Liberal Think Tank Says Obamacare Employer Mandate is "Regressive" and Should Be Scrapped

May 14, 2014

At WPC’s annual Health Care Conference yesterday, panels of experts discussed the impacts of the Affordable Care Act (ACA) on individuals, employers, insurers and providers.  A common theme throughout the presentations and Q&A sessions centered on the uncertainty of how employers will respond once the controversial employer mandate begins to take effect next year.

The controversy, confusion and uncertainty over the new requirements has prompted the Obama Administration to delay implementation of the employer mandate and soften requirements during the first year.

The original effective date of the employer mandate was 2014, and is now scheduled to begin kicking-in for “large” businesses with 100 or more full-time workers in 2015 (via a phased-in approach requiring coverage for 70% of employees in 2015 and 95% in 2016 and beyond), followed by “medium” employers with 50-99 workers in 2016.   These businesses will be required to offer “affordable” health insurance (defined as costing workers less than 9.5% of their household income) that provides “minimum value” (defined as paying at least 60% of the cost of covered services) to full-time employees (defined as those who work an average of 30 hours or more per week) or pay a per employee penalty of up to $3,000 per year.  “Small” businesses are exempt from the mandate.  According to the Small Business Administration, 7% of all workers in the U.S. are employed by medium size businesses and 66% are employed by larger businesses.

While the ultimate impact is uncertain, glimpses of how employers will respond can already been seen as employers make workforce decisions based on how they think the mandate will impact their business.  Several large employers (Land’s End, Regal Entertainment and Wendy’s) have announced they will reduce the hours for part-time workers to less than 30, while others (Target and Trader Joe’s) have stopped providing coverage for part-time workers, pushing them instead into subsidized coverage in Health Exchanges.  

This is why the Urban Institute, a liberal think tank that supports Obamacare, is now recommending the employer mandate be scrapped entirely.  In its recent report, “Why Not Just Eliminate the Employer Mandate?” the Urban Institute cites concerns over “changes in employer labor practices, such as reducing the hours of part-time workers and concerns about increasing workforce above 50 workers” as a legitimate reason to remove the employer mandate altogether.   The report identifies the individual mandate as the critical component to expanding health coverage and concludes that eliminating the employer mandate would have a negligible impact on the number of insured workers while removing the incentive for employers to respond in ways that “could have negative effects on some workers.”

Simply put, the 50 worker/30 hour per week penalty incentivizes businesses to keep their workforce below 50 workers and less than 30 hours a week.  The study also points out that the mandate increases employers’ labor costs, which “are likely to be passed to their workers in the form of reduced wages.”

The Urban Institute even goes as far as calling the employer penalties “a regressive approach” to health reform because the vast majority of medium and large businesses that do not currently offer health coverage are those that employ mostly low-wage workers.  Considering many employers will respond to the mandate by cutting hours and reducing wages, “low-wage employees will bear the greatest brunt of the penalties imposed.”

The study notes that removing the employer mandate will not have a great impact because most employers that fall under the mandate already offer health insurance.  Data from the Kaiser Family Foundation shows 99% of businesses with 200 or more workers offered insurance coverage in 2013, and 91% of businesses with 50 and 199 workers provided health coverage.  Most of the employers that do not offer health coverage are the smaller businesses not subject to the mandate and its penalties.

The study predicts these large and medium employers are likely to continue offering their employees health coverage without the employer mandate, and the "employers with 50 or more workers not offering coverage pre-ACA are the same employers that are highly likely to not offer in the future."   In other words, the penalty won't convince them to begin offering coverage.

In all, the Urban Institute says dropping the employer mandate would result in just 200,000 fewer insured workers than with the mandate, a figurative drop in the bucket of the more than 250 million workers at stake.  The biggest impact would be on the government revenues that would be gained from the penalties imposed on employers, which Obamacare is counting on to help finance the new health law.

According to the study, the government would lose about $4 billion per year in penalty revenue extracted from employers, while the Congressional Budget Office pegs the loss at a much steeper $13 billion. The loss of government revenue would be an obvious obstacle to tossing the employer mandate.

The study concludes it is the individual mandate that is “critical to expanding coverage under the ACA; the employer mandate is not.”   Supporters of the employer mandate must answer whether the employer mandate is about increasing the number of uninsured Americans or increasing government revenue.