Will AB 880 Hurt California Businesses?

It hasn’t been long since the landmark Supreme Court decision that upheld the Affordable Care Act, which in addition to implementing sweeping reforms in the world of medical care and medical insurance, imposes penalties on those that do not obtain any kind of health insurance. That provision was found by the U.S. Supreme Court to be a constitutional exercise of Congress’ power to tax and spend, and more recently the U.S. Court of the Appeals for the Fourth Circuit affirmed Congress’ power to tax employers that fail to provide healthcare to their employees. Yet California’s Assembly Bill (AB) 880 would go still further, thereby supplementing what is perceived by many to be a loophole in the Affordable Care Act.

The bill would create a penalty for those large corporations whose workers find themselves on Medi-Cal (California’s Medicaid system), supposedly in order to create an incentive for employers to provide health insurance to their workers. While the ACA already imposes certain penalties on employers of 50 or more for under-covered or non-covered employees, those employees that enroll in Medicaid do not trigger the penalties for their employers. In other words, as long as employers under-employ their workers by hiring them part time, and force them onto Medi-Cal, no penalty will be assessed, making it a win-win for employers to hire part-time. AB 880 would attempt to change all that by imposing penalties on employers of 500 employees or more and who have employees that enroll in Medi-Cal. Thus, whereas previously employers were able to simply hire part-time employees, and pay them a low wage that forced them onto Medi-Cal, under AB 880 any non-disabled worker under 65 working at least 8 hours a week that is not covered by an employer would operate to trigger the penalty. Interestingly enough, the penalty while negatively affecting employers would be used to pay for the non-federal state share of Medi-Cal as well as inflate the reimbursement rates remitted to Medi-Cal providers.

While AB 880 would apply to employers across the board, many believe that the bill is in many respects motivated by the practices of the retail giant Wal-Mart Stores, which has become notorious for effectively displacing the cost of providing benefits to employees to the state of California. Yet despite the motivations behind the bill, AB 880 would have implications for smaller businesses as well, and would clearly impact those businesses in a weaker position, as well as those that may actually need to hire part-time workers in order to keep their doors open.

Thus far, AB 880 has not been successfully passed, but given the perceived need to remedy what is considered to be a flaw in ObamaCare, it is not unlikely that such a bill will find its way to the California legislature some time soon. Employers far smaller than Wal-Mart should remain abreast of developments in such legislative activity, and be prepared to adopt alternative means to reduce costs in the wake of such a bill becoming law. Though the measure would be designed to close what is perceived to be a loophole, new laws typically come with additional loopholes, and employers seeking to keep costs down would do well to speak to an experienced attorney that understands the legal issues, and can advise on an effective strategy without subjecting clients to labor violations.