Dan Driver’s rapidly growing computer IT business Byte Back is busier than ever and needs help. Not forgetting his cash flow crunches of 2007, Dan is watching labor costs steadily rise. Healthcare insurance is his #2 greatest expense behind wages. All of this talk about employee healthcare insurance has left Byte Back paralyzed as an old cow looking at a new gate. What does the Supreme Court’s decision today on The Patient Protection and Affordable Care Act, more commonly known as “Obamacare,” mean to Byte Back? If Dan hires now, can he know what it will cost Byte Back?

U.S. Supreme Court Rules ObamaCare Constitutional

The Affordable Care Act, including its individual mandate that virtually all Americans buy health insurance, was upheld today by five justices who agreed that the penalty that someone must pay if he refuses to buy insurance is a kind of tax that Congress can impose using its taxing power. Although, there were not five votes to uphold it on the ground that Congress could use its power to regulate commerce between the states to require everyone to buy health insurance, the individual mandate being a tax is all that matters. Because the mandate survives, the Court did not need to decide what other parts of the statute were constitutional, except for a provision that required states to comply with new eligibility requirements for Medicaid or risk losing their funding. On that question, the Court held that the provision is constitutional as long as states would only lose new funds if they didn’t comply with the new requirements, rather than all of their funding.

Possible Business Implications.

In a Summer 2010 Vanderbilt Law School Health Law Society article written by Eric Yetter entitled “Obamacare: Functions and Implications,” Mr. Yetter drew certain conclusions about the practical implications of Obamacare upon businesses. According to Mr. Yetter, employers with more than fifty employees will face fines unless they either increase wages above 400% of the Federal Poverty Level (FPL) or provide their employees with health coverage. Employers whose employees are eligible for subsidies on an exchange and who are not provided with health insurance will face a fine. Assuming that an employee is the single earner in a family of four, she would need to be paid at least $88,200 to not qualify for a subsidy on the exchange. Assuming this person works forty hours per week for fifty weeks per year, her hourly wage would be $44.10/hour. Obviously, it would be cheaper for an employer to pay the fine than raise its lowest wage employees to this compensation level. But if even a single employee qualifies for a subsidy on the exchange, the employer must pay a fine of $2,000 per employee for all employees except the first thirty employees. Thus, Obamacare will have one of three ultimate effects on employers: 1) employers will provide coverage for all of their employees; or 2) employers will raise their lowest-paid worker’s salary to $88,200; or 3) employers will pay the federal government $2,000 per employee for all employees except the first thirty. For a large company with 100,000 employees, that fine would be approximately $200 million per year. Companies that cannot afford to provide health coverage for every employee will likely eliminate health benefits for all of their employees and pay the fine instead. However, there are no assurances that those employees losing coverage would receive an additional wage increase in lieu of employer provided coverage, which they could instead use to purchase insurance on the exchange.

Tilting the Scales in Your Favor

Even though the Supremes have spoken, the jury is still out on the reactions of businesses, both overtly and indirectly in their hiring practices as they respond to the Court’s finding that Congress does in fact have the power to tax through the imposition of an individual insurance mandate. What Dan and Byte Back will do in response to this new tax remains to be seen.