Target announced recently that they will discontinue offering health insurance plans to their part-time employees beginning April 1, 2014. With this announcement, Target joins a trend of cutting part-time coverage including companies like Trader Joe’s and Home Depot. While this strategy is effective for certain employers, other employers may not yield a significant benefit from this strategy. Individual employers must examine the specific aspects of their business and the needs of their employees to realize their best strategy for PPACA planning.
Beginning in 2015, PPACA will impose penalties on businesses employing 50 or more full-time employee equivalents who do not offer health plans meeting specific criteria to their full-time employees. There are no penalties for employers ceasing coverage of part-time employees. Also, certain individuals (e.g. under 400% of poverty line) seeking insurance on public exchanges can receive cost-sharing subsidies discounting their premiums and tax credits if their employer does not offer them an affordable minimum value plan. Target cited low participation and making subsidies available to part-time employees as the main reasons for dropping part-time coverage. As Target executive vice president of human resources, Jodee Kozlak, explained in a blog post, “The launch of Health Insurance Marketplaces provides new options for health care coverage that we believe our part-time team members may prefer. In fact, by offering them insurance, we could actually disqualify many of them from being eligible for newly available subsidies that could reduce their overall health insurance expense.”
Target’s choice to drop coverage of part-time employees reveals the unfortunate wedge PPACA drives between Target and their employees by tying employer penalties to employee subsidies. If the two were separated, Target could probably continue offering a plan.
Companies with a significant part-time work force will need to weigh the pros and cons of what health packages will work best for the employer and employees. Thus, even among alternatives, careful planning is required to ensure the best results for employers and employees.