While the House reconciliation bill keeps many of the Senate provisions that will already slow economic growth, the reconciliation bill goes even farther in punishing employers who do not offer sufficient health care. These penalties will slow employment growth and given employers a disincentive to hire anyone who purchases subsidized health care.
Punishing Businesses That Hire Low-Income Workers
Businesses that already offer insurance can be affected by the reconciliation bill. Even if the employer does provide health insurance, if any employees qualify for, and accept, a premium subsidy on the basis of their family size and family income, the employer will have to pay a penalty of $3,000 per year for each qualifying employee. Even more businesses are in danger of this penalty since the reconciliation bill ups the subsidy amount, meaning that more workers could take it. This penalty depends not on how much that employer pays, but on the employees total family income from all jobs held by all family members. This means employers would have to know the income of each employee’s other family members to know whether they need to pay the tax. The bill requires that the IRS provide this family information to the employer.
Because qualifications for that taxpayer subsidy depend on the worker’s family size and family income, a worker with more dependents would be more likely to qualify, and one with a working spouse or other family members would be less likely to qualify.
Employers faced with the choice of hiring—for the same job at the same pay—say, a single parent of three, and a parent of two with a working spouse (or a teenager with working parent(s)), the employer could face a $3,000 annual penalty for hiring the single parent—and is therefore likely to deny that person the job.
Likewise, if one company lays off an employee with a working spouse, that could generate a $3,000 tax penalty for the other spouse’s employer—unless the other employer lays off the other spouse as well.
If the employer hires two people in different family situations for the same job at the same pay, they could have vastly different health insurance options based on what their other family members are making. The one with another working family member would have to take a plan from one of their employers and pay up to 40 percent of the cost or face tax penalties; the one with no other working family members could choose either the employer’s plan or any plan in the exchange – in the latter case, with a subsidy paid for by the other workers’ taxes.
Hammering Businesses Employing 50 or More Workers
Businesses with 50 or more workers will now face higher tax penalties, which lawmakers have increased from $750 to $2,000 per full-time employee (FTE) as part of the employer penalty mandate. The $2,000 per FTE penalty will be assessed as soon as one of the FTEs receives a premium tax credit or cost-sharing subsidy to participate in the established state health exchanges.
The penalty will not, however, apply on the first 30 workers. For example, if a business expands from 49 to 50 FTEs, then the marginal cost of this expansion will be $2,000 times 20 FTEs, or $40,000. The penalty will impact medium-sized companies as well, where a firm with 75 workers and subject to the employer penalty will have to absorb $90,000 in addition costs (or approximately 6 percent of the average annual payroll for a company with 75 workers).
Last, the employer penalty will negatively impact a significant share of US businesses, and could create a strong disincentive for a large share of companies to not expand firm-level employment. Using data from the Small Business Administration, there are approximately 190,000 total firms with 50 to 200 workers that could face this penalty. Moreover, there are 116,000 total firms with 35 to 49 workers that could face the per FTE penalty, if they were to move beyond the 50 worker threshold. This employer penalty would therefore reach a large number of US companies, and will dramatically affect these companies’ per-employee costs and their allocation of labor.
Co-authored by John Ligon.