ObamaCare’s Details Look as If They Might Work against Some of the Law’s Intent — an IRS Interpretive Notice Implies that the Program Will Probably Have Negative Employment Impacts on Struggling Workers — Columnist Robert Samuelson’s Example of How Political Rhetoric, Poorly Written Statutes, and Reality often Do Not Harmonize as Intended

22 October 2012

Citation — to the Internal Revenue Service notice

Mireille Khoury, Notice 2012-58: Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage (§ 4980H), Internal Revenue Service (31 August 2012) (to verify the date, look for publication entitled “n-12-58.pdf” on this list)

Citation — to Robert Samuelson’s related column

Robert J. Samuelson, Obamacare’s rhetoric vs. its reality, Washington Post (21 October 2012)

The main point — if people are too brain dead to think realistically about critical details, they have no business writing (or voting) for statutes and regulations

Democracy may be messy, but that should not excuse the excesses of partisanship that create statutes and regulations that probably will work against whatever they were intended to accomplish.

The implementation of the Affordable Care Act now looks as if it will encourage employers to reduce part-time workers from 35 to below 30 hours per week. As columnist Robert Samuelson points out, this is not exactly a boon for struggling families.

The net effect of the Act’s meddling with the definition of full time employment will almost certainly reduce the hours that these workers are allowed to work and simultaneously strip them of the health care coverage they might previously have had.

Is this the Republican Party’s willful misinterpretation of ObamaCare?

Probably not. Due to the plain language of the Act itself and the Internal Revenue Service’s 18-page interpretation of the pertinent section.

How the IRS got dragged into this

The Internal Revenue Service got into this because Congressional Democrats decided to assess a penalty, tax, or “assessment” against employers who did not provide full time employees with the Act’s mandated health care coverage.

Because the IRS was charged with enforcing this assessment, the agency had to decide what “full time employee” meant (in practical terms) under the Act’s language. In effect, the Affordable Health Care Act muddied pre-existing regulatory water because it explicitly changed the IRS’s former definition of full time work (for purposes of this Act alone) downward from 35 hours to 30.

How the Affordable Health Care Act defines full time employment

26 USC [United States Code] §4980H (c)(4)(A) says:

The term “full-time employee” means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.

In the real world, interpreting the 30-hour definition is not straight forward

Obviously, employers need guidance on how to interpret that definition in regard to employees who work variable hours each month and/or from month to month. The IRS had to explain how it was going to interpret this language for penalty assessment purposes.

In an initial attempt (contained in Notice 2011-36), the IRS said:

Under the look-back/stability period safe harbor method, an employer would determine each employee’s full-time status by looking back at a defined period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer (the measurement period), to determine whether during the measurement period the employee averaged at least 30 hours of service per week.

If the employee were determined to be a full-time employee during the measurement period, then the employee would be treated as a full-time employee during a subsequent “stability period,” regardless of the employee’s number of hours of service during the stability period, so long as he or she remained an employee.

For an employee determined to be a full-time employee during the measurement period, the stability period would be a period of at least six consecutive calendar months that follows the measurement period and is no shorter in duration than the measurement period.

If the employee were determined not to be a full-time employee during the measurement period, the employer would be permitted to treat the employee as not a full-time employee during a stability period that followed the measurement period, but the stability period could not exceed the measurement period.

© 2012 Mireille Khoury, Notice 2012-58: Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage (§ 4980H), Internal Revenue Service (31 August 2012) (to verify the date, look for publication entitled “n-12-58.pdf” on this list) (under Background, paragraph C) (paragraph split)

This guidance has evident limitations, when it comes to guessing whether a new employee is actually full or part time, seasonal, or an unpredictably variable hour worker

Mireille Khoury’s IRS notice therefore added voluminous paragraphs dealing with those three categories. Reading it is tedious. Understanding it, more so.

I have my doubts that the IRS itself knows how these guidelines are going to work. And, unlike pure taxation, there will be more interested parties to complain about the IRS’ interpretation of whom to penalize under the Affordable Care Act.

Complexity aside, what is clear is that . . .

The Act’s downward revision of full time from 35 to 30 hours, combined with the cost of providing health care coverage, is going to encourage some employers to trim some workers’ hours.

Columnist Samuelson and I agree that:

If companies had to provide insurance for all part-time and seasonal workers — often unskilled and poorly paid — the high costs (a worker-only insurance policy can run more than $5,000) would eliminate many jobs or inspire mass evasion.

On the other hand, exempting too many “part-time” and “seasonal” workers would make achieving near-universal insurance coverage much harder.

So there’s a balancing act: preserving jobs vs. providing insurance. The problem isn’t small.

There are now 10 million workers averaging between 30 and 34 hours a week. To the bureau, they are part-time; under Obamacare, they’re full-time.

Employers have a huge incentive to hold workers under the 30-hour weekly threshold. The requirement to provide insurance above that acts as a steep employment tax.

Companies will try to minimize the tax. The most vulnerable workers are the poorest and least skilled who can be most easily replaced and for whom insurance costs loom largest.

Samuelson reasonably concludes

He makes the standard Republican argument against the unintended effects of well-meant statutes:

It [the Act] creates powerful pressures against companies hiring full-time workers — precisely the wrong approach after the worst economic slump since the Depression.

There will be more bewildering regulations, more regulatory uncertainties, more unintended side effects and more disappointments. A costly and opaque system will become more so.

I tend to agree, but for more “liberal” reasons

Given my medical and legal experience, combined with having been a blue collar worker for decades before that, I favor government-sponsored universal health care coverage.

My objection to the Affordable Care Act parallels Mr. Samuelson’s in that its real world implementation will almost certainly increase overall costs, without very substantially improving health care coverage or quality of care.

The core flaw of the Affordable Health Care Act is that it attempted to improve a broken and grossly self-interested system by involving the same entities (who created and contribute to its problems) in designing the new formulation. The adage about not being able to make a silk purse from a sow’s ear seems apt.

It should be clear that individual and net health care costs will rise, when each provider or profit-motivated administrator has an added excuse to skim money from a foolishly layered chain of supply and demand.

ObamaCare arguably worsens the situation of employers (who never should have been tasked with providing health care in the first place) and their employees. Our employer-burdening system makes business success more difficult and adds another reason to make employees’ lives more miserable.

The moral? — When we do not read pertinent legal language and forecast its practical implications, we make mistakes in achieving our intended directions

I do not harbor the unreasoned hatred of ObamaCare that many of its (usually ignorant) opponents do.

On the other hand, I do agree with them that it is unlikely that the Act has appreciably advanced us on an affordably wise course.

The merit of Mr. Samuelson’s essay is that it points out how difficult it is to craft laws and regulations that will have their intended effects.

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