U.S. Markets open in 5 hrs 1 mins

Firms Cut Benefits Before ObamaCare

Employer spending on benefits rose at the slowest pace on record in the first quarter, as companies began bracing for higher health costs with next year's launch of ObamaCare.

Total benefits, such as insurance and pension contributions, rose just 0.1% vs. the end of last year, the smallest gain in Labor Department data going back to 2001. By comparison, payroll employment grew by a half-million, or 0.4%, in Q1. So benefits-per-worker declined.

Total employee benefits provided outside of government jobs declined outright.

The 2010 health law is expected to have its biggest impact on modest-wage service-sector industries, where coverage that meets ObamaCare requirements is less common. Not surprisingly, the abrupt change toward stingier employee benefits was even more evident here.

Total benefits in service occupations shrank 0.3% in Q1, the first decline in data going back to 2002.

Given that service-sector benefit costs rose throughout the past decade, even in much-weaker economic conditions than now, the evidence points to ObamaCare as the culprit.

Total benefits provided by private-sector employers also shrank 0.3%, though the government noted missing data for white-collar office and sales jobs, which made the reading less reliable.

Over the last year, relatively paltry service-sector wage growth of 1.5% has outpaced the 1.4% increase in benefits, reversing a long-standing trend.

Slower health-cost growth may be a contributing factor but wouldn't explain outright declines in per-person benefits.

A possible explanation for the sudden shift could be that a smaller share of workers are being provided health care and other benefits due to part-time status — less than 30 hours per week under ObamaCare.

Under ObamaCare regulations issued in January, the fines employers face in 2014 for failing to provide minimum-required coverage will be based on employment levels starting this July.

In the past six months or so, a parade of service-sector companies has said they're mulling changes to worker hours and health benefits to reduce the cost of complying with ObamaCare.

For example, Krispy Kreme (KKD) said in an SEC filing that it has 1,300 workers without coverage who may be entitled to it under ObamaCare at a potential cost of up to $5 million — before actions it might take "to reduce the number of employees subject to the new requirements.

Fiesta Restaurant Group (FRGI), which operates 251 restaurants in four states, said it is "reviewing our strategy for employing part-time vs. full-time employees" in managing compliance costs.

Fewer firms have been upfront in saying they'll actually reduce full-time employment, which isn't surprising given a backlash faced by Darden Restaurants (DRI) last year for acknowledging such a plan.

But in recent weeks, movie theater operator Regal Entertainment Group (RGC) said it would cut hours for nonsalaried employees and AAA Parking said it would move half of full-time employees to part-time, both citing efforts to lower the costs of complying with ObamaCare.

Thus, the decline in per-person employee benefits doesn't appear to reflect a lower cost of benefits so much as a coming shift in the burden of benefits to the government.

Most part-time workers are likely to qualify for ObamaCare subsidies, which are available to those who earn up to 400% of the poverty level.

ObamaCare exempts firms with fewer than 50 full-time equivalent employees from providing health care coverage. Firms with at least 50 workers face fines based on the number of employees who receive ObamaCare subsidies, which are only available to people who lack affordable coverage from an employer.

But those fines — up to $3,000 per ObamaCare subsidized worker — won't apply for part-time workers.