Most of those without Medicaid are the working poor

Jayne O'Donnell and Laura Ungar | USA TODAY

Show Caption Hide Caption Helping the poor with healthcare and more Hospitals, community groups step in to bolster Medicaid services

They toil in America’s fast-food restaurants, call centers and retail stores — yet as many as five million Americans remain not only poor but also uninsured, despite an array of state and federal policies specifically intended to help them get health care.

These people are caught in a health care netherworld. Their employers classify them as part-time workers or independent contractors, therefore avoiding any obligation to provide health care. Their state governments have not expanded Medicaid to include low-wage earners. And government mandates set a standard for “affordable” coverage that is not affordable at all for these families.

A months-long USA TODAY examination of how the Affordable Care Act impacts the working poor — especially in the 20 states that haven't expanded Medicaid — found:

• Companies are increasingly using contract workers for whom they're not required to provide insurance so they can avoid rising health care costs. State and local governments are also contracting out more jobs to small businesses that are not required to provide coverage for their workers.

• Surveys show up to 20% of businesses have cut or plan to cut workers' hours to avoid paying for health benefits. Employees often say their hours are clearly kept right below the 30 hours needed for them to qualify for health insurance. The companies can cite downsizing or restructuring as the explanation that prevents the cuts from being a violation of labor laws.

• Large corporations with a lot of minimum-wage workers, including fast food restaurants, often leave insurance decisions up to franchisees, who only have to offer insurance if they have 100 employees (a number that is dropping to 50 as of Jan.1). That means the lowest-paid employees do not receive the generous benefits given to workers in the corporate offices.

• Many employers offer coverage that's affordable only by the letter of the law — which says the monthly contribution for individual coverage can't be more than 9.5% of annual household income — but in reality is too expensive for people earning near-poverty wages.

In 2012, the Supreme Court ruled that states could decide if they wanted to offer Medicaid to those below the income level where they could buy subsidized insurance on the exchanges. Twenty states, mostly led by Republican governors, have declined to expand Medicaid, typically because they object to the expansion of another government program.

The result is that millions of Americans have fallen through the cracks without insurance from their employers, the money to buy it themselves or the safety net from Medicaid.

Getting around coverage

Among the still-uninsured is Tremain Sims of Houston, a part-time janitor who cleans stadiums and arenas through the night and supports his mother, Demetria, a former fast food worker who was turned down for disability coverage despite two strokes. He seldom has enough money to buy food, let alone her medicine and adult diapers. So he must spend hours busing across the city to get free diapers or free food.

Although he's always willing to work when his bosses call, they either don't call enough for him to make ends meet or call so often that he barely has time to sleep between shifts or chores for his mother, who is wheelchair-bound and also suffers from diabetes and hypertension. This fall, mother and son lived in a one-bedroom apartment with two stained couches and an uncovered mattress on the floor that Demetria slept on.

"I go to the hospital and they'll write me a prescription and say, 'Give this to your son,’” Demetria says. “My son doesn't even know how much his check is going to be."

And in Clintwood, Va., Vicki Reed put off a Pap smear and mammogram for more than five years because she was uninsured despite working 28-30 hours a week at a McDonald’s. She got those tests at a recent outdoor medical clinic in Wise, Va., but still has no regular doctor and can't get more than 20 hours a week at her job these days.

“Low-income people, they get sick and they have nothing,” says Reed, who goes to the ER when she needs care.

Part of the problem is a changing economy in which businesses increasingly want a workforce that is — like their product deliveries — "just in time" or "on demand."

No one inside or outside of government really knows just how often companies reduce workers' hours to avoid having to offer health insurance.

But there's evidence it's happening. A March report from the Society for Human Resource Management showed about 20% of around 750 human resources managers said they had either reduced part-time workers' hours to stay below the 30-hour a week trigger for the insurance mandate — or they planned to. Other studies show 2%-5% say that are doing so.

U.S. Bureau of Labor Statistics data show a steady increase between 2013 and 2015 in the number of part-time employees who work just under 30 hours a week while the share working just over 30 hours has been going down, according to an analysis by the site FiveThirtyEight Economics.

