Last month, the Obama Administration announced that it would delay enforcement of the employer mandate component of the Affordable Care Act (ACA) in part due to opposition from the business community. Opponents of the ACA cited the delay as evidence that the law was collapsing under its own weight, while ACA proponents downplayed the importance of the employer mandate in realizing the primary objective of the law – extending affordable coverage to millions of uninsured Americans.
Will delaying the employer mandate lead to the ACA’s demise?
Using economic modeling, we have found that the primary goals of the ACA will not be impacted by the delay, but the delay may impact one of the law’s key revenue sources designed to offset the costs of the coverage provisions.
Under the ACA, only firms with 50 or more full-time employees can be assessed penalties for not offering coverage under the employer mandate; small businesses with fewer than 50 employees are exempt. Furthermore, more than 95% of large firms already offer insurance, implying that only a small pool of firms would need to alter their current benefit offerings to comply with the employer mandate. Our model estimates that less than 1% of firms, employing about 2% of the workforce, would be penalized for not offering insurance to their workers if the employer mandate is enforced.
In fact, only about 300,000 workers (approximately 0.2% of the workforce) would lose their employer’s health insurance as a result of the employer mandate delay, according to our economic analysis. And many of those losing coverage would be able to get affordable coverage through a spouse, the newly created health insurance exchanges, or Medicaid. Hence, delaying the employer mandate will have only a nominal impact on the ability of workers and their dependents to obtain health coverage.
Why won’t many large firms stop offering health insurance without the employer mandate? First and foremost, neither businesses nor their employees pay taxes on income that is spent on premium contributions toward health insurance. The ACA does not change this tax incentive (except in the case of very expensive health insurance plans that are subject to the “Cadillac tax”), maintaining this “carrot” for firms offering coverage to their workers. We estimate that only about 1,000 firms (out of nearly 6 million) will stop offering health insurance without the employer mandate. In addition to tax incentives, competitive market forces compel many employers to continue offering coverage to attract high-quality labor. In the case of employers not currently offering coverage, the “stick” may be too weak; large firms are penalized just $2,000 per full-time employee, well below the cost of providing insurance, and the first thirty employees are excluded from the assessment. Hence, the economic case for business’s “inertia” in providing health coverage is strong.
If very few firms are subject to the mandate and the primary incentive to offer health insurance is unchanged, what will the impact of a delay on the mandate be? The cost of the ACA will increase. While the mandate does not affect very many firms, we estimate that the penalties for noncompliance will raise $11 billion dollars for 2014. If the employer mandate is completely eliminated, over the next ten years the federal government would lose $149 billion in revenue. To put that in context, this would be about 10% of the CBO’s estimate for the total spending offsets from taxes, fees, and spending reductions that are used to pay for the ACA’s coverage-related provisions. A one year delay will cost less than 1% of this total.
The bottom line is that the employer mandate does not provide a large inducement for firms to change their health insurance offerings, but it does raise a substantial amount of money to pay for the ACA’s coverage provisions over time. A one-year delay won’t break the bank, but a permanent repeal would be quite expensive. Thus, if policymakers opt to repeal the employer mandate, they should consider finding spending offsets to make up the difference.
Carter Price is a mathematician and Evan Saltzman is a project associate at the nonprofit, nonpartisan RAND Corporation.
It would have been more accurate for the authors of the post to say that “300,000 persons might have gotten new coverage due to the pressure of the penalties, but without the penalties they will remain uninsured.”
If 300,000 people are going to lose coverage due to this delay, don’t the disadvantages outweigh the benefits? I see no reason how 300,000 people losing coverage is a good thing so why the delay?
I have nothing against the decoupling of health care from employment, but for this to happen you need a lot of that employer money. That is what I meant by ‘maintenance of effort.’
Large employers that buy health insurance for an employee’s entire family have been subsidizing smaller employers for years. Many small employers do not need to offer health insurance, since many of their employees have other coverage through a spouse.
Large employers whose insurance pays more or less full fare for hospital care are again subsidizing the uninsured, and in effect the employers of the uninsured.
I can go on and on. If employers are let “off the hook” on paying for health insurance, taxes on someone must go up a lot.
Give me your elevator speech for significant improvement, Bob. I know I have mine, one that has seemed to work the few times I’ve tried it out on the PPACA wary, e.g., my recent plumber, the guy who is buying my house (and his realtor) etc.
Do we really know why the employer penalties were delayed?
Is it because they were potentially uncollectible? Remember, the type of employer most likely to pay penalties — i.e. restaurant chains, hotel chains, retail chains, schools with many part-timers — have never been hesitant to short workers and short the government whenever they can get away with it.
This group of employers denies sick days, denies maternity leave, denies overtime pay, you name it. $2000 per worker is a lot of money in their cheap labor model.
And if a Democratic president will not confront them, we can be sure that a Republican president will not confront them either.
And as you state, this is a big fiscal issue. If the exchanges actually work, many employers will gladly drop their group insurance and send their employees to the exchanges, especially anyone making less than $40K a year.
If this happens, someone’s taxes have to go up or else we will have pure deficit spending (again). The employer penalty was meant to be a kind of
“maintenance of effort” for the funding of health care. The American health care system survives today from huge drafts of employer contributions.
Yeah. Cluster[bleep] in the works?
But, Elhauge argued a generation ago for the decoupling of health coverage from employment (“Allocating Health Care Morally,” 1994)
I have to cite this comment on my blog.
The most significant fallacy in the financial basis for the PPACA is that HIT will reduce adverse events, improve outcomes, and reduce costs (without adversely affecting patient care). I could easily ask, what were they smokin?
The mandate pales in comparison to this HIT hokum
It’s unfortunate for those who will lose their coverage, no matter how many or few are losing it.