Obamacare Hits Hollywood: Studios Brace for the Affordable Care Act

Issue 24 BACKLOT Obamacare Illustration - H 2013
R. Kikuo Johnson

Issue 24 BACKLOT Obamacare Illustration - H 2013

As payroll companies struggle to predict the impact of new laws on movie and TV shoots, one insider says the act "wasn't written with this industry in mind."

This story first appeared in the July 19 issue of The Hollywood Reporter magazine.

Three letters have been giving the payroll-services industry fits for several months now: ACA. That's the semi-acronym for the Patient Protection and Affordable Care Act, better known as Obamacare, and it's up to the payroll industry -- which cuts checks to production workers and offers related financial services to TV and film studios -- to help educate its clients on the rules before a good portion of the law kicks in Jan. 1.

"It's a morass of regulations and requirements, and everyone's trying to figure out what their exposure is," says Eric Belcher, president and CEO of Cast & Crew Entertainment Services. Adds Mark Goldstein, CEO of Entertainment Partners, which has held 16 seminars to help studios understand ACA: "It's going to be a very big deal."

Determining the exact nature of the new laws has been difficult, given that many ACA terms have yet to be worked out. Hollywood productions, for instance, might find it irksome simply trying to categorize employees as full- or part-time, seasonal or variable, and it's important that they get the classifications right lest they face hefty fines. "ACA is thousands of pages, and it wasn't written with this industry in mind," says Belcher.

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One of the unintended consequences, say some industry insiders, is that it could lead to productions running to foreign countries, given that ACA doesn't apply to U.S. citizens working abroad. Some also say the number of production days in the U.S. are likely to be cut due to ACA because there's a 90-day waiting period before productions must either pay a penalty or offer health insurance to full-time workers. That rule provides big incentives for a production to wrap in less than three months. While big-budget movies and season-long TV shows might not have such a luxury, smaller films or TV pilots could easily rush their schedules to make sure they come in at under 90 days.

But like much about ACA, the 90-day rule is subject to interpretation, says Daniel Cox, controller of payroll-services company PES Payroll. "Historically, if an employer had a 90-day wait period," says Cox, "the benefits would kick in on the first day of the fourth full month of employment. Thus, that 90-day wait period was, in reality, as long as 119 days. The ACA is unclear on this. Does 90 days mean 90 days? If so, it really means 60 days."

In order to dial down the frustration level, the major payroll-services companies are hiring outside tax, legal and benefits consultants -- Cast & Crew has engaged Henehan Co., for example -- and are setting meetings with production clients. Payroll firm Entertainment Partners has authored a 39-page report that includes 81 frequently asked questions. FAQ No. 7, for example, contains the seven steps to determine whether or not a production employs 50 full-time workers, which would trigger an "employer mandate" for health coverage. In a nutshell, if you've got about 40 employees who work 130 hours a month and an additional 20 who work 65 hours monthly, you're probably subject to the mandate.

Payroll can represent as much as 45 percent of a production's cost, and payroll-services companies are still crunching the numbers to figure out how much ACA could add to the budget of a typical production. While the administrative costs might rise a bit for the payroll companies, the costs of extra health coverage or penalties fall to the production companies. Nonunion productions might be hit hardest because workers aren't already covered, but even union shoots typically employ many nonunion workers who might need health coverage under ACA.

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The mandate dictates that full-time employees be offered insurance that is "affordable," defined as not more than 9.5 percent of an employee's household income. The insurance must also be "adequate," meaning it covers at least 60 percent of health care costs incurred. Also, Cox says, "no more discrimination among employee levels, no more negotiated benefits," so if a production pays $1,000 a month to subsidize insurance for a top production worker, it must pay that much for its lowest employees as well. If a production deems it too costly to meet the guidelines, it can opt instead to pay a penalty tax of $166.67 per month for each full-time employee, with the exception of the first 30 of them. In some cases, "the penalty option may be the cheaper alternative," says the Entertainment Partners report.

"Do I expect the cost of doing business to go up? Yes, I do," says Mike Rose, CEO of Ease Entertainment Services.

Rose, though, doesn't expect studios to follow the route taken by Regal Entertainment Group, which operates the nation's largest chain of movie theaters. In order to rein in the costs of supplying health benefits associated with ACA, Regal said in April it would cut the hours of some employees so that they aren't classified "full-time." Productions on tight schedules and in need of highly skilled workers and artists, though, don't usually have the luxury of micromanaging an employee's hours, says Rose.

"The ACA is on everybody's lips," says Cox. "The only way to gear up for the ACA is to build the tools." That means creating charts to determine whether clients are governed by the ACA and what the economic ramifications of electing not to offer insurance will be.

"Our clients need to know that the days of 100 percent employer-paid benefits at a certain executive level can no longer exist," Cox adds. "Their employees will need tools to navigate the state-sponsored insurance exchanges. In short, we have had to build a toolbox that accommodates our incredibly diverse client base."

Email: Paul.Bond@THR.com