Over three years ago, on March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA), which established a comprehensive federal health insurance program to be rolled out over four years. Many Native American individuals (“Native Americans”) considered the ACA a success because it permanently reauthorized the Indian Health Care Improvement Act (IHCIA), which allows Congress to fund health care services for Native Americans. While the ACA relieved some of the concerns associated with health care costs for Native Americans, the ACA still poses significant cost issues that will impact tribal businesses.
Beginning in 2014, the ACA triggers employer tax penalties, often called the “Play or Pay” rule, for failing to offer adequate and affordable healthcare. The increasing tribal trend of hiring both Native and non-Native Americans blurs the ACA’s mandates for tribal employers and a tribal business’s ability to exercise its sovereign immunity.
This article discusses (1) whether the “Play or Pay” rule should apply to tribal businesses employing both Native and non-Native employees, and (2) if so, how enforcement penalties will take effect.
The “Play or Pay” Rule – Smaller Business is Preferred For the Year 2014
Starting in 2014, the ACA provides incentives to ensure that small and large businesses provide healthcare coverage for their employees. However, the nature of those incentives differs greatly.
The incentives depend on whether the business is considered “small” or “large.” Small businesses are defined as those employing up to 50 full time employees. To help afford the cost of providing insurance, a small business may qualify for a 50% federal tax credit to offset the cost of insurance when it employs up to 25 employees, pays average annual wages below $50,000, and provides health insurance. Tribal businesses do not qualify for the credit because a tribal government does not pay federal income taxes, negating the benefit of a tax credit. Though the ACA is silent on the issue, a tribal business operating purely commercial activities may qualify for the credit if it is subject to federal income tax under another federal statute.
Conversely, a large business is defined as those employing over 50 employees. Large businesses failing to provide adequate health insurance must pay a tax penalty if their employees receive premium tax credits to buy their own insurance due to the employer failing to provide adequate and affordable health insurance to its employees. The tax penalty is an aggressive $2,000 – $3,000 per full-time employee per year beyond the company's first 30 workers.
The ACA Penalties Should Not Apply To Tribal Businesses Employing Solely Native Americans
Congress is silent as to whether the ACA penalty provisions apply to tribal businesses and the federal government has provided no interpretative guidance on this issue. However, current legal precedent supports the position that the ACA tax penalties should not apply to tribal businesses solely employing Native Americans.
As sovereign nations, tribes function as governments with the power to govern and regulate internal affairs. Tribal businesses are largely seen as an “arm of the Tribal Government.” (Kiowa Tribe v. Mfg Techs., Inc., 523 U.S. 757, 757-760 (1998).) But Congress retains the power to modify the tribes' self-governance, a power it has exercised in many areas.
One example of such a modification involves Congress chipping away at tribal self-governance by enacting a rule of “general application,” – a federal statute that generally applies to “all persons,” which will also apply to Native Americans unless Congress explicitly states otherwise. (Federal Power Commission v. Tuscarora Indian Nation, 362 U.S. 99, 116, 120 (1960).) The Ninth Circuit identified three exceptions to this rule: (1) where the law touches “exclusive rights of self-governance in purely intramural matters”; (2) the application of the law to the tribe would “abrogate rights guaranteed by Indian treaties”; or (3) there is proof by “legislative history or some other means that Congress intended [the law] not apply to Indians on their reservations.” (Donovan v. Coeur d'Alene Tribal Farm, 751 F.2d 1113, 1116 (9th Cir. 1985).)
Since the ACA does not specifically exempt tribal businesses from its penalty provision, courts may consider the ACA a law of general application. But did Congress really intend for the “Play or Pay” rule to apply to tribal employers? The answer is not so clear.
Although silent as it pertains to tribal employers, the ACA is actually ambiguous on its application to Native Americans. While it does not exempt tribal governments or businesses, it does exempt tribal individuals from penalties. Since “Ambiguities in a federal statute must be resolved in favor of Indians,” the ACA employer tax penalties should not apply to Native Americans at all, including tribal businesses employing solely Native Americans. (See San Manuel Indian Bingo & Casino v. Nat'l Labor Relations Bd., 475 F.3d 1306, 1311 (D.C. Cir. 2007).)
Moreover, the Supreme Court has stated that “a clear expression of Congressional intent is necessary before a court may construe a federal statute so as to impair tribal sovereignty.” (See Santa Clara v. Pueblo v. Martinez, 36 U.S. 49, 59-60 (1978) (emphasis added).) As stated above, Congress’s silence on the issue is far from any “clear expression” of intent, and the application of the ACA to tribal employers of tribal members would clearly impair tribal sovereignty.
For these reasons, tribal businesses employing solely Native Americans should fit within the third exception (i.e., congressional intent) to the “general application” law and be precluded from the imposition of ACA penalties. This is logical since the ACA explicitly exempts Native Americans from individual penalties for not buying health insurance. Congress understandably did not intend for ACA penalties to touch Native Americans at all (including tribal businesses).
