The Washington PostDemocracy Dies in Darkness

Obamacare’s employer mandate keeps getting delayed. What happens if it gets killed?

The Obama administration has now twice delayed the health law provision requiring large businesses to provide insurance coverage to workers. It has made this part of the law -- which applies to companies that employ 50 or more full-time workers -- increasingly complex, with varying transitional policies for different-sized companies.

So what would happen if the Obama administration ditched the employer mandate altogether? Not a lot, most health economists say. Slightly more people might get coverage through the exchanges -- and slightly fewer through their workplaces. The federal government would lose billions in revenue, from fees levied on companies that don't provide coverage. But overall, the number of people with health coverage would remain nearly the same, with or without the employer mandate.

"At this point, getting rid of the employer mandate is more substantive politically than it is economically," adds Jon Gruber, an MIT economist who advised the Obama administration on the health-care law.

"The employer mandate has extraordinarily little impact on coverage," says Linda Blumberg, an economist at the Urban Institute. "It doesn't effect behavior much at all."

decline employer insuranceThe employer mandate's main point is to preserve an employer-sponsored system of health insurance. Right now, most Americans (56 percent in 2012) get health insurance coverage through their workplace. That number has, however, been eroding in recent years, as mostly smaller businesses have shed health insurance as a benefit they offer workers.

The health-care law includes penalties for large companies that do not offer insurance. They will pay either $2,000 for each full-time employee or $3,000 for each full-time employee who uses subsidies on the exchange, whichever amount is smaller.

"The way I like to think about this is that employer-sponsored insurance is like a crumbling building," Gruber said. "And there are essentially three things you can do: You can rebuild it, knock it down, or try and set up nets outside so people can be safe when they jump."

The Affordable Care Act is, essentially, that last safety net option that Gruber describes. It makes the non-employer market friendlier to most shoppers, by eliminating preexisting conditions and providing subsidies to low and middle income Americans.

Even with the employer mandate's penalties, there's an expectation that some companies would jump into those safety nets -- a decent number, after all, were jumping out the window even without a net, as you can see in the chart above (which comes from here). Way before there were any employer mandate delays, the Congressional Budget Office had projected that 7 million fewer people would get insurance through their jobs by 2023.

The question that health economists study -- to frame it in Gruber's analogy -- is how many more people would jump into those safety nets if there wasn't an employer mandate requiring large companies to offer insurance coverage -- and how many would end up without any net at all?

At the Urban Institute, Blumberg has done some work simulating a world without an employer mandate using the think tank's microsimulation models. She estimates that removing the employer mandate from Obamacare would increase the uninsured rate by 0.1 percent.

"Eliminating the employer mandate has very little effect on the distribution of coverage," Blumberg and her colleagues John Holohan and Matthew Buttegens wrote. "It remains virtually identical to  the case when the full ACA is in effect."

The Congressional Budget Office projected this past summer, after the one-year delay in the employer mandate, that 1 million fewer people would have coverage in 2014 through their employer. Roughly half would find coverage through the health insurance exchanges and "fewer than half a million additional people are expected to be uninsured in 2014 than the number projected in the May baseline," the agency concluded.

"It would be noticeable," Gruber said of people shifting out of employer-sponsored coverage and into exchange plans, or Medicaid. "Relative to the CBO baseline, which has 7 million people losing employer insurance, it would go up by millions probably, but not tens of millions. That's still small relative to the percent of people who have health insurance and relative to the pre-existing decline in employer sponsored insurance.

"It's a small deviation, from a stark trend," he said.

Whether the expected shift toward exchange coverage and away from employer insurance is a good thing depends a lot on your goals for the health-care law. There's one view that moving more people into the exchanges could be good for Obamacare, as it would strengthen the marketplaces and add an able-bodied population that was likely healthier -- and who could help drive down premiums.

"This would really be in the interest of the administration to do it," says Don Susswein, a former Republican tax counsel at the Senate Finance Committee and current principal at McGladrey LLP. "The problem of whether you have a critical mass on the exchange gets much easier to solve. That's a lot of healthy people."

But moving people onto the exchange is also expensive for the federal government for two reasons. First, the feds would subsidize insurance coverage there for low and middle income people. Second, without an individual mandate, the federal government would miss out on the revenue that the employer penalty would generate. The one-year delay alone, the CBO estimated, cost the federal government $12 billion.

"For everybody you exclude from the penalty, anybody that would have paid it doesn't end up contributing," Susswein says.

And, more practically, there's also a legal challenge in ditching the employer mandate completely. The Obama administration has framed the delays as a careful implementation of a policy that will, eventually, come into full force. Not everyone agrees that defense of these changes holds up. Ditching the employer mandate more outright would near certainly raise legal eyebrows over the Obama administration's authority to do so.