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Thursday, Mar 28, 2024

Dropping Bombshells in D.C.

By now everyone has heard that the Obama administration has announced a delay until 2015 of a key provision of the Affordable Care Act, specifically the employer shared responsibility provision, also known as “Play or Pay.” That provision requires companies with 50 or more full-time equivalent employees to either provide insurance or pay a penalty. But the delay means a number of unintended consequences for employers and their employees in the San Fernando Valley, since all other provisions will start next year. Think of Obamacare as a “four-legged” stool. The four legs are the individual mandate, the employer mandate, health insurance exchanges and new taxes and fees. Those legs stand on a number of cross supports consisting of individual subsidies, employer penalties, the essential benefits package and the provision that requires employees pay less than 9.5 percent of their wages on employer-sponsored health insurance. Since the employer mandate has been delayed for one year, one leg of the stool is now gone, including the penalty revenue that would be gained from larger employers who do not provide insurance. The Obamacare stool now has one leg and two supports missing. Prior to the delay, the stool could support, let’s say, 200 pounds. Now that employers are not required to provide health insurance until 2015, the stool has to support 800 pounds, because individuals are still mandated to have insurance or pay a fine masquerading as a tax. So, employees who would have obtained insurance through their employer will go to the exchanges to purchase insurance and obtain a subsidy. The Obamacare stool, which was unstable to begin with, is now even shakier. Not only will people flock to exchanges to obtain coverage, but the IRS is allowing them to self-report income to the exchange. This new “honor system” will allow people next year to receive a subsidy with no verification. Cross-checking will not be done until at least April 2015 when individuals file their 2014 tax returns. Employees are subject to an IRS fine of up to $25,000 for misrepresenting their income. However, the IRS has no system to correlate income reported to exchanges and income reported on tax returns. So what would make anyone believe that in 2015 there will be a system in place to look back and check for fraud? And if there is a system, how will subsidies already paid be recouped? Another unintended consequence of this delay stems from the fact that only the pay-or-play mandate was delayed for larger employers while other employer mandates and provisions remain. For example, an employer that already offers health insurance will have to cover employees who work 30 hours a week, not 40. And the waiting period for employees to obtain health insurance from their employers will drop by 60 days. Most employers provide health insurance on the first of the month after 90 days of employment. The new federal requirement is the first day of the month after 60 days. In California, however, the legislature quietly passed and the governor signed a new law that lowers the waiting period to essentially 30 days. In other words, employers will have to cover more employees 60 days sooner or face penalties. What will employers do? Likely cut employment to less than 30 hours. Already, there is a growing trend among employers to lower hours, making more employees part-time in order to avoid the increased expenses of providing coverage. The Department of Labor recently reported that only 47 percent of employed Americans work full-time jobs and 53 percent have part-time jobs. As such, we are seeing a new trend that may become the norm: people work two part-time jobs without employer provided health insurance. This will only increase the need for government subsidies. The delay of the employer mandate for at least one year is good for businesses in the construction, retail and restaurant industries that hire large numbers of part-time employees who are not provided health insurance. One would have imagined that the Obama administration would have thought this through to see what consequences would be triggered. The net result of this one change will mean that more people will go to the exchanges to obtain health insurance, the feds will pay out more tax dollars in subsidies and employers will lower hours for employees, which only exasperates the problem. The question that remains is what will be the next Obamacare bombshell that will be dropped on a Friday afternoon in Washington, D.C. Barry Cohn is president and chief executive of RGEB Employee Benefits in Canoga Park.

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