Much ado has been made about the Obama Administration’s decision this week to delay implementation of what most media sources are calling a “key” part of the law for an additional year, until 2015. The provision under question is not only being proclaimed instrumental to the Affordable Care Act, it is also being misrepresented as the “employer mandate.” I’ve been sick this week, and am just beginning to feel better, so I don’t have the time or the energy to explain all of the politics being played by both sides on this issue. But, I did want to make sure that I took a moment to put some clear information out there.
The provision, you see, is not an employer “mandate,” but a “penalty.” The details make this apparent: First, it applies only to businesses with more than 50 employees. These are large firms, and upwards of 90% of them already offer their employees insurance. Second, these businesses are not required to provide insurance to their employees. They are merely at risk of having to pay a penalty to the federal government if they do not offer insurance or if they offer insurance that is deemed unaffordable and at least one of their employees then receives a federal subsidy to purchase insurance through the health insurance exchanges. (The Kaiser Family Foundation has an excellent flowchart depicting how all of this works.) Finally, the cost of the penalty is far below the cost of providing insurance, which, combined with the first point that an overwhelming majority of businesses subject to this penalty already provide coverage to their employees, simply underscores that the intent of this provision is not to mandate the provision of insurance, but rather to prevent employers from deciding to stop offering coverage altogether, while letting the health insurance exchanges pick up the slack.
That strategy–known as “crowd-out”–makes sense for businesses if there’s no penalty for the practice. Why not save all of the money being spent on insurance premiums and let Uncle Sam pick up the tab instead? It’s a no-brainer. Thus, the penalty is necessary to discourage it. Does pushing back the penalty by a year really change much? Highly unlikely. Again, most employers with more than 50 employees are already providing coverage. They’re not likely to stop doing that for the single year (2014) when there will be no penalty, but there will be viable health insurance exchanges for their employees to access. The backlash from such an executive decision would be disastrous for most businesses, and not worth the hassle.
Instead, I think this has more to do with the Obama Administration confronting the reality that implementing comprehensive health reform is a massive undertaking, with unintended obstacles encountered as the process progresses. Kudos to them for listening to–and attempting to address–the grievances of American businesses. Well, that, or playing politics with the mid-term elections. Who knows?