Small Business Against Big Government

The National Federation of Independent Businesses recently put out a primer for Small Business Owners that is worth your time so that you can start planning your risk mitigation strategies now.

The businesses that face potential penalties are those with 50 or more full-timers or full-time equivalents (FTEs) as well as owners with multiple businesses totaling 50 or more full-timers or FTEs

The penalties are steep.  For employers that do not provide health insurance coverage, the penalty is $2,000 per year per employee (minus the first 30 employees).  For employers that do provide coverage, if one or more of its employees receive insurance subsidies, then the business will pay $3,000 per subsidized employee or $2,000 per employee (minus the first 30) – whichever is less.

Readers of this site know that we always look at incentive structures.  We know that changing the rules of the game, the rewards and the punishments, will change economic behavior.

NFIB economists predict that the mandate will affect the economy in the following ways.

Businesses will spend real resources determining how many employees they have with respect to the employer mandate. They will face time-consuming, arbitrary administrative burdens associated with employees seeking insurance subsidies in the new insurance exchanges.

The mandate makes it extremely expensive to cross the 50-employee threshold. For example, a mid-sized restaurant that goes from 49 to 50 employees will face a $40,000 per year penalty. A business can avoid the penalties by firing employees, by not hiring new ones, or by outsourcing. Estimating the costs of hiring and expanding will be complex and confusing.

Businesses subject to the employer mandate will receive monthly government reports on subsidized employees that inadvertently reveal personal financial data on employees’ spouses and families. This raises discomforting privacy concerns and exposure to liability for employers.

For some firms, the employer mandate will result in large fines when there are private changes in their employees’ households. For example, an employee’s spouse losing a job or an employee’s spouse’s elderly relative moving into their house could trigger thousands of dollars in annual penalties. Employers will not be entitled to know the details of what caused their penalty – unless they challenge the employee’s honesty before a government agency.

The employer mandate will increase costs, and producers will pass them along to consumers.