Late on Tuesday, the Obama administration announced that it intends to exempt large employers who don’t offer insurance to their workers from steep Obamacare-imposed penalties for one year — an implementation delay it claims is intended to streamline employer participation in the Affordable Care Act, and work out some kinks that were expected to impose hardships on employees and businesses alike.
The announcement is catnip for Obamacare critics, who are intent on portraying every implementation hiccup as the sound of a law groaning atop a fatally flawed foundation.
The reality is much different. The employer mandate decision does reflect some real problems with the measure itself. But those problems exist at the margins of the law’s core functions. And ironically, the solution will increase the pressure the administration is under to get the core of the law right. But broadly speaking the uproar amounts to much ado about very little.
The provision in question — the so-called “employer mandate” — is intended to entice large employers to provide insurance to their full-time employees, and create a disincentive for large employers who might be tempted to unload their health care costs on to taxpayers by nudging their employees into Obamacare’s subsidized insurance exchanges.
Crucially, though, experts note that these incentives are fairly trivial in the grand scheme of employer sponsored insurance, and they don’t expect that the temporary delay of this particular penalty will have major consequences for the insurance market under Obamacare.
“[T]here is very little in the ACA that changes the incentives facing employers that already offer coverage to their workers, and fully 96 percent of employers with 50 or more workers already offer today,” write Linda J. Blumberg, John Holahan, and Judy Feder of the Urban Institute. “Competition for labor, the fact that most employees get greater value from the tax exclusion for employer sponsored insurance than they would from exchange-based subsidies, and the introduction of a requirement for individuals to obtain coverage or pay a penalty themselves, are the major factors that will keep the lion’s share of employers continuing to do just what they do today with no requirements in place to do so.”
In other words, even in absence of Obamacare’s $2000-a-head penalty, employers still have very real incentives to offer their employees health benefits. And if the delay will only have a modest impact on the insurance market, then it should also have a modest impact on the law’s fiscal consequences.
“We know first of all that there’s $10 billion in penalties that would have been incurred in 2014 but not collected until fiscal year 2015 that now won’t come in,” notes Paul Van de Water, a health care expert at the liberal Center on Budget and Policy Priorities. “That’s a loss for the budget. And there’s additional cost because to the extent that some employers decide they’re going to delay offering coverage, you’ll have more people eligible for Medicaid or premium tax credits. [But] we expect that to be relatively small since the employer requirement itself was never the primary reason for the coverage expansion. I don’t think it’s going to be a very large effect on coverage and therefore not a very large effect on the budget in 2014. And there’s certainly no reason to expect there to be any long run effects.”
Van de Water expects that because the delay is only one year, any insurance coverage effects will be temporary – employers will restore or begin offering insurance a year later than expected, and their employees will thus lose their eligibility for ACA subsidies.
The Urban Institute experts agree. “Throughout the development and the implementation of the ACA, there has been more worry than warranted that employers will drop insurance coverage,” they write. “The current furor over the delay of the employer penalties appears to be more of the same. With or without the penalties, most people will still get coverage through their employers; the fundamental structure of the law will remain intact.”
As currently structured, the employer penalty creates problems for employers and workers alike. It kicks in for firms with 50 or more employees, creating a costly cliff for smaller firms hoping to expand, and it applies to every employee working 30 or more hours a week, creating an incentive in some cases for employers to reduce hours or higher fewer people.
The delay is intended to smooth out some of those problems. But even if that effort is unsuccessful, the administration will be under immense pressure to let the one-year waiver lapse. Over 10 years, the mandate itself was expected to raise about $140 billion.
“You take the $140 billion, plus some additional savings from Medicaid and premium subsidies, pretty soon you’re talking about real money,” Van de Water said.
It’s not just money at stake, but Obama’s credibility too. He promised that the law would reduce deficits over 10 years. And as currently structured it does. But if this delay becomes permanent, it could mean the difference between a law that reduces to deficit slightly over 10 years, and one that raises it.