Data on how many people fall into the nebulous category of the independent worker is even harder to find. Labor's Wage and Hour Division is working on a national survey on the classification of workers because of concerns employers are turning workers into independent contractors as a way to get around labor laws.

Last year, Labor fined an Arizona construction company and required it to pay nearly $600,000 in back wages after a contractor it was using switched more than 400 workers from full-time employees to independent contractors, which deprived them of labor law protections.

According to a report out todayfrom Families USA, a non-profit that supports implementation of Obamacare, restaurants employ almost 15% of those who would be eligible for Medicaid if their states expanded it, while another 13% worked in construction.

"We're seeing [the deliberate misclassification of employees as independent contractors] in many sectors of the economy, especially in industries such as construction, janitorial and hospitality, that employ a large number of low-wage workers," David Weil, administrator of the wage and hour division, said in a statement.

Labor officials say they fear that employees will suffer as profit margins shrink further down the contracting supply chain and businesses cut costs.

Sonya Spann, who has been who has been on the staff of three Birmingham, Ala., hospitals that have closed, has worked as a contractor for about two years for a company that operates a Blue Cross Blue Shield call center. She's had her contract renewed three times, but she has not been hired full time by Blue Cross so she could have job security and health insurance.

"You’d think if they thought I was doing such a good job, they'd make it permanent," says Spann, whose family in June was approved for Medicaid because she has a child and her husband became too ill to work. "Working contract work, once you feel like getting above water, the contract’s ending and you’re starting from scratch again."

The employer perspective

Employers defend their practices, saying they want their employees to be healthy but also need to thrive in an increasingly competitive marketplace.

Major retailers, home care companies, restaurants, hotels and other businesses are lobbying to have the definition of a full-time worker for the purpose of health benefits changed to those who work 40, rather than 30, hours a week.

"No one wants to see their employees go bankrupt if they get sick," says former Department of Labor economist and official Mark Wilson, who is vice president and chief economist of the HR Policy Association. "The question often becomes what can they offer in terms of the market and what can’t they in a competitive economy."

Bill Redfern, who owns the home care agency iCare, says his franchisees can't afford to hire people full time because of the erratic nature of care scheduling. Besides, aides often contract with several different companies and some even ask to not get too many hours so they can remain eligible for state benefits — if there are any.

"They'd like to employ full time people with coverage, but that's like handcuffs," says Redfern, whose franchisees pay about $16 an hour to workers. “If you want to be competitive, you can’t be cutting into your margins.”

Redfern also argues there’s a place for independent contractors who cobble together a living from several jobs.

Even government agencies — including those in states that haven’t expanded Medicaid — use contractors in some cases instead of hiring more state workers and paying for their benefits. In Southwestern Virginia, Pamela Sherman this summer was working 28 hours a week for a contractor, for less than $8 an hour with no insurance, at a highway rest stop operated by the Virginia Department of Transportation. She hadn't seen a doctor in almost a decade.

VDOT spokeswoman Tamara Rollisonsays while her agency offers full- and part-timers “a variety of health benefits," it doesn’t “have anything to do with employee benefits” for its contractors’ workers.

Some workers choose not to take health benefits, says health care lawyer Nancy Taylor, a Greenberg Traurig partner who represents many restaurant companies.

One reason is cost, but some younger workers don't place a priority on health insurance.

Fewer than 10% of low-wage workers in some restaurant chains sign up for insurance when it's offered, Taylor says. That percentage is expected to go up now that the tax penalties for being uninsured are rising,she says, but restaurant companies say the profit margins are far too small for them to offer more generous plans.

Aurora Health Care CEO Nick Turkal says his hospital system has been working to improve its insurance offerings to make it easier for low-income workers to afford them and has raised the minimum wage to $10 an hour.

But other business leaders resist increasing wages, saying it may mean creating fewer jobs.

“The sad truth there is that it might help some and hurt others," says Neil Trautwein, vice president of health care policy at the National Retail Federation, which also runs the National Council on Chain Restaurants, which he represents as well. "You don’t want to foreclose those entry level jobs as people are getting established so they can get better jobs."

Looking forward

Dee Mahan, Families USA's Medicaid program director, says that ideally, companies should provide affordable coverage to employees of all income levels.

