The Significance of the Missing Employer Mandate

Published July 30, 2013

The Weekly Standard

After getting over the shock of the Obama administration’s unilateral decision to delay the employer mandate for a year, supporters of the law have taken to downplaying the significance of the step. Jonathan Chait and Ezra Klein, among others, have said it is just not that big of a deal to delay a provision that they claim affects so few employers. After all, they argue, most employers offer coverage today without the mandate, so it can’t be true that imposing the mandate is essential to making the rest of the law work well. Klein goes even further and says it would be best just to get rid of the employer mandate altogether because its perverse employment incentives outweigh whatever positive role the provision plays in the rest of the law.

In his first public comments on the mandate delay, President Obama picked up on this “it’s no big deal” theme in an interview with the New York Timesstating, among other things, that “the number of employers who are potentially subject to the employer mandate is relatively small,” thus echoing the argument that the mandate is not a central provision of Obamacare.

It’s certainly a welcome development that some defenders of the law are willing to publicly admit that the employer mandate is already having disastrous consequences for employment, especially for workers from low income households, and therefore should not be allowed to go into effect. They are right. It is terrible policy for sure, and needs to be repealed for that reason, along with the rest of the law.

But it is not true that the employer mandate is a minor provision in Obamacare. In fact, the assertion that it is inconsequential is shameless revisionist history. For instance, Klein, now pooh-poohing the mandate’s significance, previously wrote about its crucial role in getting a favorable cost estimate from the Congressional Budget Office (CBO). And he was right the first time.

One of the keys to understanding how Obamacare works is the so-called “firewall.” This is the provision that is supposed to prevent widespread dumping by employers of their workers into the Obamacare exchanges. The “firewall” precludes workers who receive an “affordable” offer of insurance coverage from their employers from getting premium assistance in the exchanges.

This is important because these subsidies are worth much more to lower-wage workers than the implicit federal tax subsidy associated with employer-paid insurance premiums (employer-paid health insurance is non-taxable compensation for workers). For instance, the Congressional Budget Office (CBO) has estimated that, in 2016, a family of four with household income of $50,000 would be better off by more than $11,000 if they got their insurance through an Obamacare exchange instead of from an employer. Without the firewall, and the related employer mandate, this large differential in federal support would be a magnet drawing lower-wage workers out of job-based health insurance. In short, the employer mandate–and the firewall it supports–is highly consequential not because it forces large numbers of employers that do not offer insurance today to do so in the future but because it prevents large numbers of employers now offering coverage from dropping what they offer today..

CBO’s estimates make clear how important the employer mandate is to Obamacare. Today, the agency provided updated projections of what the administration’s one-year delay (as well as related changes in the administrative process for adjudicating claims for federal subsidies) would mean for costs and coverage in coming years. CBO concluded that the administration’s decisions will increase the federal budget deficit over the coming decade by $12 billion. (Incidentally, the blog post from the Treasury Department announcing the mandate delay contained 478 words, so that’s about $25 million per word.) CBO also says the delay and related actions will mean one million people won’t get employer-sponsored health insurance in 2014, and about half of them will be left uninsured as a result. Even by Obamacare standards, these are not minor consequences unless one cares nothing about federal deficits or how many people don’t have health insurance.

More importantly, CBO’s release today made it clear that the budget and coverage numbers would be far, far worse if the mandate delay extended beyond one year because employers and workers could adjust their plans without fear of having to undo them in a matter of months. As matters stand, CBO took the administration’s word for it and assumed that the full employer mandate will be imposed in 2015, thus minimizing the dumping that would occur in 2014.

But is it a safe assumption that the employer mandate will get imposed in 2015? That would mean imposing the highly controversial 30-hour limit on part-time workers, and costly data reporting requirements for just about every employer in the country. These were the reasons the administration flinched in 2013. What are the chances they can withstand the pressure for delay that will inevitably build in the run-up to the 2014 mid-term election? If anything, businesses have been emboldened by what has transpired this year and likely to believe they can push the mandate back again next year if they apply enough pressure.

The employer mandate is one of the central provisions of Obamacare. Without it, the legislation would never have passed Congress because CBO would have tagged it with much higher spending and large-scale migration out of employer coverage. That would have been enough to sink the entire legislative effort.

By unilaterally delaying the enforcement of such an important provision because of political pressure, the administration has tacitly admitted that the law rests on a very shaky foundation. This should be taken by the law’s opponents as a clear signal to keep the pressure on.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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