(June 12, 2013) A California Chamber of Commerce-opposed “job killer” bill that requires the state’s largest employers to pay a penalty for each worker who opts to enroll in the state’s Medi-Cal program will be considered by the Assembly this week.

AB 880 (Gomez; D-Los Angeles) increases health care costs and increases discrimination litigation by assessing large employers a penalty if any of their employees who work as little as eight hours per week enroll in California’s Medi-Cal program and by expanding the Labor Code to include a protected classification for any person who is enrolled in California’s Medi-Cal program or in the California Health Benefit Exchange. Because of the urgency clause, AB 880 remains active on the Assembly Floor.

The bill affects a wide range of industries, including large nonprofits, all of which would be hit hard with new significant financial penalties related to health care coverage for their workforce.

In the News

Just recently, Rick Fowler, president and CEO of The Community College Foundation, wrote an opinion piece for The Sacramento Bee outlining the broad and devastating impact AB 880 would have on his nonprofit company, which helps tutor disadvantage children.

A CalChamber News segment released on May 30 also highlighted problems with AB 880. In the video, CalChamber President and CEO Allan Zaremberg explains that AB 880 imposes a new tax on California employers when they hire part-time employees, shifts the burden of paying for a Medi-Cal program in California from the public sector (the state) to the private sector, and eliminates any reason to promote efficiencies in the program.

New, Costly Employer Mandate

Specifically, AB 880 will force larger employers to pay the state an estimated additional penalty between $6,000-$15,000 for any employee who works eight hours or more a week and chooses to use Medi-Cal.

The additional penalty is on top of another penalty that the federal health care program already requires. The additional penalty will go to the Medi-Cal program, with 10 percent used to fund state bureaucracy. These penalties shift costs of funding public health programs from government to employers.

Other key components include:

• Penalizes companies, non-profits, and other organizations (with 500 employees or more) that have employee(s) including part-time, temporary, or seasonal employees enrolled in Medi-Cal. The penalty is 110 percent of the average cost of health care, including both the employer and employee share of the premium.
• No penalty exemptions for the use of temporary or seasonal employees, which is common in industries such as tourism, trucking, agriculture, manufacturing, construction and many other vital industries.
• Penalizes employers who offer health care insurance to employees even if an employee refuses the benefit and opts to use Medi-Cal.
• Harms businesses’ ability to manage their workforce by penalizing companies, nonprofits, and other organizations with an additional penalty of 200 percent of the average cost of health care if they discharge, demote, or suspend an employee who is using a public health benefit. Yet there is no provision that allows an employer to know whether the employee is using a public health benefit and to determine whether the employer’s actions were linked to reducing health care costs.

Reduces Part-Time Workers

AB 880 goes well beyond the requirements of the federal Patient Protection and Affordable Care Act (PPACA) in two ways:

1. Under the PPACA, the formula for assessing a penalty on employers who do not offer affordable health care coverage when their employee receives subsidized care is $2,000 annually times the number of full-time employees minus 30. In contrast, the formula for assessing a penalty under AB 880 is based on the cost of health insurance premiums for the employee and the employer, which far exceeds $2,000. Indeed, according to the Kaiser Family Foundation, the national average cost for health care in 2012 was $5,615 for individual coverage and $15,745 for family coverage. It is unclear whether AB 880 sets the penalty level at the individual or family level of health care coverage.
2. AB 880 applies its provisions to part-time as well as full-time employees. The CalChamber understands the goals of supporting employer coverage for full-time employees, since this has been a common and expected practice for decades; the “employer responsibility” provisions of the PPACA reflected that. This bill, however, goes far beyond common practice and the PPACA by applying the penalty to employers whose part-time employees receive Medi-Cal benefits.

Protected Classification

Creating such a broad protected classification as proposed under AB 880 will encompass a large portion of employees and will significantly hamper an employer’s ability to manage its workforce.

Specifically, under AB 880, an employer will potentially be subject to costly litigation for alleged discrimination or retaliation each time it makes an adverse employment decision that has an impact on an employee who has enrolled in a public health benefit program.

California employers are already overwhelmed with employment litigation. There were approximately 19,500 discrimination claims filed in 2010 with the Department of Fair Employment and Housing (DFEH) under the Fair Employment and Housing Act (FEHA), which was 1,000 complaints more than in 2009. Notably, more than 4,000 of these complaints were dismissed due to lack of evidence of any violation. Adding this new expansive classification will only cause such cases to increase dramatically and burden California employers with costly litigation.

Equally concerning is AB 880’s extension of the Labor Code Private Attorney General Act (PAGA) to include retaliation/discrimination claims that generally are pursued through FEHA and subject to the exhaustion of administrative remedies. The CalChamber believes discrimination and retaliation claims that are based on a protected class should be mandated to comply with the administrative process of first submitting such claims to the DFEH for review.

Finally, determining the status of a person as an independent contractor versus an employee is a daunting task for many businesses because of the subjective nature of the factors utilized in the analysis. Even state agencies admittedly do not agree on who qualifies as an independent contractor. Without clarification, AB 880 would expose employers to additional litigation. The bill should apply only to employers who purposefully and/or specifically intend to misclassify an individual as an independent contractor in order to avoid the law.

Most large California employers provide health care coverage to their employees and do their best to make it affordable, although health care costs are beyond employer control. Although the CalChamber understands the concern that some employers may attempt to avoid the rising costs of health care coverage, AB 880 goes far beyond any reasonable response to that concern.

Action Needed

AB 880 will be considered by the full Assembly this week. Urge your Assembly representative to oppose AB 880.