Employer Mandate 'Incentivizes' Companies to Hire Illegal Immigrants, Avoid Low-Income Workers

By Susan Jones | July 11, 2013 | 7:31 AM EDT

An employee serves customers at an Olive Garden restaurant in Naperville, Ill. In December, Darden Restaurants, the chain's parent company, said it won't rule out shifting full-time workers to part time to save on health care costs. (Scott Boehm/AP Images for Olive Garden)

(CNSNews.com) - Obamacare's employer mandate "perversely incentivizes employers to avoid hiring low-income workers, precisely the type of workers who tend to be uninsured," a witness told a House hearing on Wednesday.

Under the law, employers have three incentives, Avik Roy, a senior fellow at the Manhattan Institute for Policy Research, told a House Ways and Means subcommittee on Wednesday:

"First, to hire fewer full-time workers; second, to offer so-called unaffordable coverage, for which the penalties are lower; third, to hire illegal immigrants or workers from high-income families who are not eligible for exchange subsidies."

The penalties associated with the employer mandate are triggered if a full-time worker is not offered "affordable" coverage relative to his household income; and if the worker therefore gets taxpayer subsidized coverage on one of the new exchanges.

The Affordable Care Act's employer mandate applies to all businesses with 50 or more full-time workers; full-time is defined as 30 hours a week.

Roy said that low-income employees who get subsidized health insurance through the Obamacare exchanges will be "tagged with a scarlet 'S'" for getting those subsidies -- "because to employers, hiring subsidized individuals will be far more costly than hiring unsubsidized ones."

He said a one-year delay of the employer mandate's reporting requirements may give the Obama administration more time to implement the law. "But a delay does not fundamentally alter the perverse incentives that I've just described," Roy said. "It simply gives employers an additional year to restructure their workforces accordingly."

Repealing the employer mandate would eliminate the "perverse incentives," Roy said.

"We all want an economy in which those at the bottom of the ladder have the opportunity to find gainful employment and good health care. The employer mandate harms those it is intended to help. Instead of delaying it, we should repeal it."

'Terribly flawed'

"The employer mandate is terribly flawed policy," another witness testified. "It is harmful to lower income workers, to job growth and to the strength of the broader economy," said James Capretta, a fellow at the Ethics and Public Policy Center.

Employers with fewer than 50 full-time workers are exempt from the employer mandate, James noted. "Not surprisingly, firms are adjusting to stay beneath this 50-worker threshold, exactly what we don't need in the current economy," he said.

The employer mandate also creates a bias against low-income workers:

"For instance, if you're a restaurant and you have the option of hiring a worker who you're going to pay low wages to from a middle class neighborhood or a lower income neighborhood, you might pick the middle class neighborhood because the probability is they'd be less likely to draw subsidies under the exchange and therefore induce a penalty on the employer. It creates a terrible bias in the law."

At the very least, Congress should pass a law delaying Obamacare in its entirety, Capretta said:

"The administration's recent decision to delay significant parts of the health care law is an invitation to Congress to revisit the law too. I would urge this committee and this Congress to consider statutory delay of the employer mandate, a simultaneous statutory delay in the individual mandate and a strong look at delaying the entire exchange process until it's clear that the data systems protect taxpayers."

Delay changes nothing

A third witness, William Dennis with the National Federation of Independent Business, said the delay of the employer mandate's reporting requirements doesn't help small businesses -- it just makes them reluctant to hire and invest.

"The substantive issues really haven't changed. They are the same; they're just moved back a year."

Dennis identified five of the substantive issues, including the incentive for business to avoid hiring full-time workers; more paperwork, as companies must start keeping hourly records on salaried employees to see if they qualify as full-time or part-time; how to determine if a company's health insurance is "affordable"; determining when a business is a single entity, in cases where owners have more than one business, or businesses have more than one owner; and the mandate that ties health insurance to employment.