Good news is coming for about 600 employees of Park West Cos. Inc., a landscape, construction and maintenance company in Rancho Santa Margarita. Starting in 2015, they're getting company-sponsored health insurance.
The bad news for Park West: The move will cost it about $2.5 million a year. So the company is considering cost-saving moves such as eliminating coverage for spouses and raising co-payments and deductibles in the company-offered insurance, which would lower premiums. Even that will only save about $200,000, though.
"So I'm starting at about $2.3 million in increased costs, and I'm going to have no choice but to pass those costs along to my customers," said Chief Operating Officer Jim Tracy. "I'm going to have to increase my contract costs in some cases by as much as 10 percent to offset the cost of insurance."
Cutting employees' hours to evade the requirements of the Affordable Care Act, which some call Obamacare, is "not a viable option," Tracy says. "The people in this business are the single most important resource I've got."
In recent weeks, high-profile corporations have reset their employee health care offerings as Obamacare approaches critical mass:
-- Disneyland said it recently offered full-time status to 1,000 part-time employees who had worked more than 1,500 hours in the past year -- the number that would make them eligible for medical benefits under the health reform law.
-- Trader Joe's is cutting health benefits for part-timers and sending them, along with $500, to the Obamacare exchanges.
-- UPS is eliminating insurance for employees' spouses who have other options.
-- Walgreen, the giant pharmacy retailer, will give full-time workers a fixed sum to purchase coverage from a smorgasbord of options on a private insurance exchange.
That's just the tip of the iceberg. Companies of all sizes and in all industries, in Orange County and across the nation, are working away beneath the radar to figure out what the federal health reform law means for their profits and their workers. Many local companies -- seeing orders rise as the economy improves -- say they won't cut workers or hours, but instead plan to reduce health benefits in existing coverage.
Employer calculations depend on many factors: the size and demographics of their workforce, the strength of their profit margins, their corporate culture, the degree of competition for business and talent within their industry, and the type of health insurance they offer already -- if any.
Not all the deliberations are to satisfy statutory requirements of Obamacare. The law is helping to shape longer-term thinking about how employers deliver health coverage, in some cases solidifying ideas that have been in the works for years as companies grappled with rising health care costs.
But, of course, compliance with the new rules -- and what that will cost -- is foremost on the minds of many corporate managers. That is especially true at companies with at least 50 employees who work more than 30 hours a week, which is the threshold for determining whether employers will be liable for a penalty if they don't provide insurance.
And merely providing insurance will not be enough to avoid penalties. The insurance offered must meet federal thresholds for affordability and minimum benefit levels.
True, this "employer mandate" has been delayed by a year, until Jan. 1, 2015. But a year is not a long time with something as tangled as Obamacare, and companies of all stripes are busy taking stock, preparing for some hard decisions.
Nationwide, more than 94 percent of employers with at least 50 employees provide medical insurance, according to the Kaiser Family Foundation. But many of them do not cover part-time workers. The financial burden may be particularly heavy for companies with a significant number of part-timers who work more than 30 hours a week and don't currently get health benefits.
Dorothy Cociu, president of Advanced Benefit Consulting and Insurance Services in Yorba Linda, says that a majority of her corporate customers are dropping spousal coverage entirely, "because they can't afford not to."
(Obamacare requires that companies offering health insurance must provide coverage of dependent children, but not spouses.) Most companies that offer employee insurance already have plans with benefit levels that exceed the minimum Obamacare requirements, and many of them are "reducing benefits like crazy" to manage their additional costs, she said.
"There are tough decisions that have to be made," said Cociu. "It is the law, and you have to find ways to make it work financially for you." But for the most part, she said, her clients don't want to cut their people from full-time to part-time hours to avoid paying for their insurance.
Some employers, however, are doing just that. Forever 21, the clothing retailer, decided recently to downgrade an undisclosed number of full-time staff members to just 29.5 hours. SeaWorld said it would limit part-time workers to 28 hours a week, down from a previous cap of 32.
But the strategy can backfire.
Peter Fresca, a benefits advisor at The LBL Group in Los Alamitos, a partner firm of United Benefit Advisors, said that one car wash he knew of had decided to limit employees' hours to 25 a week. But it ended up having to hire more people, because its existing workers had to take second jobs and no longer had the flexibility to take shifts that needed filling.
Other companies are going in the opposite direction. Faced with the onerous and expensive task of calculating every year whether employees with variable hours would be eligible for insurance under Obamacare, they are simply avoiding the hassle by upgrading them to full time.
A Disneyland representative dampened the notion that avoidance of administrative headaches was a factor in the amusement park's decision to upgrade part-timers to full-time status. But business consultants and benefit management companies say they are seeing companies make that calculation.
"In some service firms, efforts to track service can be expensive. So moving people into full-time status can dramatically simplify their administration," said John Haslinger, vice president of strategic advisory services for ADP, a national human resources and benefits administration company.
Another approach is the one followed by Trader Joe's: dropping coverage for part-timers and giving them some cash to help pay for health plans sold through the public insurance exchanges. In an e-mail first published by The Washington Post, a Trader Joe's executive suggested that it was acting in the interest of employees who do not make a lot of money and could obtain federal tax credits via the exchange to help pay for coverage.
"Somewhat by definition, the law provides those people a pretty good deal for insurance ... a deal that can't be matched by us -- or any company," the executive wrote. "However, an individual employee is only able to receive the tax credit from the exchanges under [Obamacare] if we do not offer them insurance under our company plan."
Indeed, many observers predict that the exchanges could prove to be better for lower-income working people than coverage offered by their employers.
"If exchanges are successful, it may turn out that employees will want to be in them. They may say, 'Gee, look at those costs. They are much cheaper than what I am getting,'" said Karen Marlo, vice president of the National Business Group on Health, which represents large U.S.employers in the health care arena. "I think in a few years out, things may evolve to a situation where employees are asking their employers to let them go there."
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