The implementation of the Affordable Care Act, sometimes referred to as Obamacare, is under way. The law's provisions began rolling out in 2010 and most aspects will be fully implemented by 2014.
Perhaps the most anticipated and controversial part of the law is the so-called individual mandate, also called the "pay or play" provision. Under it, employers with more than 50 employees who fail to provide health benefits will be penalized $2,000 per employee.
The pay-or-play aspect of the law is prompting several employer strategies, many with the goal of avoiding penalties. These strategies are, ironically, an unintended consequence of the law, whose goal is to create more employer-based health coverage for individuals. Because of escalating costs of health care and health insurance, many employers are devising strategies to avoid covering employees, thus reducing overhead costs, while at the same time avoiding the law's penalties.
One strategy being used by employers who are at, or near, the threshold of 50 employees focuses on head count. Because only full-time employees are counted toward the threshold, employers can avoid penalties by reducing their workforce, or the number of full-time employees. For example, if Company X has 55 full-time employees, it could avoid the mandate by reducing its workforce by six employees or making six employees part-time, or doing a combination of the two.
Small businesses may also reduce their workforces without losing capacity by outsourcing job functions or using independent contractors instead of employees. Employers must ensure that purported independent contractors meet the Internal Revenue Service test for such. If employers misclassify a person who is actually an employee as an independent contractor, the employer would be penalized under IRS laws for failure to withhold, and under ACA if the misclassified employee(s) put the employer above the 50-employee threshold. The IRS is increasing audits and enforcement of employers on the issue of independent contractors.
A second strategy applies to larger employers who cannot, or choose not, to reduce their workforce below 50. While those employers must insure full-time employees, they do not have to insure part-time or "seasonal" workers. Part-time employees typically work less than 30 hours per week. Seasonal workers work less than a specified number of hours during the calendar year or other 12-month period.
On Dec. 28, 2012, the government issued little-noticed regulations explaining how employers determine full-time, part-time or seasonal employees. Although this rule does not go into effect until early 2014, it provides that if an employer averages 50 or more employees during 2013, it will be subject to the Affordable Care Act's provisions, including penalties. Accordingly, how employers structure their workforce now could affect whether the act applies to them in 2014.
A third strategy is for employers to calculate whether it costs them less to pay the law's penalties than to provide employee health benefits. Some companies reportedly are choosing to pay rather than play.
Whether employers should adopt these strategies is a matter that social scientists and politicians can debate. That's above this writer's pay grade. Arguments can be made both ways, but employers who are struggling to stay competitive and solvent may choose to adopt strategies that take the sting out of Obamacare.