“We want to see everybody get affordable health insurance,” Mahan says. “We don’t like to see employers gaming the system.”

Families USA came up with its new estimate of 5 million people who could benefit if the rest of the states expanded Medicaid by looking at uninsured working-age adults under 138% of poverty. The White House's Council of Economic Adviserslooks at the issue in a slightly different way, estimating that 4 million Americans would be “likely to gain coverage” if non-expansion states expanded Medicaid. The government figure assumes states that newly expand Medicaid will sign up about the same percentage as states that have already expanded the program, or between 50% and 70% of eligible residents.

Under the law, people between 100% and 138% of the poverty level could potentially seek coverage through Obamacare insurance marketplaces. But with such low wages, some advocates and employer groups agree they may struggle just to afford co-pays and heavily-subsidized premiums. (Those earning below poverty level can't even get subsidies because the law envisioned they could get Medicaid.)

And for the working poor whose employers offer coverage, the federal government's definition of what's affordable is much different than what many earning as little as $18,000 a year think they can afford.

The Obama Administration would not comment on the affordability test or whether it should be changed, but focused on the importance of expanding Medicaid in the remaining 20 states.

"Our door is always open to states interested in increasing access to quality, affordable health care through Medicaid expansion," said the emailed statement.

The Centers for Medicare and Medicaid Services also often stresses that it has worked on a variety of alternative ways of expanding Medicaid that would allow states to obtain federal funding for plans that are more palatable to Republican legislatures and governors.

Ronald Stevens, who works for a VDOT contractor, says he is offered health insurance but can't afford it earning $8.50 an hour.

"Nobody can go to the doctor's. You can't afford it because you've got to live," Stevens says. "There needs to be something done about it."

After going off in an embankment in a piece of heavy equipment earlier this year, Stevens had to be airlifted to a hospital and still has back problems because of it. He's facing about $70,000 in unpaid bills for that, which he combined with all of his other bills and set up a payment plan.

"It’s one of those gaps we need to fix," says Judith Solomon, vice president for health policy at the non-partisan Center on Budget and Policy Priorities, which focuses on poverty and inequality. "It leaves low-wage workers in a difficult position."

Meanwhile, Louisiana — recently rated the nation's least healthy state in the United Health Foundation's America's Health Rankings — is the next most likely state to expand Medicaid to the poorest of the poor. Solomon says South Dakota and Wyoming also may expand and Alabama is a possibility.

Solomon expects those state legislatures may address expansion next year and believes more action is likely after the presidential election, especially if a Democrat wins.

But Republicans have come up with their own solutions too.

In Wisconsin, Gov. Scott Walker passed up federal funds by offering his own-styled plan that offered Medicaid benefits to everyone who wasn't covered up to the federal poverty limit, but sent less-poor people to the federal health care exchange to buy subsidized insurance. The state also teamed up with community groups around the state to integrate care with other social needs, which Secretary of Health Kitty Rhoades says will cost the state more but improve residents' health.

There are also proposals to change the law so that it includes more "gig" workers.

One proposal, supported by Alan Krueger, President Obama's former chairman of the Council of Economic Advisors, would overhaul labor laws to make the ACA fairer to independent workers. One concern is that employers of independent contractors or freelancers have a competitive advantage over traditional employers who offer benefits and would have to pay a penalty if they didn't offer insurance and have more than 50 workers.

Solomon says she doesn't know if it's realistic to believe many more states will embrace Medicaid expansion or that fixes will be made by this highly partisan Congress to make insurance more affordable to low wage workers. But she's hopeful.

"Just like with Medicare when it was passed, at some point the opposition has to say, 'Do we want to fix it and make sure everyone can benefit?,'" says Solomon. "We have to have that hope. it’s too important and we’ve come too far not to."

USA TODAY health reporters Jayne O'Donnell and Laura Ungar traveled to Houston, New York City, Wisconsin, Georgia, Tennessee, Kentucky, Maryland and Virginia - and interviewed dozens of other experts around the U.S. to report on the effect decisions on Medicaid expansion were having on consumers, businesses and the government. This project was supported, in part, by an Association of Health Care Journalists fellowship that was sponsored by the Commonwealth Fund.