Want to Avoid the Employer Mandate? There’s a Rule Against That
The Obama administration has a new solution to force compliance with the Affordable Care Act (ACA): simply ban businesses from reducing staff in response to the law’s burdensome employer mandate.
The administration previously postponed the law’s requirement that all businesses with 50 or more employees provide health insurance until 2015, a year later than required by the ACA. In what is being referred to as “transition relief,” the administration’s latest delay of the employer mandate through 2015 exempts mid-size businesses with 50-99 employees from the requirement, and lowers the requirement for businesses of 100 or more employees from 95 percent to 70 percent staff coverage.
Given the costs of insurance, businesses with just over 100 employees have a strong incentive to reduce staff below 100 and take advantage of the exemption. In a tacit admission that the ACA pressures businesses to cut workers, and perhaps to stall further criticisms, the IRS recently released regulations specifically barring employers from reducing staff or hours as a result of the ACA’s employer mandate.
How is this possible? Employers will be required to certify on their tax returns, under penalty of perjury, that reductions in staff were not a result of the federal health care law. The only way to see the full benefits of the delay is for companies to cite “bona fide business reasons” other than the employer mandate for staff reductions. The implication, of course, is that a business decision intended to avoid the onerous employer mandate doesn’t constitute a bona fide business decision.
As experts have noted, legal precedent calls this new rule into question because it essentially freezes businesses from working in their own best interest: “Anyone may so arrange his affairs that his taxes shall be as low as possible,” Judge Learned Hand remarked, while delivering his ruling on the 1934 case, Helvering v. Gregory. “[H]e is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
Even with the temporary relief provided by the second delay of the employer mandate, underlying pressures remain. Businesses with fewer than 50 employees have an incentive not to expand regardless of the delay. “We’re going to continue to stay under the 50 people,” the owner of New York-based Pedersen Farms said, citing that the burden will eventually fall on businesses once the delays end.
The law’s perverse incentives aren’t limited to the private sector—state and local governments across the country have scaled back employee hours to avoid the mandate. Because the law requires coverage for full-time workers, reducing hours is an option to avoid penalties. Delaware’s state government, for example, reduced hourly employees to below 30 hours per week, potentially impacting up to 376 employees. Similarly, in Georgia, Fulton County reduced hours to below 30 per week for certain employees. More than 100 school districts have taken similar measures, and the Portage County Sheriff’s Department in Ohio reduced hours for several deputies to avoid the mandate.
Never mind that the recent spate of delays have come unilaterally from the administration and run contrary to the express language of the ACA. Never mind that the constitutional authority to change laws in this manner rests with the legislative, rather than executive branch. Never mind that the Congressional Budget Office estimates the employer mandate will reduce labor demand over the next few years. Never mind that after nearly 20 unconstitutional alterations by the president, insurance companies and employers are unable to write coverage or make business predictions when they don’t know what the law will be next week.
The latest development, that the federal government will step in and require certain businesses to deny the ACA’s negative effects, seems more like a strategy to avoid accountability than an effort to aid businesses. When even the law’s supporters question the policy behind the employer mandate, it is difficult to see how the latest delay could be anything else.