Obamacare’s Employer Mandate Will Destroy Jobs

Obamacare’s Employer Mandate Will Destroy Jobs

Obamacare’s employer mandate forces most American businesses to offer government-approved health insurance to employees or be forced to pay new federal taxes. This costly new requirement will make it more expensive for firms to hire workers and thereby depress economic recovery.

How does it work?

  • Under Obamacare, if a firms with at least 50 workers has a full-time employee who is getting federally-subsidized insurance through an ”exchange,” then that employer must pay a penalty for failing to offer that worker acceptable insurance on the job.[1]  (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 (“CBO”) estimates it will bring in approximately $15 billion (and growing) in annual revenue once it is fully implemented.[2]
  • For firms which do not offer employees 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.

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.

  • Employer fines also are imposed even when workers are not full-time employees (the law counts 30 hour per week blocks by part-time workers toward an employers “full-time employee” employment count).[3]  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.  The result will be employers looking for ways to avoid new hiring.
  • Obamacare’s employer mandate will also discourage the hiring of workers from low-income households.  Eligibility for subsidized insurance in the exchanges is based on household income,[4] and firms can be penalized if one of their workers gets subsidized coverage in an exchange. Firms have a strong incentive to find workers who will not qualify for subsidized coverage. For instance, a restaurant might find it better to hire young waiters from upper-income instead of low-income neighborhoods.

[1] National Federation of Independent Businesses, “The Free-Rider Provision:  A One-Page Primer,” http://www.nfib.com/Portals/0/PDF/AllUsers/Free%20Rider%20Provision.pdf.

[2] Congressional Budget Office, “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” March 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf.

[3] Diana Furchtgott-Roth, “How Obamacare Increases Unemployment,” Manhattan Institute, March 2012, http://www.manhattan-institute.org/html/ir_6.htm.

[4] Timothy Jost, “Implementing Health Reform:  Medicaid and Exchange Eligibility Determinations,” Health Affairs blog, August 13, 2011, http://healthaffairs.org/blog/2011/08/13/implementing-health-reform-medicaid-and-exchange-eligibility-determinations/.