ObamaCare’s employer mandate is among the new laws most anti-growth provisions. When implemented, it will force most American businesses to offer government-approved health insurance to their employees or else pay new federal taxes for not doing so. This costly new requirement will make it more expensive for firms to hire workers in the future. Consequently, it will destroy jobs, and many firms are likely to slow down on hiring in anticipation of its implementation.
“Free-Rider” Provision
ObamaCare does not impose a straight-forward requirement that employers offer health insurance to workers. Proponents of the new law wanted to avoid the charge that the new law was directly imposing new costs on American business. So, instead, they created a back-door mandate, what they call the “free-rider” provision.
If a firm with at least 50 workers has a full-time employee who is getting federally-subsided insurance through an ”exchange,” then that employer must pay a penalty for failing to offer that worker acceptable insurance on the job. (Workers that are offered qualified coverage by an employer are ineligible for the new insurance subsidies provided in the exchanges.)
The tax is scheduled to begin in 2014 and the Congressional Budget Office estimates it will bring in approximately $10 billion in annual revenue once it’s fully implemented.
Penalties For Failure To Insure
For firms which do not offer insurance any insurance, have more than 50 employees, and have at least one employee receiving insurance subsidies, they must pay a tax of $2000 per subsidized employee. The tax is applied to all of a firm’s employees (after excluding the first 30), not just those that are subsidized. For example a firm with 51 employees would pay $42,000 in new annual taxes, and an additional $2,000 tax for every new hire.
For firms that do offer insurance, the penalty is the lesser of $2,000 for every employee (after exempting the first 30) or $3,000) for every employee receiving a subsidy.
The National Federation of Independent Business has a clear and informative table which examines the taxes assessed under different scenarios here.
Disincentives to Hire
ObamaCare’s employer mandate will discourage business development and growth. Small firms with 50 or fewer workers will have very strong disincentives to expand. These businesses can avoid the new penalties by staying small; growth will simply add new costs and burdens. Many businesses with low profit margins are unable to pay the substantial cost of providing comprehensive insurance to all of their employees or the new taxes under ObamaCare’s employer mandate. Once companies reach 50 employees, they are likely to turn to contractors and outsource work to evade the new mandate, even if such arrangements are less efficient than directly hiring new workers.
Part-Time and Seasonal Employees
Fines to employers under the employer mandate also are imposed on workers who are not full-time employees, where a combination of employees working 120 hours per month (around 30 hours per week) count as one employee. This provision in the bill especially hurts seasonal businesses, where it is frequently not cost effective to provide insurance benefits to an employee who will only be with the firm for a short period of time.
Penalizing Low Income Households
ObamaCare provides strong incentives for firms to avoid hiring workers from low-income households. Eligibility for subsidized insurance in the exchanges is based on household income, and firms can be penalized if one of their workers gets subsidized coverage in an exchange. Thus, firms have a strong incentive to find workers who won’t qualify for subsidized coverage, which may also lead to invasions of privacy. For instance, a restaurant might find it better to hire young waiters from upper-income neighborhoods, as opposed to low-income areas, because they would be less likely to qualify for subsidized insurance in the exchanges. ObamaCare therefore is penalizing the very households it was supposedly passed to help.