Obamacare’s employer mandate shouldn’t be delayed. It should be repealed.

July 2, 2013

Delaying Obamacare's employer mandate is the right thing to do. Frankly, eliminating it -- or at least utterly overhauling it -- is probably the right thing to do. But the administration executing a regulatory end-run around Congress is not the right way to do it.


Obama signs his health-care reform bill into law. (Marvin Joseph-Washington Post)

The Affordable Care Act includes a provision penalizing employers with more than 50 full-time workers who either don't offer health insurance or whose employees who can't afford insurance without taxpayer help. Those penalties begin in 2014. At least, that's what the law says.

It's a bad bit of policy. In fact, when it first emerged during the Senate's negotiations, I called it "one of the worst ideas in recent memory." The reasons are well summarized in this brief from the Center on Budget and Policy Priorities, which looks at an earlier, but structurally similar, version of the idea:

- By imposing a tax on employers for hiring people from low- and moderate-income families who would qualify for subsidies in the new health insurance exchanges, it would discourage firms from hiring such individuals and would favor the hiring — for the same jobs — of people who don’t qualify for subsidies (primarily people from families at higher income levels).

- It would provide an incentive for employers to convert full-time workers (i.e., workers employed at least 30 hours per week) to part-time workers.

- It would place significant new administrative burdens and costs on employers.

By tying the penalties to how many full-time workers an employer has, and how many of them qualify for subsidies, the mandate gives employers a reason to have fewer full-time workers, and fewer low-income workers.

There are other kinds of mandates that don't fall afoul of the same problems. "The employer mandate in the House bill was much better constructed from a policy point of view," says Topher Spiro, director of health-care policy at the Center for American Progress. "It was based on the percentage of payroll you spent on health care rather than on how many workers you had, so there's not this weird disincentive related to part-time workers. But it didn't have the political support to pass."

The irony is that the worker-based employer mandate got passed in part because employers preferred it to a payroll-based mandate -- a fact that puzzled Senate health aides at the time, but that they made peace with in order to pass the bill.

Part of the reason is that the mandate, as written, affects relatively few employers. “You’ve got 5.7 million firms in the U.S.,” says Wharton’s Mark Duggan, who served as the top health economist at White House’s Council of Economic Advisers from 2009 to 2010. “Only 210,000 have more than 50 employees. So 96 percent of firms aren’t affected. Then if you look among those firms with 50 or more employees, something on the order of 95 percent offer health insurance. So it’s basically 10,000 or so employers who have more than 50 employees and don’t offer coverage.” Those companies probably employ around one percent of American workers.

But that's still a lot of employers, and a lot of workers, and so the health-care law has gotten a stream of bad press as one employer or another threatens to cut hours or fire workers in order to dodge the penalty.

It's also proven difficult to enforce. Implementing the mandate requires a complex reporting process that's left the administration flooded with comments from anxious employers -- even those who offer insurance and have nothing to fear from the provision.

On Tuesday night, the White House solved that problem, at least temporarily, by announcing that that the penalties won't go into effect until 2015. They say they plan to use the interregnum to simplify and streamline the reporting process. Until then, compliance will be "voluntary."

But the White House didn't get an act of Congress delaying the penalties. They simply directed the Internal Revenue Service to refrain from enforcing the penalties.

The announcement came, accordingly, in a blog post by Mark Mazur, Assistant Secretary for Tax Policy at the Treasury Department, prompting Ben Domenech, a fellow at the conservative Heartland Institute, to snipe: "Little known fact: Constitution made Assistant Secretary for Tax Policy [the] fourth branch of government."

Domenech has a point: This is a regulatory end-run of the legislative process. The law says the mandate goes into effect in 2014, but the administration has decided to give it until 2015 by simply refusing to enforce the penalties.

The administration says this kind of thing happens all the time. "I think you’d be harder pressed to find some example where there wasn’t some discretion on how to implement major policies than one where everything went exactly by the books," says one senior administration official involved in implementation.

Be that as it may, the regulatory solution reflects the fact that the legislative process around the health-care law is completely broken. Republicans won't pass any legislation that makes the law work better. Improving the law, they fear, will weaken the arguments for repeal. But Democrats, of course, won't permit repeal. So Congress is at a standstill, with no viable process for reforming or repairing the Affordable Care Act as problems arise. And so the White House is acting on its own.

As written, the employer mandate probably shouldn't go into effect in 2014, or 2015, or ever. It should be reworked in Congress and then the replacement should be signed into law by the president. The White House's delay might be better policy, but the way the delay was passed is part of a deeply broken process.

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