Over the weekend comments from Papa John’s founder and CEO John Schnatter have sparked a minor controversy. According to the Naples News, Schnatter acknowledged that some franchise owners will likely cut some workers’ hours to keep them from being hit with the free rider penalty.
While it would be great if every company was a good corporate citizen, this is a problem almost entirely created by the Affordable Care Act containing a terribly designed provision that creates incentives for small companies to reduce workers’ hours.
A company with 50 full time employees or the equivalent in part-time workers who doesn’t provide health care isn’t subjected to the free rider penalty. If that company, though, slightly increased hours for a few of their part-time workers, it would put them over the 50 employee threshold and they would be subject to a penalty costing tens of thousand of dollars. Given that, an employee’s one extra hour could cost the company thousands.
The provision was created to penalize companies that didn’t provide health insurance, but that goal could have been easily accomplished with a better provision that didn’t create this bad incentive. For example, companies that don’t provide insurance could be subject to a 50 cent penalty for every employee hour worked. That way there wouldn’t be some arbitrary threshold that companies would have an incentive to cut hours to stay under.
If you are upset about companies planning to cut hours in response to the free rider provision in Obamacare, your disappointment should really be directed at the Congressional Democrats who knowingly chose to adopt a stupid policy.
Photo by Arturo de Albornoz under Creative Commons license.