You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Some Bad News About Obamacare That Isn't Bogus

Most of the stories about implementation problems with Obamacare have had little basis in fact. Not this one.

On Wednesday, the Administration announced a significant policy change: Businesses will get an extra year before they must comply with the “employer mandate.” According to the administration, the delay will give businesses and the Treasury Department more time to simplify the mandate’s reporting requirements.

The announcement came shortly after two Bloomberg reporters, Mike Dorning and Alex Wayne, broke the news. The administration presented it as a chance to prove that it was showing “flexibility” and accommodating employers who had concerns about the mandate. That is true. But, almost instantly, critics pounced on the news as proof that Obamacare was running into some problems. That is also true. The question is what kind of problems—and how much they matter.

First, the policy story: The employer mandate is both weaker and less important than most people realize. For one thing, it’s not really a mandate. Rather, it’s a penalty for employers that don’t provide insurance. In this respect, it’s exactly like the individual mandate, which is also not a mandate to get insurance but rather a requirement that individuals pay a moderate fee if they don’t carry coverage. And just as the individual mandate has some exemptions, so does the employer requirement. Specifically, it does not apply to businesses with fewer than 50 full-time workers.

I’ve always liked the employer mandate, largely for its symbolic value: It’s a way of making sure everybody contributes to health coverage, in some manner. But economists and health policy experts will tell you, almost universally, that the employer mandate is actually bad policy. As they see it, the requirement doesn’t have much effect on whether most employers decide to offer their workers coverage. For the most part, the experts say, employers will decide whether to offer coverage based largely on whether they think it helps retain employees. Today, well more than 90 percent of employers with more than 50 employees decide to offer insurance for that reason. Remember: That's with no penalty at all. As Timothy Jost, the Washington and Lee law professor, writes at Health Affairs:

All of the reasons employers now have for offering coverage to their employees—significant tax subsidies, recruitment and retention of employees, and increased productivity and decreased absenteeism when employees are healthy—will continue to exist without the mandate penalty.

The employer mandate serves another purpose, of course. It generates funding to help pay for expansions of health insurance. But it’s a more regressive method of financing than taking money from general revenue—and the Congressional Budget Office has assumed employer penalty payments would ramp up slowly anyway. (Its latest projection assumed no significant revenue in 2014, as a matter of fact.) With the delay, it's possible more people will seek insurance in the exchanges, driving up the program's cost at least for next year and possibly after that. But, as I recall, fewer would be taking advantage of the tax exclusion for employer insurance, thereby increasing offsetting revenue. The cumulative effect of these and other shifts is not clear, at least to me. But it will be in the context of a law that, overall, is projected to reduce the deficit by a significant amount. (Sorry for the imprecision on these numbers. I'm out of the country and not in touch with all of my usual sources.)

In short, delaying the employer mandate probably won't do much damage to the law’s basic goals—making health insurance more available and, over time, containing the rise of health care costs. Some, like Josh Barro and Ezra Klein, have gone so far to suggest that, in an ideal world, the employer mandate would just go away. But an important question still lingers. Why did the administration decide to push back the deadline in the first place? A few theories come to mind—and each one has some unsettling implications.

One is that the administration was genuinely worried about some employment effects at the margins—not businesses dropping coverage, as many have speculated, but changing their hiring patterns in the future. Another possibility is that, in response to loud complaints from employers about the filing requirements for the mandate, the administration just backed off. (It always makes me a little nervous when people in power brag that they are "listening to business.") Yet another possibility is that the Treasury Department has too much going on—and that straightening out this provision in time for next year would have been too much, too soon. 

None of these explanations signal catastrophe. The kind of information employers have to submit is genuinely difficult to assemble, the process for filing that information has been the subject of great debate, and the ultimate employment effects of the mandate will likely be small, just as most (though not all) economists predict. Truth is, delaying or modifying the employer mandate is exactly the kind of adjustment many experts expected the law would need–and that, in a less polarized environment, would happen through Congress without nearly this much fuss. But that’s one of the big problems with health care reform right now: It’s impossible to make those adjustments. As Klein writes, "the legislative process around the health-care law is completely broken."

Political appearances matter, too. Employers might quiet down a bit, but the law's doubters will use this as proof the administration doesn't know what it's doing. As Sarah Kliff puts it, it's trading one headache for another. Or maybe two. Already, conservatives like Erick Erickson are saying it's unfair to delay the mandate on employers without also delaying the mandate on individuals. Erickson won’t be the last to make this argument, just as he already has plenty of company citing this news as proof that Obamacare is a disaster.

It's not. It is a vital, but complicated enterprise that's going to have plenty of shortcomings and glitches  This is one of them. 

Jonathan Cohn is a senior editor at The New Republic. Follow him on twitter @CitizenCohn