Even as Obamacare revs up to go into full effect in January of 2014, it suffered a major setback last month when the Obama administration announced a one-year delay in the law’s mandate that larger employers (>50 employees) provide coverage for their workers or pay significant tax penalties.
Like most things, the effects of this move are complex, hard to predict, and riddled with potential unintended consequences, especially for the working poor who currently lack stable and affordable health care coverage, which the employer mandate was meant to address. Following are my thoughts on the matter.
The biggest threat that the mandate push-back poses is the potential to undermine the financial solvency of Obamacare, making it appear to increase public expenditures that are not offset by new revenue sources (i.e., taxes on employers). In fact, the employer “mandate” to provide health insurance, just like the individual “mandate” is not really a mandate at all. Rather, the hope is that through the stick of a tax penalty, employers would be encouraged to provide health insurance that they would otherwise not have the incentive to provide.
The Congressional Budget Office has previously rated Obamacare as budget neutral in that although it substantially increases the amount of public dollars spent on health care, these additional expenditures are offset by new taxes including tax penalties from individuals and businesses that choose not have insurance. However, without the added funding from taxing large employers that do not currently provide health insurance, the thin margin that has made Obamacare budget neutral may reverse, opening the program up to further criticism from conservatives worried about budget deficits.
At the very minimum, the implementation delay let’s employers off the hook too easily. Rather than taxing corporations and large employers more to pay for state subsidized health insurance, Obamacare has largely left intact the present system of employer-sponsored health insurance. The tax penalty on large employers failing to offer insurance was one of the few progressive taxes incorporated into the reform plan.
Some large employers have promised to reduce hours to part-time or lay-off employees when the law goes into effect to compensate for the added expense. This won’t happen now that the start date has been pushed back. Of course, this threat is more than likely a bluff on the part of employers anyway.
On the upside, the biggest potential benefit to the start-date push back is the possibility of further undermining employer-sponsored health insurance. I say, the more people on the state subsidized plans on the exchanges, and less using employer-sponsored health insurance, the better.
Presently uninsured individuals with moderate incomes will still have access to state subsidized plans through the insurance exchanges. Individuals earning anywhere between 133%-400% of the Federal Poverty Level will receive subsidies (premium credits) for the insurance that they purchase on the exchanges. The Kaiser Family Foundation estimates that the tax credit to an average family will be equivalent to $2,700, effectively reducing the cost of the average premium purchased on the market from $8,250 to $5,500 with the subsidy.
This may end up being cheaper or equivalent to whatever plan their employer would offer. Furthermore, if employees make under 133% of the FLP ($18,310 for a family of three in 2009), they will be eligible for Medicaid if they are living in states that have decided to expand Medicaid under the ACA.
In short, the loss of revenue from the employer tax penalty will be bad for Obamacare, but the more people likely to join the exchanges will be good for publicly subsidized insurance for moderate income earners un-tethered from employment.