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Immigrant Workers, Health Reform, and the Potential for Employer Penalties

Debates about illegal immigration, Health Care Reform, and the impact of both can be controversial.  However, it's imperative to rely on the facts when exploring this issue in the context of new federal rules.

What is the Impact on the Employer? 

Employers must verify that any individual whom they plan to employ or continue to employ is legally authorized to accept employment in the U.S.  Some classifications of immigration status automatically provide authorization to work in the U.S.  These "lawfully present qualified immigrant" classifications include, but are not limited to:  lawful permanent residents, refugees, conditional entrants, asylum seekers, Cuban and Haitian entrants, and family unity amnesty seekers. 

Employers are barred from discriminating against work-authorized individuals including non-US citizens with permission to live and/or work in the U.S. 

Health Care Reform applies to all "lawfully present" individuals - including and especially the mandate that each individual maintain acceptable health insurance coverage or pay a penalty.  Employers with over 50 full-time workers, of any background or work authorization status, will be responsible for offering coverage to all those full-time employees.

But…. what about unauthorized/illegal aliens? If an employer mistakenly hires undocumented workers, will the employer be subject to penalties if/when an undocumented worker waives affordable coverage?

Caution is urged due to concerns with potential allegations of discrimination.  Title VII of the Civil Rights Act prohibits discrimination on the basis of race, color, religion, sex or national origin.  By extension, employers are:

  • Prohibited from discriminating against work-authorized individuals;
  • Prohibited from refusing to hire qualified work-authorized individuals; and
  • Cannot specify or limit the documents it will accept to verify employment eligibility.

Ultimately, through, as with other workers who decline coverage, employers are not liable for the health reform penalties if/when an undocumented worker waives affordable coverage.

If an employer discovers a worker is not authorized to work in the U.S., the employer has several responsibilities.  Termination of employment is the first step most employers take, under the Immigration Reform and Control Act of 1986.  Benefits would end as they would for any other terminated employee.  But what about the health plan and continuation coverage rights? 

Under COBRA, a person who has been terminated for gross misconduct need not be offered COBRA. Many employers take the position that an employee who has lied on the Form I-9 or presented falsified or improper identification has engaged in gross misconduct.  From a compliance perspective, "gross misconduct" might include falsifying work authorization and is grounds for termination.  (The COBRA regulations specifically state that nonresident aliens without U.S. source income are not COBRA qualified beneficiaries, yet are silent on the status of undocumented workers with U.S. source income.)  We believe that an employer with a well-publicized, strictly-enforced policy of termination for employee dishonesty (including material misrepresentations made during the hiring process), and evidence of not knowingly employing undocumented workers would not run afoul of the law by denying COBRA.  You need to be particularly careful if not offering COBRA.  If you are incorrect in your assessment and if the facts are different regarding the employee's situation, then not offering continuation coverage could lead to a complaint to the federal government or an expensive lawsuit.  Consult your employment attorney for a formal opinion before refusing COBRA in any particular situation.  Also, you may decide to just offer continuation coverage anyway.  The employee may be in legal trouble for the actions he has taken, and he may be in no position to elect or pay for COBRA.

What is the Impact on the Worker? 

A nonresident foreign national authorized to work in the U.S. and earning wages from a U.S. employer is subject to the same income tax rules and rates as U.S. citizens and resident aliens.  To the extent that there might be concern, the IRS is able to enforce health reform and collect individual mandate penalties from employed foreign nationals who have income from U.S. sources. 

Although the penalties for noncompliance with the individual mandate are tax-based, the law expressly exempts unauthorized/illegal aliens from the individual mandate.  Health Care Reform further bars unauthorized/illegal aliens: 

  • Access to the State health insurance exchanges;
  • Eligibility for federal premium credits or other cost sharing subsidies; and
  • Participation in the temporary high risk pools.