Does Obamacare give businesses a $3,000 incentive to hire illegal immigrants?

In all the attacks against President Barack Obama’s executive action on illegal immigration, there’s another policy that got caught in the fallout: Obamacare. Critics say the two policies together have created a $3,000 incentive to hire illegal immigrants.

Because of a loophole in the 2010 health care law, employers have the incentive to hire illegal immigrants who obtain a work permit under Obama’s recent executive action, rather than American citizens, according to a Nov. 25 article in the Washington Times that has since made rounds on the conservative blogosphere and on Fox News. An article on failed Republican presidential candidate Herman Cain’s website said this loophole could affect "millions."

The claim isn’t so much inaccurate as it is speculative. For that reason, we won’t put this on our Truth-O-Meter. But we did want to lay out what we found.

We found that some businesses could, in theory, save $3,000 per employee for hiring an illegal immigrant over an American citizen. However -- and this is a big however -- this would only work for a small subset of businesses, and these businesses would have to have a particular setup that experts told us is impractical and unlikely.

A hefty fine

We need to start out with some background. Bear with us -- this gets a little complex.

Obamacare comes with something called the employer mandate, which, in a roundabout way, requires businesses with more than 50 employees to offer health insurance or pay a fine to the government.

If a company with 50 or more employees does not offer insurance, an employee could choose to get health insurance through the marketplace created by Obamacare. If just one employee gets insurance through the marketplace and qualifies for a government-subsidized premium, the company has to pay a hefty fine. The intent is to offset the costs the government incurs when subsidizing premiums.

The fine is roughly $3,000 a year multiplied by the number of full-time employees, minus 30. (This particular formula goes into effect in 2016.) So if a 100-person company does not offer health insurance, and just one employee gets subsidized insurance on the marketplace, the company has to pay a fine to the tune of $3,000 multiplied by 70.

But illegal immigrants -- including those who qualify for a work permit under the executive action -- do not qualify for Obamacare. So if a company doesn’t offer health insurance, and they only hire illegal immigrants, there is no danger of a fine, because the illegal immigrant workers won’t be able to apply for coverage on the marketplace. The company saves a good bit of money by not offering insurance and not paying a fine.

"Regardless of the executive action, Obamacare makes natives or documented immigrants more expensive to hire, relative to undocumented workers, than they would have been without Obamacare," said Casey Mulligan, an economics professor at the University of Chicago, who has been critical of the health care law. "With the executive action, Obamacare pushes even more employers to hire immigrants."

This reasoning makes sense. But is it likely to play out? 

Pulling off a stunt

First of all, not many businesses would be able to take advantage of this incentive. Fewer than 5 percent of businesses have more than 50 employees and are subject to the employer mandate, PolitiFact found in 2013. (Though of all people who work for a company, about 72 percent work for companies with 50 or more employees.)

On top of that, about 90 percent of companies with more than 50 employees already offer their employees health insurance, University of Michigan economist Thomas Buchmueller told PolitiFact.

So for there to be any Obamacare-induced incentive to hire illegal immigrants over citizens, many companies would have to decide that they want to stop offering health insurance.

Although this might save some money, it could cause problems for the business, said Timothy Jost, a health law professor at Washington and Lee University. Offering benefits comes with its own tax advantages, and it helps businesses attract talent and reduce absenteeism due to health issues.  

Perhaps more restricting is the fact that these businesses could only employ illegal immigrants -- no citizens -- for this to work. That’s because the business is subject to a fine if even only one employee gets a subsidy.

In that case, the company would have to pay the employer mandate fine: $3,000 multiplied by the number of employees. (The tally would include all workers, even illegal immigrants.)

"The trigger for the employer mandate is that at least one of their full-time workers obtains a marketplace subsidy -- so the only way an employer could be sure would be to only hire permitted illegal immigrants," said Margaret Riley, a health law professor at the University of Virginia. "That seems pretty unlikely."

The employer mandate is unpopular among many, not just conservatives, so arguing that the employer mandate incentivizes hiring illegal immigrants over citizens is effective politically, Riley said. But it would be too risky for a business to take these steps and "pull off such a stunt."

"It is offered more as another argument against the employer mandate than as something that employers might actually try," she said.

Finally, the White House told us that employers are forbidden by law to hire or fire workers based on whether they qualify for health care subsidies, pointing to Section 1558 of the Affordable Health Care Act. The law provides for a complaint process if workers believe they've been discriminated against. 

There’s a bit of irony in this whole debate. Mark Hall, a health law professor at Wake Forest University, said the obvious ways to get rid of the supposed Obamacare-induced incentive to hire illegal immigrants would leave a bad taste in many mouths.

The law could change to penalize businesses for not offering insurance, even if none of their workers get subsidized insurance on the marketplace. Or, lawmakers could allow illegal immigrants to qualify for insurance subsidies.

"I seriously doubt that those who make this point would actually want to adopt either of these corrective measures," Hall said.

Editor's note: This story has been updated to include a comment from the White House that we received shortly after our initial publication.