John C. Goodman

Use Part-Time Labor. Another option is to move employees to part-time status (fewer than 30 hours a week) rather than full-time. One firm I talked with, managing about 100 fast food restaurants, had an average work week of 38 hours last year. This January they shifted to an average of 25 hours. Why in January? Because in January, 2014, the IRS will employ a 12-month look back to determine whether an employee is full-time. For those who try to use part-time labor to stay under the 50 employee mark, the IRS has an answer to that strategy as well. It will count two 20-hour-a-week employees as equivalent to one full-time employee in determining how many employees the firm employs.

However, even if the mandate applies, the employer does not have to offer insurance to part-timers.

Use Non-Employee Labor. Independent contractors by definition are not employees. As long as they don't work regular hours, workers can retain their status as contractors even if they work at the employer's establishment. The temp business is booming in anticipation of this. Another approach is to turn employees into self-incorporated businesses. As one business owner has explained, "There is almost nothing that cannot be outsourced."

Charge Employees the Maximum Allowable Premium. This I think will be the most attractive strategy. Under the new law, health insurance is deemed "affordable" if the employee's premium does not exceed 9.5% of the employee's wages.

Take an employee earning $30,000 a year. Insurance is affordable so long as the employee pays no more than $2,850. So let's suppose the employer's individual coverage costs $4,500. Then the employer only has to pay $1,750. He can ask the employee to pay more than half the cost. Under the law, the employer doesn't have to contribute anything for the employee's dependents. Let's say the employer offers family coverage that costs $15,000. The employer can ask the employee to pay $12,150, with the employer (again) paying only $1,750. If the employee accepts the offer, the employer is only out $1,750. [Remember: the employer fine for not offering any insurance is $2,000.] If the offer is rejected, the employer is off the hook — no health insurance costs and no government fine!

To add insult to injury, the employee's contribution will be made with after-tax dollars. This is in contrast to the employer’s offer, which if accepted will be paid with before-tax dollars. Now here is the cruel upshot of all this. Once the employer has offered "affordable" insurance (even though it really isn't affordable), the employee and his family are no longer entitled to a subsidy in the exchange! If they buy insurance, they have to pay the full, unsubsidized premium. Yet it's in the self-interest of the employer to do what I have described in order to avoid a $2,000 fine.

Pay the Fine. Employers can drop health insurance coverage altogether (or never provide it in the first place) and pay a fine equal to $2,000 per employee. That's a stiff price to pay. But it's less than the cost of health insurance. If the employer chooses this option, the employees will be eligible for subsidized insurance in the exchange.

One reason why many employers won't want to get out of the health insurance business altogether is that everything said here reverses for high-income employees. Someone making, say, $90,000 will never quality for Medicaid. If he goes into the exchange, he will get no subsidy. But if he gets insurance at work, the employer's premium payments avoid a 25% income tax, a 15% payroll tax and state and local income taxes as well. ObamaCare retained the subsidies in the current tax system, under which government effectively pays almost half the cost of insurance for higher-income employees.

How can employers avoid providing health insurance to below-average wage workers while providing insurance to those who earn above the average? That will be a challenge.


John C. Goodman

John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the widely acclaimed A Better Choice: Healthcare Solutions for America and the award-winning Priceless: Curing the Healthcare Crisis. The Wall Street Journal and National Journal, among other media, have called him the "Father of Health Savings Accounts.”