White House Delays Employer Mandate-But What About Small Employers?

White House Delays Employer Mandate-But What About Small Employers?


The administration suddenly announced last night that the requirement that all employers with 50 or more workers offer health insurance has been delayed until 2015.

If an employer with 50 or more workers did not provide health insurance to their full time workers in 2014, they would have been subject to a fine of $2,000 per worker. The employer would have also been subject to a $3,000 fine for each worker that went to the insurance exchanges if the employer package was not affordable.

Why did the administration delay the large employer mandate?

Because many employers have been in the early stages of planning to cut back the hours of workers in order to avoid having to offer insurance to those customarily considered part time, those who work at least the 30 hours per week the law established for defining a full time worker––and they haven’t been bashful in telling their employees why. In addition, there has been growing evidence that some employers were holding back on hiring in order to avoid more of the mandate costs at a time of high unemployment.

While the administration cited employer administration issues with mandate reporting as the reason for the delay, the bottom line is that the Affordable Care Act (“Obamacare”) was looking like it was about to be successfully labeled a job killer and the administration wanted to avoid that.

You also have to wonder if all of the reporting challenges were just with employers or was the administration also having trouble with the complex employer mandate information systems they will ultimately have to build?

However, this is only a one-year delay. It doesn’t take any of the uncertainty off the table for employers––it simply delays things. But the delay does give employers a chance to see just how the overall law will impact the health insurance market before they make any final decisions. It also gives the Obama administration a chance to reconsider many of the new law’s regulations that have rankled employers.

The administration did not delay the many new requirements facing employers who choose to offer health insurance in the small group market––employers with less than 50 workers. They are faced with the essential health benefit requirements as well as the rating reforms––a small group with lots of young people will see their rates increase significantly because of the new 3:1 age compression rules, for example.

While small employers are not required to offer coverage, if they do they come under that large number of new essential health benefit mandates and group rating rules that won’t apply to large employers. These small group requirements are expected to increase the cost of small group coverage by an average of 15%––with wide variation by state and the average age of the group.

While the new health law enabled small groups to benefit from “grandfather” rules by being able to keep their current benefit package, it has been estimated that only about 15% of employers will still be grandfathered come 2014 because of how stringent the administration made those rules.

These small employers are suffering much the same anxiety large employers are suffering over how they will be able to continue offering coverage under the Affordable Care Act. Many of these small employers are now thinking about dropping their coverage.

Small employers don’t have to comply with the new benefit and rate mandates until their coverage renews in 2014. Earlier this year, a number of insurance companies announced that they were willing to change the anniversary date for small group plans until late 2014 in order to give their small group customers more time to comply.

That offer was met by sharp criticism from some supporters of Obamacare, as well as some state insurance regulators, because it smacked of trying to get around the law.

But now the administration, seemingly out of nowhere, has done just that for large employers.

Why not do the same for small employers as well? And while they are at it, use the time to reconsider the impact many of these regulations are likely to have on the number of small employers continuing to offer coverage.

Perhaps the most significant part of this announcement is that we have finally seen a huge crack in the façade the administration has been maintaining over how well implementation has been going and will go.

What’s next?

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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51 Comments on "White House Delays Employer Mandate-But What About Small Employers?"


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Uwe Reinhardt
Aug 19, 2013

Although ip adresi’s sentences do not make any sense, he she or it is touching upon a fundamental question, namely:

Why does a man have to give a woman an engagement ring when they decide to do a merger, so to speak, while she does not have to give him something in return, like a Harley Davidson or 50-cal. machine gun for hunting or stuff men need?

We must ask Jeff Goldsmith about it.

Aug 19, 2013

“Getting engaged has to be among the most romantic, fascinating and happiest time of the life; for both girls and guys. Selecting the right a single for many women is crucial. Guys that prefer to pick the engagement ring with no their partner realizing commonly come across it incredibly tricky unless they can be conscious of what their other half would like. In recent years significantly more girls princess engagement rings than ever are selecting their own ring in order for them to have 1 that’s just correct. This can also take the strain away from the man and ensure the answer yes’.”

