Businesses React to Affordable Care Act Mandate

ERINN FIGG | Special to The Daily News

With increased health care costs on its horizon, Orlando, Fla.-based Darden Restaurants Inc. recently made national headlines when it dodged Affordable Care Act requirements by cutting back on its full-time employee hours.

Although news sources and pundits are buzzing about the decision, many Memphis business leaders are reluctant to publicly weigh in on it. Several requests for interviews for this article were met with “no comment” and “no thank you.” Repeated calls and emails to a few business owners and PR representatives went unanswered. Some sources that did respond said they preferred not to comment on what they consider to be a politically charged topic.

They have a point. This topic has, in fact, sparked further controversy over whether planned health care reforms will ultimately help or hurt the nation’s workforce.

According to an Oct. 7 report in the Orlando Sentinel, Darden, the world’s largest casual dining company and owner of the Red Lobster, Olive Garden and LongHorn Steakhouse chains, has stopped offering full-time schedules to many hourly workers in “a select number” of restaurants in four markets.

Beyond that information, Darden isn’t saying much either. In an emailed statement to the Sentinel, a representative for the company said the changes are “just one of the many things we are evaluating to help us address the cost implications health care reform will have on our business.”

Mark Holloway, senior vice president and director of compliance services for Lockton Cos. – a global brokerage firm specializing in insurance, risk management and employee benefits – has been helping clients wade through the more than 2,000 pages of the Patient Protection and Affordable Care Act since it was signed into law in 2010.

“Employers that have large, lower-wage workforces are definitely thinking hard about this issue,” said Holloway, whose company serves 18 Memphis-area businesses among its worldwide clients. “They’re pondering whether to try and limit employee hours, like Darden’s decision, simply to get out from under health care reform.”

Under provisions of the Affordable Care Act, which takes effect in 2014, employers with 50 or more full-time employees are subject to a number of requirements and potential penalties, depending on the type of coverage they provide.

If the employer offers no coverage, they must pay a penalty of $2,000 for every full-time employee in the company (excluding the first 30) if even one employee obtains subsidized insurance through a health insurance “exchange,” or marketplace.

If the employer does offer coverage, but it’s not qualifying or affordable, that employer must pay a $3,000 penalty for each full-time worker who chooses to buy subsidized health coverage through an exchange instead.

Though the penalties may seem daunting, Holloway says company leaders need to think carefully about their overall business strategy before making decisions such as cutting hours or staff.

“You don’t want the tail to wag the dog. Often limiting people’s hours isn’t an option or will be more trouble that it’s worth” he said. “Companies need to factor in the costs of hiring and training additional part-time staff.”

Anita Haines, president of Pyramid Electric Inc. in Memphis, has nearly 100 full-time employees and no part-time employees. She has no problem voicing her thoughts on how the Affordable Care Act will affect her business strategy.

“If ACA comes into play, it will definitely impact my hiring practices and, more likely, the number of employees I’ll be able to retain,” said Haines, who currently covers half of her employees’ health care premiums. “To survive, I could be forced to use a rotating workforce, which would make many employees part-time. It’s not a desirable solution, but it’s one way to keep the doors open.”

Proponents say the Affordable Care Act actually will add to the labor market. Companies that offer health insurance will attract and retain talented employees. And because all employees will have insurance, employee wellness will increase. One proponent who did not wish to be identified in this article said, “A healthier workforce equals a more productive workforce.”

Dr. Gregory Laurence, owner and medical director of Germantown Aesthetics, agrees that happy, healthy employees are crucial for maintaining a thriving business.

Although he has an aggressive growth plan for his current practice of 18 full-time employees, he says he’ll most likely fall into the camp of business owners who will keep their workforce at less than 50 employees because of the Affordable Care Act. But he makes it clear that his disappointment with the act is based on his budget, not politics.

“I think this act is going to have a lot of unplanned consequences, but I have no ill will toward the person trying to find the solution,” he said.

He also wants people to understand that most business owners aren’t avoiding the act’s regulations because they don’t care about their employees’ health or don’t want them to have health insurance.

“Any employer who wants to have a successful business wants to retain good team members,” he said. “So they have to factor in insurance policies, retirement plans, vacation time, sick time and competitive compensation. If health care is mandated, it changes the flexibility we have to make our employees happy. History has shown us that when something is mandated, prices rise. That cost will have to come from somewhere, and unfortunately it will come out of the money budgeted for our staff.”