkeley Study (U,
October 26, 2005), http://laborcenter.berkeley.edu/retail/walmartmemo.pdf.
18 Arindrajit Dube and Ken Jacobs, Hidden Cost of Wal-mart Jobs, Use of Safety Net Programs by Wal-mart Workers in California
(UC Berkeley Labor Center, August 2, 2004), http://laborcenter.berkeley.edu/retail/walmart.pdf.
19 California Healthcare Foundation, California Employer Health Benefits Survey: Fewer Covered, More Cost, April 2013,
http://www.chcf.org/~/media/MEDIA%20LIBRARY%20Files/PDF/E/PDF%20EmployerHealthBenefits2013.pdf.
20 California Budget Project, “Expanding Horizons: Key Facts About the Medi-Cal Program as California Implements Health Care
Reform,” April 2013, http://www.cbp.org/pdfs/2013/130402_Expanding_Horizons.pdf.
21 Jacobs et al., Nine Out of Ten Non-elderly Californians Will Be Insured When the Affordable Care Act Is Fully Implemented.
22 Laurel Lucia et al., Medi-Cal Expansion Under the Affordable Care Act: Significant Increase in Coverage with Minimal Cost to
the State (UC Berkeley Labor Center, January 2013), http://laborcenter.berkeley.edu/healthcare/medi-cal_expansion13.pdf.
23 Kathleen Sebelius, Report to Congress: 2012 Actuarial Report on the Financial Outlook for Medicaid (U.S. Dept. of Health and
Human Services), accessed May 23, 2013, http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Financingand-Reimbursement/Downloads/medicaid-actuarial-report-2012.pdf.
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