Was delaying the employer mandate legal? Did the IRS even check?

March 22

The PPACA imposes a “shared responsibility requirement” on employers with more than 50 employees who fail to provide adequate and affordable health insurance to their employees. Employers who fail to comply with this “employer mandate” are required to pay a penalty (what the government calls a tax), that can reach $2,000 per employee for every employee over 30 employed by the firm (e.g. a firm with 50 employees would pay on 20).  The threat of these penalties is one reason some employers have reduced their number  of full-time employees so as to reduce their exposure.

According to the PPACA, the employer mandate was to “apply to months beginning after December 31, 2013.”  In other words, this provision of the law was due to take effect at the start of the year.  The Administration had other ideas, however.

In July 2013, the Administration announced that it would delay the employer mandate by a year.  As some noted at the time, this conveniently pushed enforcement of the mandate beyond the 2014 election.  Yet there was more to come. On February 10, the Administration announced further delays of the employer mandate. Specifically, the Administration announced that the mandate would be delayed until 2016 for firms with fewer than 100 employees, while those with over 100 employees would only have to provide qualifying insurance to 70 percent of their full-time employees in 2015.

Given the clear language of the PPACA, it was fair to wonder whether the Administration had the legal authority to make this move (and what effects it would have).  The Treasury Department claimed this was an ordinary exercise of its “longstanding authority to grant transition relief when implementing new legislation,” yet Treasury has yet to identify an applicable precedent that would justify waiving a tax liability prospectively as the Administration is purporting to do.  Treasury has noted cases in which the IRS waived potentially applicable penalties or allowed deferred payment of tax liabilities, but these are easily distinguishable.  Congress expressly provided that the mandate was to take effect this year.  Further, if the mandate penalty is a tax — as the administration currently maintains in various PPACA-related cases pending in federal court — then the employer mandate delay constitutes more than deferring payments or declining to seek penalties. Rather it constitutes a unilateral decision by the executive branch to waive an accrued tax liability.

The legal justification for the employer mandate delay offered by the Treasury Department has been exceedingly weak.  Perhaps this is because the Treasury Department never considered whether it had legal authority to delay the employer mandate until after it made the decision to delay it. The Examiner reports:

Treasury Assistant Secretary for Tax Policy Mark Mazur, who announced the employer mandate delay in a blog post, told the House Oversight and Government Reform Committee that he didn’t remember anyone considering the legal basis for the delay.

“Did anyone in the Department of the Treasury inquire into the legal authority for the delays?” Mazur was asked.

“I don’t recall anything along those lines, no,” he replied. He gave a similar answer when asked about the IRS and the Executive Office of the President.

This has led some to speculate that the order for the delay came from the White House, where political considerations would have trumped legal constraints.  This is eminently plausible given some of the White House’s other announcements seeking to alter PPACA implementation in unauthorized ways.

This would hardly be the only instance in which the Treasury Department implemented the PPACA without adequately considering the relevant  legal constraints. A recent report issued by the House Ways & Means and Oversight and Government Reform Committees suggests there was little consideration of the Administration’s legal authority to authorize tax credits in federal exchanges before the decision was made and the rule was drafted.

The PPACA was bad enough as drafted, but what we’re getting is something else entirely.

Jonathan H. Adler teaches courses in constitutional, administrative, and environmental law at the Case Western University School of Law, where he is the inaugural Johan Verheij Memorial Professor of Law and Director of the Center for Business Law and Regulation.
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