More U.S. companies are reportedly eyeing inversions to get a cheaper tax bill overseas, and the controversial issue has been front and center this week on Capitol Hill, with lawmakers calling for a fix to the loophole. Now some are asking, if businesses may also have the option to skirt penalties under the Affordable Care Act, using U.S. territories as a safe haven.
Last week, the Department of Health and Human Services released 4.1 million Americans in the U.S. Virgin Islands, Guam, American Samoa, the Northern Mariana Islands and Puerto Rico from the individual mandate. Centers for Medicare and Medicaid Services Administrator Marilyn Tavenner said in a weekly notice the law was undermining the stability of the insurance market in these places.
“The department is committed to working with states and the U.S. territories in order to implement the health care law in a way that maximizes coverage options for consumers. As such, we are providing additional flexibility to the territories in order to implement the law in a way that recognizes their unique situations,” Aaron Albright, spokesman for CMS, said in an email."
Also, businesses in these areas will not be required to comply with the employer mandate portion of the law. This requires all businesses with at least 50 or more full-time employees to offer their workers coverage, or face a fine of $2,000 per worker per year (the first 30 full-time employees are exempt). This kicks in come 2015 for businesses with 100 or more full-time workers, and in 2016 for those businesses with between 50 and 99 full-time workers. The law was delayed in February after pushback from the business community.
Kevin Kuhlman, manager for legislative affairs at the National Federation of Independent Business, says the U.S. territories could potentially become more attractive to businesses, depending on their particular model. The mandate will be disruptive to businesses in local markets, he says, and anything that creates fewer barriers to entry is likely welcome.
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“Hospitality and tourism businesses may have the most trouble complying with the burdensome employer mandate,” Kuhlman says. “Anyone looking to start a business in these arenas may look at locations where the employer mandate is not a barrier to growth.”
The NFIB does not have offices in the territories, and Kuhlman says he has not yet heard of companies seeking refuge in U.S. territories from the mandate, although he says it may not be well-known that this is an option.
“Too many employers are still continuing to digest this,” he says. “The employer mandate delays have pushed off their major concerns until it comes to fruition.”
One thing to keep in mind, says Timothy Jost, Robert L. Willett Family professor of law at the Washington and Lee University, is that businesses that opt to move to territories would only skirt the mandate for those locations. If a business were to have its headquarters in Puerto Rico, for example, but had operations in other states, the state-based businesses would still be subject to the penalty.
“An employer is not subject to the mandate for [those] it employs in the territories, but would be for employees it employees in the 50 states, regardless of where it is headquartered,” Jost says.
It could, as Kuhlman pointed out also, be attractive to those who have low-wage workers that don’t want to comply with the mandate.
“It could be a benefit, but it’s unclear if anyone has done this so far,” he says.