Sullivan’s Foods made a difficult choice concerning its employees when the Patient Protection and Affordable Care Act became law.
The 12-store grocery chain has more than 100 part-time employees working 32 to 34 hours per week. Most of them have several years with the company, the kind of experience the company brass is pleased to employ.
But the Affordable Care Act has an “employer mandate” that defines an employee who works more than 29 hours per week as a full-timer. The mandate further requires that any employer with more than 50 full-time employees — or the hourly equivalent — must offer them health insurance or face stiff financial penalties.
The mandate forced the grocer’s hand. Sullivan’s chose to cut part-time employee hours to no more than 28 per week so it could remain profitable. If the company offered health insurance to its part-time employees or chose to pay the fines, the costs would be too great and the entire chain of stores would close.
“We’re in a pennies business — we’re not making a lot of money selling peas,” said Sullivan’s Foods human resources director Kathy Christensen. “We could not survive — there’s no way. We would have to close so we made a very difficult decision to limit employee hours. It was grief for us and grief for our employees.”
The ACA promises are bold: health insurance for all, lower prices through government-regulated insurance markets and improved quality. But the actual effects beyond the politics are becoming clear as the law trickles into existence.
Most businesses within rural communities such as the Illinois Valley do not employ more than 50 full-time employees and therefore do not have to comply with the employer mandate.
That compounded the agony when Sullivan’s Foods made its decision to limit hours. Many of its employees and their families were angered at the loss of wages. They also noticed other stores in the community weren’t cutting back hours due to new health care laws and became suspicious the cuts were for other reasons.
“I was a little mad, any employee would be,” said Derek Schwartz, a bagger/stocker at Sullivan’s in Mendota. “There were some things I questioned but people are losing hours or their jobs everywhere. Now I see why.”
Ironically, the proof of Sullivan’s honesty wasn’t noticed by its employees until the employer mandate was temporarily lifted. When that happened, Sullivan’s had reinstated its part-timers back to typical 30-plus hour work weeks. But the reinstatement came with an explanation that part-time hours would be cut immediately after the mandate is reinstated Jan. 1, 2015.
“When you’re a big employer in a small town, this law makes you look like the bad guy,” Christensen said. “It was a very difficult decision. We disliked it. And it affects the way we do business and the lives of our employees.”
The cost to taxpayers
The employer mandate’s impact isn’t limited to private businesses.
Illinois Valley Community College faces the same difficult decisions as Sullivan’s and already has instituted permanent changes.
IVCC vice president of business services and finance Cheryl Roelfsema said the college relies heavily on its 160 part-time faculty members and 75 part-time non-teaching positions. But in order to avoid paying an estimated $500,000 in fines, the college has opted to limit part-time staff to working no more than 29 hours per week.
“We rely heavily on part-time faculty because of the experience they bring to the classroom especially in our technical programs,” Roelfsema said. “This impacts how much they can teach.”
The alternative would be to offer health insurance. Roelfsema said the college business office hasn’t conducted a formal study but she is certain that option would cost much more than the fines.
“If we were to accept the fines, that would become a general operating expense,” Roelfsema said. “We would have to cut educational resources and we’ve already been doing that for a couple of years.”
A mandated surprise
In addition to the looming employer mandate is another fine that will affect many Illinois Valley businesses.
Beginning Oct. 1, any business with at least one employee and $500,000 in annual revenue must notify all employees by letter about the Affordable Care Act’s health care exchanges. If not, they will be fined $100 per day. The requirement applies to all businesses regulated under the Fair Labor Standards Act. Also, new hires are to be notified within 14 days of their starting date, according to the Department of Labor.
Maze Nails comptroller Roger Vaccaro first learned about the fine earlier this month. Now he, like many other Illinois Valley employers, are scrambling to discover how exactly to comply with the law.
“The entire law and all of its requirements are very fluid and confusing,” Vaccaro said. “We hear new things from multiple agencies and it’s just difficult. This notification requires a lot of time and a lot of paperwork.”
