Late today, the Treasury Department announced that it will delay the “employer mandate” in Obamacare for one year. This is the provision of the law that requires large employers to provide health insurance to full-time employees or else pay a $2,000 per-employee penalty.
It’s a weird move—and their explanation of the move is even weirder.
To hear Treasury tell it, the delay is all about simplifying reporting:
We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively… Just like the Administration’s effort to turn the initial 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible about reporting requirements as we implement the law.
Treasury won’t be releasing reporting requirements until later this summer, and then it will need to test the requirements, so it needs to wait a year before making them mandatory.
Then, almost as an “oh, by the way” addition, the Treasury statement adds that since reporting won’t be mandatory in 2014, it can’t actually impose any penalties on employers that don’t provide health insurance until 2015.
The whole point of the employer mandate is to incent employers to offer health coverage to full-time workers. Firms might otherwise drop coverage and direct employees to buy through the insurance exchanges created under Obamacare.
That would be costly for taxpayers, as most workers will be eligible for subsidies to help them buy insurance in the exchanges, and often those subsidies will far exceed the value of the tax preferences given for employer-provided health insurance.
If the real reason for the delay is that Treasury couldn’t get its act together on the reporting requirements, that is very embarrassing for the Obama Administration. Unlike setting up health care exchanges and expanding Medicaid, Treasury’s administration of tax reporting requirements is a purely federal matter. Problems with it can’t be blamed on obstructionist Republicans.
But the reporting issue may just be a pretext for the delay. The employer mandate is a bad policy that will discourage job creation. The Administration may be looking for a way to avoid imposing it ever.
The employer mandate is part of a suite of policies aimed at accomplishing two difficult tasks: Expanding health insurance coverage to the 17% of Americans who don’t have any, while ensuring the 45% of Americans currently covered through employer-based plans stay put.
This is very hard to do (if you hand out subsidies to the uninsured, more people will become “uninsured” to get the subsidies) and it’s why most approaches to health insurance reform favoured by left, right and centre health policy wonks involve moving away from employer-based coverage.
Obamacare’s approach to threading the needle might work, but in the process it creates a significant barrier to job creation.
The loudest objections to the mandate have come from the restaurant industry, and for good reason. Restaurants employ lots of low-skill workers, and either adding health insurance or paying a $2,000 penalty would result in a large percentage increase in the cost of employment.
Large restaurant chains compete with small businesses that won’t be subject to the mandate and will sometimes even be eligible for subsidies to offer health insurance. That means chains will have difficulty raising prices to pass their higher labour costs onto customers. In some cases, that will just mean lower profits, but it will also mean less hiring and less expansion in the sector.
The tenor of restaurateurs’ objections to the mandate has often been obnoxious, particularly when a Denny’s franchisee announced his intention to impose an “Obamacare fee” on checks and encourage diners to deduct the surcharge from servers’ tips. But that doesn’t mean they’re wrong on the policy.
Obama needed the mandate to get Obamacare passed because it would reduce participation in the exchanges and therefore the law’s overall costs. One of his key selling points for the law was that it would cut the deficit. Now that the law has passed, his administration is freer to pursue changes that will raise Obamacare’s cost to taxpayers but improve its effects on the economy.
Delaying the employer mandate, perhaps indefinitely, is one way to do that. It’s a better reason than “we couldn’t figure out how to do the reporting.” But it’s not one you can say out loud.
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