Jul 16, 2013

Bob, I looked at that calculator as well (great find), but for the family of 4 while the cost seems lower you have to factor in the overall cost of a family against that 50K of income (anyone with kids knows they are expensive). This also assumes that they qualify for the full subsidy and also that nothing happens during the year where income is reduced etc. The change in income problem is an issue that we are starting to read more about how that is going to be handled as well. Seems like most folks believe that the IRS will catch up to you somehow, but I think that this is quite unclear yet as to actually how that can be acheived.

Additionally, this scenario assumes that the coverage is available for the family in their state as well (see Mississippi) or that the available plans have a network in the area where they live (I believe Montana has gaps due to Insurers not joining the exchange year 1).

Lots of potential pitfalls to Obamacare, and these types of issues are going to be problematic as well as the overall technical issues that the Fed and State governments are facing just trying to get the exchanges live (I work in insurance tech, its going to be a mess when they try and roll this out). I think the concept of Obamacare is ok, just don’t think the approach was particularly well thought out nor was the actual problem of Health Care in the US addressed (It’s the Cost!).

Jul 6, 2013

I spent a little time on the excellent Kaiser subsidy calculator website.

A male age 30 making $30,000 has to spend $2500 a year for a silver plan with a $2,050 deductible. That is after his subsidy.

$200 bucks a month is a lot when you are making $30,000 a year pre-tax.
Paying the penalty is going to look pretty good.

Incidentally, the situation for families is better. A man and wife with 2 kids and total income of $50,000 will pay about $300 a month out of pocket for insurance after the subsidies are factored in.

Barry Carol
Jul 6, 2013

First sentence should read the majority of young healthy people will choose to pay the penalty.

Barry Carol
Jul 6, 2013

Bob –

Informative comment.

If I were a betting person, I would bet that the number of young healthy people will choose to pay the penalty instead of sign up for health insurance for two reasons. First, the penalty is way too low relative to the likely cost of insurance. The second is that they can always sign up for insurance after they get sick or become pregnant because of the guaranteed issue provision in the law.

Twenty years ago, Washington State had community rating coupled with guaranteed issue and a mandate to purchase insurance. The mandate proved so unpopular that the legislature repealed it but kept community rating and guaranteed issue. One healthy woman six month pregnant and on her way to a normal healthy delivery signed up for insurance. After she had her baby and the bills were paid by the insurer she cancelled the policy and had the audacity to send them a letter thanking them for their coverage and suggesting “I look forward to doing business with you again the next time we are pregnant.” She did exactly that a second time. The bills paid by the insurer for the two deliveries were six times what she paid in premiums. This is classic adverse selection and is typical of what happens under guaranteed issue provisions without a mandate to purchase insurance backed up by a stiff penalty if you don’t. Washington state later allowed insurers to look back nine months for pre-existing conditions and could deny coverage if they found any.

If the Obama administration really wants young healthy people to sign up for health insurance, the penalty for not buying it needs to be something close to the cost of the least expensive policy. Perhaps 90% of the cost of a bronze level plan might be appropriate. Second, insurers need to be able to look back at least nine months for pre-existing conditions unless you buy insurance as soon as you become eligible for in in January 2014. After that, there should be annual open enrollment periods to sign up which is how Medicare Parts B and D work. If you miss the window, you have wait until the next open enrollment period unless you qualify for an exception like losing employer coverage or aging out of coverage under a parent’s policy or losing coverage under a spouse’s plan. The law as currently written will not work. Period.

Separately, a senior insurance broker I know confirms Jeff Goldsmith’s comments regarding likely sticker shock in the small group market. This isn’t going to be pretty.

Jul 6, 2013

“If the Obama administration really wants young healthy people to sign up for health insurance, the penalty for not buying it needs to be something close to the cost of the least expensive policy.”

Barry, we are being forced to buy into the most expensive coverage on the planet. Only the non-employer insured and taxpayers are being given the shit end of the stick. No one else in the industry is skipping a profit beat.

I’m probably in the doughnut hole of spouse with employer coverage open to family and not eligible for subsidy, even though there is no bargain in that group. When I was insured I was able to buy for a lot less from BCBS as an individual not in my wife’s group coverage, which was also BCBS.

I’m not going to be the sacrificial lamb in this mess.