The frustration doesn’t end there. Maze Nails is self-insured. That means the company creates a fund to cover and control its own health insurance costs using its own cash. They also purchase catastrophic insurance that, due to the health care law, may no longer have any caps which has caused premiums to skyrocket for the nationwide nail and screw manufacturer.
And if that weren’t enough, the ACA requires Maze Nails to list on each employee’s W-2 tax form the value of that employee’s health insurance. But that becomes a difficult task. Not only does each employee receive differing types of benefits, but also different types of payouts.
For example, if a person has a $200,000 surgery the value of that health insurance will be affected that year.
“We all know the entire point of listing the value on the insurance is so that one day they can tax it,” Vaccaro said. “There is something wrong with the health care system as it was before, but I don’t think it was necessary to tear it all down just to try and fix a couple things.”
Did you know?
The Patient Protection and Affordable Care Act implemented 20 new tax and fee increases. Below are those taxes and penalties that were implemented this year and will be in upcoming years.
Effective this year:
10. Surtax on investment income — this is a new 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This tax hike results in the following top tax rates on investment income:
- Capital gains — 23.8 percent
- Dividends — 43.4 percent
- Other — 43.4 percent
Other includes gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. (Bill: Reconciliation Act; Page: 87-93)
11. Medicare payroll tax increase — Pre-Obamacare: For the first $200,000 earned you pay 1.45 percent, employer pays 1.45 percent and self-employed pays 2.9 percent tax. Under Obamacare: For the first $200,000 earned you pay 1.45 percent, employer pays 1.45 percent and self-employed pays 2.9 percent on the first $200,000 of earnings. On all earnings after $200,000 you pay 1.45 percent/employer pays 2.35 percent and self-employed pays 3.8 percent. (Bill: PPACA, Reconciliation Act; Page: 2000-2003; 87-93)
12. Medical device manufacturers tax — This law imposes a new 2.3% excise tax, but exempts items retailing for less than $100. (Bill: PPACA; Page: 1,980-1,986)
13. High medical bills tax — Currently, people facing high medical expenses are allowed a deduction for those expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income. The new law imposes a threshold of 10 percent of adjusted gross income. It is waived for 65 and older taxpayers in 2013-2016 only. (Bill: PPACA; Page: 1,994-1,995)
14. Flexible Spending Account cap — Known commonly as the “Special Needs Kids Tax” it imposes a cap on FSAs of $2,500 (it had been unlimited). The negative moniker was created by the law’s opponents who say thousands of families with special needs children in the United States use FSAs to pay for educating their children because FSAs are funded using their pre-tax earned dollars. (Bill: PPACA; Page: 2,388-2,389)
15. Tax deduction for prescription drugs — Elimination of tax deduction for employer-provided retirement prescription drug coverage in coordination with Medicare Part D (Bill: PPACA; Page: 1,994)
16. Executive compensation limit — $500,000 annual executive compensation limit for health insurance executives (Bill: PPACA; Page: 1,995-2,000)
17. Individual mandate excise tax — Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following: $95 or 1 percent of their gross annual income. The tax increases each year thereafter until 2016 when it reaches the greater of $695 or 2.5 percent of gross annual income. Exemptions exist for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases as determined by HHS. (Bill: PPACA; Page: 317-337)
18. Employer mandate tax — If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2,000 for all full-time employees. This applies to all employers with 50 or more employees who work more than 29 hours per week. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3,000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). (Bill: PPACA; Page: 345-346)
19. Health insurers tax — An annual tax on the industry imposed relative to health insurance premiums collected that year. This will phase in gradually until 2018; fully-imposed on firms with $50 million in profits. (Bill: PPACA; Page: 1,986-1,993)
Effective in 2018:
20. Excise tax on comprehensive health insurance plans — Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family); higher threshold ($11,500 single/$29,450 family) for early retirees and high-risk professions. (Bill: PPACA; Page: 1,941-1,956)
Source: Americans for Tax Reform — a non-partisan coalition of taxpayers and taxpayer groups who oppose all tax increases.
Kevin Caufield can be reached at (815) 220-6932 or email@example.com.