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Obama delays employer “mandate.” Does it matter?

Posted by John McDonough  July 2, 2013 10:42 PM

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This afternoon, the Treasury Department, in a blog post, announced that it will not begin enforcement of the "shared responsibility for employers" part of the Affordable Care Act (section 1513) until 2015 instead of 2014 as specified in the law. What does this mean and is this a big deal?  

My judgment -- not so much.

First, let's understand the provision. Widely referred to as the ACA's "employer mandate," it is not. No employer is mandated in the ACA to cover any worker. Under section 1513 of Title I, employers with 50 or more full time workers (defined as those working 30 or more hours per week) will be required to pay $2,000 to 3,000 per employee when any of their workers (exempting the first 30) obtain subsidized health insurance coverage through a state health insurance exchange/marketplace.

Confusing? Yes. Why was it constructed this way?

In 2009, the U.S. House Democratic majority, in their health reform bill, approved a mandate on employers to cover their workers through a payroll tax on firms that spend less than 8% of payroll on health benefits; it was known as "pay or play," and was a familiar feature of most health reform proposals, including those advanced by Presidents Richard Nixon and Bill Clinton. This formulation was not politically achievable in the Senate where all Republicans and more than a few Democrats rejected the pay-or-play model.

Without some kind of real employer responsibility, the Congressional Budget Office estimated that a large number of employers providing health insurance would stop doing so once the health insurance exchanges opened and the subsidies kicked in at the beginning on 2014. To keep the total cost of the law down, some kind of employer requirement was considered essential. But what?

Back in 2004, Massachusetts state government began producing an annual report detailing, by name, employers that had 50 or more workers obtaining publicly subsidized health insurance through the state. A lot of famous and prosperous companies (i.e.: Dunkin Donuts, WalMart) made the list, with a cost to the state amounting to $805 million in 2009. A requirement on these companies would be "shared responsibility" rather than a "mandate."

During the U.S. Senate Finance Committee negotiations on health reform in the summer of 2009, before all Republicans came out in opposition to a bill, key Republicans including Sen. Chuck Grassley (R-IA) embraced the shared responsibility concept. Though Grassley and other Republicans dropped their support, the formula stayed in the Senate version of health reform, and the dollar value of the penalty was increased, all to prevent large numbers of employers from dropping coverage. That is what got into the final version of the ACA.

The stated reason from the Treasury Department for today's delay is to give both the Administration and employers more time to prepare for this new obligation. This is plausible. The Administration, including Treasury, have many complex and difficult implementation challenges in the next year, including the insurance market reforms, the individual responsibility requirement (aka: individual mandate), the creation of exchanges, the premium and cost sharing subsidies, and a lot more. While the employer responsibility provision matters, in the larger scheme, it is a secondary priority, not primary, not right away.

The risk for the Obama Administration is that this one-year delay is only the start, and that employers will be emboldened by the delay and create an uproar for full repeal. Back in 1988 in Massachusetts, an employer mandate in that year's Universal Health Care Law was set for implementation in 1992; employers won delays three times before the requirement was repealed in 1996.

The 2006 Massachusetts health reform law also included employer responsibility, and it was both tougher and easier than the ACA version. It was tougher because it impacts employers with 10 or more employees, not 50 as in the ACA. It was easier because the penalty is only $295 per uncovered worker, not $2,000-3,000 as in the ACA. Whether it was because of employer and/or individual responsibility is unclear -- what is clear is that broad predictions that Massachusetts employers would drop coverage because of reform and send their employees to the Health Connector for coverage were wrong. Since 2006, Massachusetts has seen the share of employers offering coverage to workers rise to among the highest level in the nation. (Ironically, the newly passed Massachusetts state budget, just sent to Governor Deval Patrick's desk, repeals the 2006 employer responsibility effective on 7/1/2013 because of the new ACA employer responsibility requirement scheduled which had been scheduled to take effect on 1/1/2014.)

The bottom-line on why the ACA's employer responsibility provision will survive and be implemented in 2015 -- it will help to keep most employers that currently provide health insurance in the game. Though there are other alternatives to achieve this goal, none of them can pass political muster.

That's why I believe that today's one-year delay is not a big deal.

(Correction -- an earlier version of this post reported that the new Massachusetts budget provision would take effect on 1/1/2014; it is written to take effect on 7/1/2013.)

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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