Leviathan Eats Its Tail

by Jillian Kay Melchior
Municipal governments cut employees’ hours to avoid the Obamacare employer mandate.

Government autocannibalism is emerging as perhaps the oddest unintended consequence of the Obama health law. As Big Government tinkers with the insurance market, Small(er) Government is being forced to cut back on the hours of its employees.

The health law mandates that employers with more than 49 full-time workers offer approved insurance coverage. If an employer fails to provide this but crosses the 50-worker threshold, it must pay $40,000 in fees plus $2,000 to $3,000 for each full-time employee over the first 50.

Late last year, businesses including Carl’s Jr., Hardee’s, Red Lobster, and Olive Garden came under fire for accurately describing how the employer mandate would affect their hiring and employment policies. Because each additional full-time employee carries such a heavy cost, they warned, many small-business or franchise owners would choose not to expand their workforce.

This summer, municipal governments are realizing they face the same problem. Across the United States, they are already facing financial strains. The Great Recession and the housing crisis caused property-tax revenue, a critical income source for cities, to decline sharply. The stimulus may have delayed the pinch, but now that federal and state aid to local governments is also on the decline, municipal finances are increasingly tight.

Given that context, the employer mandate is a particularly tough burden for many cities and school districts. In the public sector, the 50-worker threshold is almost always already surpassed. Because the employer mandate pertains only to full-timers, the insurance requirement or penalty doesn’t apply when a worker puts in 29 hours a week or less.

So state and local governments, as well as school districts, are cutting back on hours for their employees to get around the added costs imposed by Obamacare.

As the Detroit News editorial page reported, 200 part-time and seasonal employees in Dearborn, Mich., will have their hours scaled back to 28 hours a week or less. The city’s mayor attributed the decision directly to the employer mandate.

In Medina, Ohio, many city employees are already working six fewer hours a week than they had been when the employer mandate wasn’t a factor. The city has estimated the employer mandate would add around $1 million in health costs, a hard burden for a city with fewer than 27,000 residents.

Back in February, Medina’s mayor, Dennis Hanwell, lamented that “we have the budget to pay the people, but we do not have the budget to pay for the health care” under the new law. Some of the affected city workers have already quit, seeking employment elsewhere because they can’t afford to be part-timers.

Around 280 part-time workers at Nebraska’s Papillon–La Vista school district will see their hours cut, too, the Omaha World Herald has reported.

The school district broke down the costs: Already, these part-time paraprofessionals cost the school district $5 million. Giving them health insurance would add an additional $2.5 million in expenses, and the penalty for not insuring them would be $3.4 million. All those options were too costly, so the district is instead cutting hours, and the school’s paraprofessionals will earn up to $3,300 less than they did last year.

And in Virginia, about 7,000 part-time public employees will see their hours curtailed. Some of them had worked up to approximately 40 hours a week, but they’ll now be forbidden to surpass the 29-hour weekly cutoff.

These are just a few examples. A recent report from Fox cited at least eleven other school districts and colleges and five other municipal governments that are being forced to cut back on employee hours as a direct result of the Affordable Care Act.

A fiscal conservative’s first reaction might well be schadenfreude: After all, the American Federation of State, County & Municipal Employees was a big supporter of the health law. And the union’s director of collective bargaining and health-care policy, Steven Kreisberg, has gone so far as to claim that AFSCME played “an important role in the passage” of Obamacare.

There’s a delightful irony when the hungry Leviathan ends up eating its own tail.

— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.

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