Jul 6, 2013

In case anyone is interested, (now isn’t that a way to start a blog post!),
Iet me go on about the actuarial aspects of the ACA.

(I used to work for an insurance company, though I am not an enrolled actuary.)

Anyways, the major determinant in pricing for insurance companies is how many large claims they have to pay for a given group.

The reason that underwriting was so crucial is that it minimized the number of large claims at least in the first 3-5 years that a person was insured with the company.

The reason for large premium increases after 3-5 years was that if the group of insureds was fairly stagnant, the number of large claims would start to spiral upwards.

You saw this with a vengeance in any workplace with seniority and tenure, such as auto companies or school districts.

It is no accident that the cheapest insurance plans before the ACA excluded maternity, had relatively low lifetime limits, and sometimes outright excluded chemotherapy.

OK. Fast forward to the ACA.

Anyone who could read Health Affairs would know that guaranteed issue would lead to higher claims and higher premiums. It happened like clockwork in five or six states over the last 20 years.

But the ACA was going to mitigate the premium increases by roping in lots of young healthy persons who would on average not file large claims.

The employer penalties were also designed to get more young people insured, either on the employer’s dime or in the exchanges.

If I ran the circus, I would have attacked large claims as padded and overpaid. I have an article coming out on that subject.

However, Obama made a cryptic ‘deal’ with hospitals and drug companies, so that was off the table. He has not been one for confronting corporate power anyways.

It is true that numerous other nations rely on some form of mandate to make their risk pool a lot “deeper” in Jeff’s terms.

But these nations have much more regulated labor markets, and shall we say more obedient populations.

The ACA is kind of rolling the dice on getting young people insured. Zeke Emmanuel more or less admitted that.

We will see if the Obama administration can steer through this.

Jul 5, 2013

Two points to make, mainly in re: Jeff’s comments:

a. The small group and nongroup insurance markets have been kind of a dumping ground for the past 50 years.

First the corporations with younger healthier workforces were pulled away from Blue Cross’s community rating way back in the 1950’s.

Then the largest corporations began self-funding. This left the small groups and individuals to the insurance companies, which by and large shafted them with many lowball pricing schemes — followed by constant rate increases with the intention of having a lot policy lapses.

b. The ACA is not social insurance by my definition, Actually I follow Joseph White’s definition of social insurance as guaranteed coverage, paid for with either taxes or premiums that act just like taxes, and with no one excluded or exempted from participation.

The ACA follows the American habit of thinking that health care can be solved by millions of people making good decisions, and many of the millions getting subsidies to make the good decision easier.

Social insurance like Medicare makes the funding decision for you.

The ACA tries to harness private insurers to promote the public good.
In some ways this was what Bill Clinton and Ira Magaziner tried also.
I agree with Jeff that if it works we will be lucky,

Barry Carol
Jul 5, 2013

Jeff –

While I agree with your last comment, I think we would be well served if we put more effort into tackling healthcare costs, especially the price gap vs. other developed countries per medical service, test, and procedure and brand name drugs and devices.

I’ve long advocated for robust price and quality transparency tools that will enable both patients and referring doctors to more easily identify the most cost-effective high quality providers in real time and direct more of their business to them. Tiered network and narrow network insurance products would also be helpful as would tort reform that gives doctors safe harbor protection from failure to diagnose lawsuits if they follow evidence based guidelines where they exist. I also think reference pricing, which CALPERS is embracing, for specific procedures like MRI and CT scans, colonoscopies and hip and knee replacements is a good step in the right direction. Finally, we need special rules that govern how much can be charged for care that must be delivered under emergency conditions if and when insured patients wind up in an out-of-network hospital. The uninsured should be charged no more than some appropriate percentage above Medicare rates for emergency care.

Historically, I think large employers have resisted tiered and narrow insurance networks as well as reference pricing because they were afraid that employees wouldn’t like them and/or wouldn’t understand them. The conventional wisdom was that employees wanted a broad provider network and small, simple to understand coinsurance payments and low or at least reasonable deductibles. Employers need to drive home the message that the more they spend for health insurance on their employees’ behalf, the less money there will be for raises, hiring and expansion and, at the end of the day, the employer’s healthcare costs are pushed back to employees in the form of lower salaries than would otherwise prevail.