White House To Delay Obamacare's Employer Mandate Until 2015; Far-Reaching Implications For The Private Health Insurance Market
 WASHINGTON, DC - APRIL 11: Treasury Secretary Jack Lew takes his seat to testify before the House Ways and Means Committee on the president's fiscal year 2014 budget proposal on April 11, 2013 in Washington, DC. (Image credit: Getty Images via @daylife)
A big scoop from Mike Dorning and Alex Wayne of Bloomberg this afternoon. Apparently, the Obama administration has decided to delay the implementation of Obamacare’s employer mandate—the requirement that all firms with 50 or more employees offer health coverage, or pay steep fines—until 2015. The mandate was supposed to go into effect on January 1, 2014. This development will have a significant impact on the rollout of Obamacare, and on the nation’s economy, as I detail below.
First the news from Bloomberg. According to Dorning & Wayne, who have two sources from within the administration:
Businesses won’t be penalized next year if they don’t provide workers health insurance after the Obama administration decided to delay a key requirement under its health-care law, two administration officials said.
The decision will come in regulatory guidance to be issued later this week. It addresses vehement complaints from employer groups about the administrative burden of reporting requirements, though it may also affect coverage provided to some workers.
The two officials, who asked not to be identified to discuss the move ahead of its announcement, said the administration decided to wait until 2015 before enforcing the employer mandate in order to simplify reporting requirements and give businesses more time to adapt their health-care coverage.
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Will more employers dump coverage if the mandate is delayed?
As a matter of background, Section 1513/4890H of the Affordable Care Act requires that all firms with more than 50 full-time-equivalent employees—defined as 120 hours per month—offer government-certified health coverage to their workers, or pay a steep fine. For more details on how the mandate works, and how it incentivizes firms to offer “unaffordable” coverage to their workers, read my piece on the topic from May 21.
In the short term, the delay will have several effects. First, the mandate drives up the cost of labor, and therefore increases unemployment; delaying the mandate by one year may modestly mitigate that disincentive.
Most importantly, the delay of the mandate means that more people will want to enroll in Obamacare’s subsidized insurance exchanges. Every year, fewer and fewer employers offer health coverage; given one more year to restructure their workforces, this process could accelerate.
There’s been a lot of debate as to whether or not Obamacare incentivizes employers to drop coverage for their employees. A 2011 survey of employers by McKinsey & Co. found that 30 percent of employers “definitely or probably” would stop offering coverage after 2014; among those who felt that they had the most knowledge of the law’s inner workings, that number rose to 50 percent.
However, the Congressional Budget Office, in a 2012 report, argued that employers do not have a large incentive to dump workers’ coverage. And even if employers dropped coverage for an additional 20 million workers relative to the CBO’s projections, the deficit would not increase, says the CBO, because the subsidies paid to low-income workers would be offset by an increase in tax revenue from lower utilization of the tax exclusion for employer-sponsored insurance.
In general, it would appear that with the rollout of Obamacare’s exchanges in 2014, paired with a delay of the employer mandate until 2015, many more people may enroll in the exchanges. This is both good and bad: good, because it’s a good thing for people to buy insurance on their own, rather than having it bought on their behalf by someone else with their money; bad, because the exchanges are proving to be quite costly, though comparable in cost to premiums in the employer-sponsored market today.
Does Obama have the legal authority to delay the mandate?
The Affordable Care Act is quite clear as to the effective date of the employer mandate. “The amendments made by this section shall apply to months beginning after December 31, 2013,” concludes Section 1513.
The executive branch is charged with enforcing the law, and it can of course choose not to enforce the law if it wants. But people can sue the federal government, and a judge could theoretically force the administration to enforce the mandate.
So the question is: Would anyone sue the Obama administration over this? Employers, of course, will be thrilled to be spared the mandate for one more year. Democratic politicians, similarly, will be glad to have this not hanging over their heads for the 2014 mid-term election.
The wild-card is left-wing activists. Most, you’d think, would defer to the administration on questions of implementation. I’m no lawyer, but it seems to me that all it would take is for one judge to issue an injunction, for an activist to require the administration to enforce the mandate.
Delay could help to unravel the employer-sponsored insurance market
Health wonks of every persuasion, myself included, have long argued that the original sin of the U.S. health-care system is the quirk in the tax code that incentivizes people to get health coverage through their employers, instead of shopping for it on their own.
Even if the delay lasts for one year, that delay will give firms time to restructure their businesses to avoid offering costly coverage, leading to an expansion of the individual insurance market and a shrinkage of the employer-sponsored market.
But delaying the mandate could lead, ultimately, to its repeal, which would do much to transition our insurance market from an employer-sponsored one to an individually-purchased one. If that were to happen, today’s news may turn out to be one of the most significant developments in health care policy in recent memory.
Treasury Dept.: Obamacare’s implementation ‘careful, thoughtful’
As I was writing up this piece, Mark Mazur, Assistant Secretary for Tax policy at the Treasury Department, released this statement:
?Continuing to Implement the ACA in a Careful, Thoughtful Manner
Over the past several months, the Administration has been engaging in a dialogue with businesses – many of which already provide health coverage for their workers – about the new employer and insurer reporting requirements under the Affordable Care Act (ACA). We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively. We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so. We have listened to your feedback. And we are taking action.
The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin. This is designed to meet two goals. First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees. Within the next week, we will publish formal guidance describing this transition. Just like the Administration’s effort to turn the initial 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible about reporting requirements as we implement the law.
Here is some additional detail. The ACA includes information reporting (under section 6055) by insurers, self-insuring employers, and other parties that provide health coverage. It also requires information reporting (under section 6056) by certain employers with respect to the health coverage offered to their full-time employees. We expect to publish proposed rules implementing these provisions this summer, after a dialogue with stakeholders – including those responsible employers that already provide their full-time work force with coverage far exceeding the minimum employer shared responsibility requirements – in an effort to minimize the reporting, consistent with effective implementation of the law.
Once these rules have been issued, the Administration will work with employers, insurers, and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015. Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.
We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014. Accordingly, we are extending this transition relief to the employer shared responsibility payments. These payments will not apply for 2014. Any employer shared responsibility payments will not apply until 2015.
During this 2014 transition period, we strongly encourage employers to maintain or expand health coverage. Also, our actions today do not affect employees’ access to the premium tax credits available under the ACA (nor any other provision of the ACA).?
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INVESTORS’ NOTE: Cigna ( CI), WellPoint ( WLP), Humana ( HUM), UnitedHealth ( UNH) and Aetna( AET) are the largest publicly-traded sponsors of employer-based health insurance.
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