In addition to legislative intent, policy and logic also supports the position that the penalties should not apply to tribal businesses employing solely Native Americans. The purpose of the penalties involves encouraging businesses to ensure their employees are provided adequate and affordable healthcare and to compensate the federal government for costs associated with the failure to provide insurance. However, tribal individuals receive their healthcare through the IHCIA, thereby negating the rationale for penalizing a tribal business.
In short, Congress’s exemption of Native Americans from individual tax penalties shows that Congress did not intend for the ACA penalties to apply to Native Americans. Even though the ACA is silent as to exempting tribal businesses, the resulting ambiguity should favor tribal business immunity. This is also a logical position since Native Americans have access to healthcare through IHCIA, negating any policy incentives for the penalties. Therefore, where tribal businesses employ only Native American employees, the ACA’s “Play or Pay” penalties should not apply.
Where, however, a tribal business employs both Native and non-Native Americans, the application of the ACA penalties is more complicated.
The “Play or Pay” Rule Should Not Apply Uniformly to Tribal Businesses Employing Both Native Americans and Non-Native Americans
Under the ACA, the definition of “employer” and “employee” are given the same meaning as under the Employee Retirement Income Security Act (ERISA). Under ERISA, an employment relationship exists if an employee is subject to the will and control of the employer as to both what shall be done and how it shall be done. Using ERISA’s definitions, Congress appears to have intended for the ACA to apply to tribal employers, just as ERISA has applied to tribal employers.
However, Courts have not addressed the issue of whether a Native or non-Native individual constitutes an “employee” under ERISA. This is likely because there are no ERISA provisions where the number of employees would make a difference to the tribal employer—either ERISA applies to the tribal business as a whole or it does not. Unlike ERISA, the ACA business penalties are dependent upon the number of employees and personal penalties are based on Native American status. Therefore whether a Native American individual constitutes an “employee” for the purposes of tax penalties is significant, but not well distinguished in the ACA.
Most cases have held that tribal companies do not enjoy sovereign immunity in their dealings with non-Native Americans. Courts consider employment of non-Native Americans as a factor “weighing heavily” against application of any three exceptions to rules of general application. (Reich v. Mashantucket Sand & Gravel, 95 F.3d 174, 180 (2d Cir. 1996).) Specifically, if a tribal operation affects open markets, then it is not focused on serving primarily tribal members, and therefore the first exception to rules of general application (i.e., pure intramural matters) is not likely to be recognized.
Accordingly, tribes employing non-Native Americans can expect that ACA penalties will apply to their non-Native employees. The question then becomes at what point the penalties apply because, as noted above, the penalties are triggered by an “employee” numbers game.
What if a tribe employs 30 non-Native Americans, and 21 Native Americans? Is it still considered an employer of a “large” business (more than 50 employees) subject to ACA penalties? The ACA does not expressly address this issue, but looking to congressional intent, statutory verbiage, and Internal Revenue Service (IRS) guide notices regarding the ACA will assist tribes with understanding how the employer penalties affect their business. The answer may be in the ACA’s implied definition of “employee and employer.”
Because Congress expressly exempts Native Americans (as individuals) from tax penalties for not having health insurance under the ACA, arguably Congress similarly intended for the ACA penalties to not apply to Native individuals in their capacity as employees. Thus, Native Americans should not count as “employees” for the purposes of large employer penalties because Native individuals are not subject to any penalties, themselves. If penalties could not be imposed on Native American individuals or on tribes employing solely Native Americans, then why should Native Americans be included when evaluating the size of a tribal business employing both Natives and non-Natives?
A final distinction between ERISA and the ACA arises from their distinct purposes. Under the ACA, Congress intended for universal healthcare to be available to all people, including those with low income. The ACA and the IHCIA generally share the same purpose of providing better access to quality healthcare. Applying the required care provision of both statutes to tribes is unnecessary and redundant. Had Congress intended the ACA to apply wholly to tribal businesses and Native American individuals, it would not have simultaneously permanently reauthorized the IHCIA. This was not the case in ERISA, where the purposes of ERISA are twofold, to protect both interstate commerce and the participants and beneficiaries of employee welfare benefit plans. Unlike the ACA, no other federal statute with similar purposes as ERISA applies solely to Native Americans.
Accordingly, tribal businesses employing both Native and non-Native Americans should expect the ACA “large employer” tax penalties to apply when they employ over 50 non-Native Americans. But Native Americans should not be included in the “50+ employee” figure for the purposes of the ACA penalties.
While many believe the enactment of ACA and IHCIA is an overall success for Native Americans, others feel applying the large employer mandate to tribal businesses is a violation of the trust responsibility that the federal government owes to the tribal community. Arguably, the employer penalties are a federal tax requirement intended to provide a service that is already granted to Native American individuals through IHCIA. As a result, it is a tax without a benefit to tribal business and governments.
On initial blush, the ACA employer tax penalties will apply to tribal businesses and may include both Native Americans and non-Native Americans as “employees” for the purposes of implementing the penalties. This application is erroneous. To avoid this occurrence, tribes should seek clarification from the Obama Administration that tribal employees are not counted in the determination of a large or small business under the ACA.