Part-Time Employees May Be Better Off under Obamacare than Full-Time Workers

October 10, 2014 - National Center for Policy Analysis

Economist Casey Mulligan has published a new report for the Mercatus Center highlighting how the Affordable Care Act changes the incentives of employers and employees and pushes many to part-time work.

Mulligan points out three ACA provisions that will change the nature of the typical workweek:

The law imposes a penalty on large employers who fail to offer health insurance to their full-time (30 hours or week or more) employees, encouraging employers to reduce employees to working 29 hours per week.
It does not allow full-time employees and their families to receive subsidies on the health care exchanges if those employees were offered coverage by their employers, meaning the only employees eligible for subsidies (which can be worth more than $10,000 annually) are those who work part-time. Mulligan calls this "an implicit tax on full-time employment."
It provides lower amounts of subsidies as incomes rise. As a result, households face losing subsidies as well as additional taxes as their earnings increase, which can reduce work incentives.

How do these incentives work in practice? Mulligan offers the example of an employee deciding between a full-time or a part-time position with an employer. While the full-time position offers higher wages, the part-time position provides the employee the opportunity to receive federal health care subsidies. When taxes and health expenses are accounted for, Mulligan concludes that the part-time employee would earn more each year than the full-time employee would.

Full-time work (at 40 hours per week) would cost the employee $100 each week in commuting and child care expenses and offers total gross compensation (which includes salary as well as benefits) of $52,000.
The part-time position (at 29 hours per week) would cost $75 in commuting and child care expenses and offers gross compensation of $37,700.
The full-time position provides employer-sponsored health insurance (meaning the employee would pay part of his health costs and would not be eligible for subsidies were he to go to the exchanges), while the part-time position would make the employee eligible for federal subsidies.

After accounting for the costs of each health insurance option, Mulligan calculates the employee would actually earn more in the part-time position, earning $28,854 in the part-time position but just $27,021 in the full-time job.

The study estimates Obamacare will ultimately reduce employment and hours worked by over 3 percent -- the equivalent, he explains, of 4 million full-time workers.

Source: Casey B. Mulligan, "The Affordable Care Act and the New Economics of Part-Time Work," Mercatus Center, October 7, 2014.