President Obama gestures as he talks about the Affordable Care Act in San Jose, Calif., on June 7, 2013. AP View Enlarged Image
The delay in implementation of ObamaCare's employer fines won't keep them from growing between now and when they finally hit in 2015.
Each year, the fines will grow in line with the growth in average per-person health insurance premiums relative to 2013.
Here's the problem: Average wages generally grow slower than health premiums, and the wages of low-income workers lag average wage growth. That means the penalties will gradually loom larger and larger relative to wages for modest-skilled workers, giving employers a bigger incentive to cut them to part-time.
Even if health premiums grow at an average 3.5% annual rate — very low by historical standards — the bite of the employer mandate may become increasingly painful.
By 2020, the $2,000-per-worker penalty for employers who don't cover the bulk of full-time workers would rise to $2,430.
A Growing Burden
The $3,000 penalty faced by employers who do offer coverage when a worker accesses ObamaCare subsidies would rise to $3,650 by 2020.
For an employer facing a 40% federal and state tax rate, the initial $3,000 nondeductible penalty equates to $5,000, potentially adding $2.40 an hour to a full-time worker's compensation.
The $3,650 penalty in 2020 would equal $6,080 in deductible wages, or $2.90 an hour for a full-timer.
Last month, the White House said it wouldn't enforce the mandate in 2014, but it doesn't have authority to alter the inflation adjustment written in law. Department of Health and Human Services Secretary Kathleen Sebelius must announce by Oct. 1, 2014, what the increase will be for 2015.
A wild card for that initial adjustment is how ObamaCare's coverage expansion and mandates, including its tax on insurers, will impact premiums.
Even with the delay of the penalty six months before it was to take effect, official data indicate it is leading employers in some sectors to shift more workers to sub-30-hour-per-week shifts to limit the fines they will face.
The average retail workweek for nonsupervisors shrank to 30.0 hours in July from 30.8 hours in January 2012. That was the sharpest contraction since 1980.
Immigration Issues
Combined with immigration reform, an ever-more-punitive employer mandate could put substantial pressure on the income of low-wage workers.
A Congressional Budget Office analysis found that the Senate's immigration reform bill would modestly restrain wage growth among low-wage earners for a dozen years amid an influx of new immigrants.
Also, because legalized immigrants wouldn't be eligible for ObamaCare subsidies for more than a decade under the Senate bill, their employers could minimize fines based on the number of workers who access subsidies.
Unless the Senate bill — or the employer mandate — is altered, employers would have a growing incentive to employ legalized immigrants as full-timers instead of U.S. citizens or green card holders.
While it's not certain that employers would use such a strategy to dodge ObamaCare costs, the potential could grow as the wage-equivalent penalty for subsidized workers increases from $5,000 to $6,000 and beyond.
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