The Employer Mandate News

Jed Graham of Investor’s Business Daily has been drawing attention to the labor market implications of the Affordable Care Act’s employer mandate for the past several months. Specifically, he has warned that the mandate may lead low-wage employers to reduce work hours and staffing levels. Now that the Obama administration has announced that it will defer enforcement of the employer mandate until 2015, many are asking what a delay might mean for the future of the ACA. The Obama administration claims that it is deferring enforcement due to the fact that the federal government needs more time to put the relevant regulations in place. Graham, however, argues that getting the regulations right won’t address the underlying labor market problem:

[W]hile there’s no question the law has left many employers befuddled, a delay won’t fix the real problem or unwind the consequences already seen: a pile-up in lost hours worked for modest-wage earners.

A cursory search of official announcements from employers by IBD revealed cuts in the workweek for 16,500 workers ahead of the onset of ObamaCare penalties. That number barely scratches the surface of the law’s real impact because it excludes the vast majority of announcements in which employers have been vague or silent about the number of workers facing reduced hours.

For example, a decision by Regal Entertainment Group (RGC) to cut the hours of non-salaried workers below 30 per week at its 500-plus theaters will certainly affect thousands, but those are excluded. Likewise, this accounting excludes the actions by most employers who have kept their cards close to their vest to avoid the potential for negative publicity and those who have yet to make their plans clear.

Still, the 16,500 number is significant because it makes two things clear: 1) Modest-wage workers will bear the brunt of ObamaCare’s mandate that employers pay to provide health coverage for those clocking at least 30 hours per week. 2) A delay to 2015 is not long at all, since many employers acted to curb hours in the spring of 2013, well before the original 2014 start date. Thus, the delay is unlikely to provide comfort to workers already impacted — or to Democrats ahead of the 2014 mid-terms.

I should stress that Graham does not favor repealing the Affordable Care Act as far as I can tell. He has proposed various reforms that can make the ACA more sustainable. Yet he does seem to have identified a serious problem with the law, which will require rethinking its architecture. Josh Barro has addressed the same set of issues:

The whole point of the employer mandate is to incent employers to offer health coverage to full-time workers. Firms might otherwise drop coverage and direct employees to buy through the insurance exchanges created under Obamacare.

That would be costly for taxpayers, as most workers will be eligible for subsidies to help them buy insurance in the exchanges, and often those subsidies will far exceed the value of the tax preferences given for employer-provided health insurance.

And he also adds a political observation:

Obama needed the mandate to get Obamacare passed because it would reduce participation in the exchanges and therefore the law’s overall costs. One of his key selling points for the law was that it would cut the deficit. Now that the law has passed, his administration is freer to pursue changes that will raise Obamacare’s cost to taxpayers but improve its effects on the economy.

Delaying the employer mandate, perhaps indefinitely, is one way to do that. It’s a better reason than “we couldn’t figure out how to do the reporting.” But it’s not one you can say out loud.

Doug Holtz-Eakin offers further thoughts, as do Chris Conover and Avik Roy. Avik suggests, along with many other health policy analysts, that the delay might accelerate the unraveling of employer-sponsored health coverage:

If you like Obamacare, and you want it to work, you don’t need the employer mandate. Democrats put the employer mandate in Obamacare because the President was worried that, without a mandate, employers would dump coverage, violating his oft-repeated promise that “if you like your plan, you can keep it.” Before Mitt Romney signed Massachusetts’ health-reform bill into law, he vetoed that state’s employer mandate. The heavily Democratic legislature overrode his veto.

Even if the Obama administration’s delay lasts for only 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. Remember that the administration is not delaying the individual mandate, which requires most Americans to buy health coverage or face a fine.

But delaying the employer 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. Indeed, earlier this year, a bill to do just that was introduced by Rep. Charles Boustany (R., La.), Sen. Lamar Alexander (R., Tenn.), and Sen. Orrin Hatch (R., Utah). If the employer mandate were to ultimately be repealed, or never implemented, today’s news may turn out to be one of the most significant developments in health care policy in recent memory.

What I find funny about the bill Avik describes (the “American Job Protection Act”) is that one can very easily imagine it being taken up by left-wing Democrats as well as right-wing Republicans, albeit for different reasons.

Ezra Klein frames the delay as a victory for large employers, and he ends with an eye towards the future:

Congress should use the next year to improve the employer mandate. There are plenty of better ideas out there: The Senate Health Committee’s bill used a mandate with a smaller penalty, but one that accrued to both full-time and part-time workers. The House bill tied its penalty to the percentage of payroll an employer spent on health care. We can do better, and we should.

And then, in a couple of years, when the exchanges are up and running and expensive employer-based plans are getting hit by the “Cadillac Tax”, perhaps employers will be open to rethinking whether they should be in the health-insurance business at all. If and when that happens, Congress should happily help them ease out of it.

There is another way of looking at the slow-motion collapse of employer-sponsored health coverage, however: as Chris Pope argues, employer-sponsored health coverage has proven fairly successful because under ERISA, it is not generally subject to onerous state-based insurance regulations. If we transition from employer-provided coverage to tightly-regulated state-based insurance markets, it is possible that the insurance business will become even more rigid than it already is — this is why I’ve called for a national exchange as a kind of escape hatch. And of course if the private insurance market becomes more dysfunctional, a single-payer, Medicare-for-all alternative will become more politically attractive. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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