The cost to workers of the Affordable Care Act’s employer responsibility penalties is greater than you think, because of their business tax treatment.
Most low-skill workers are not offered health insurance by their employers, and those employers have been complaining about the $2,000-per-employee annual penalty they will pay beginning next year ($3,000 per employee who resorts to a subsidized exchange when insurance offered by the employer is deemed unaffordable to the worker).
Next year will not be the first time that employers had to pay taxes based on the number of employees they have. For example, they have been paying payroll taxes that amount to almost $2,000 per year for an employee with a $25,000 salary.
Employer payroll taxes have been extensively studied, and economists have concluded that employees ultimately pay for those taxes in the form of lower wages.
Thus you might think that the new $2,000 penalty would reduce wages by about $2,000 per employee per year. But unlike employer payroll taxes, the employer responsibility levies are not deductible from employer business taxes
An employer paying the $3,000 penalty would have to cut wages by $4,569. That would push someone working full-time at $10 per hour down to minimum wage.
Some good news for the employees who want health insurance: the employer penalties come with employee access to large federal subsidies for purchasing health insurance and paying out-of-pocket health expenses, unless you are in a family that is 400 percent or more above the poverty line.
Not all employers have to pay the penalties, and more good news for employees is that both types of employers will compete with each other in the market for labor, which might prevent penalty-paying employers from passing on the full cost to their employees.