A new report from the Urban Institute asks the important question, “Why not just eliminate the employer mandate?” Doing so would eliminate some of the negative, unintended labor market consequences of the Affordable Care Act.
The Act originally required businesses with over 49 full-time equivalent employees to offer insurance that met government requirements by January 1, 2014. If employers refused, they would face a fine of $2,000 per worker. When the law is fully implemented, moving from 49 to 50 workers could cost an employer $40,000 a year (the first 30 employees are exempt).
However, the penalty is greater, over $3,000 per employee, since it is not tax-deductible. This means going from 49 to 50 workers would cost a business an additional $60,000, according to University of Chicago economist Casey Mulligan.
In July 2013, the employer mandate was pushed back a year by the Obama administration, to January 2015. In February 2014, it was delayed again, for employers with fewer than 100 employees. Employers with 100 or more employees would have to cover 70 percent of their workers.
Rather than continuing to delay the mandate, it would be wise for the Obama administration to end it all together. Eliminating the mandate is preferable to increasing the employment threshold for the penalty, because increasing the threshold would still be a significant barrier to job creation.
The Urban Institute report finds that 251.1 million people would have insurance in 2016 if the employer mandate were fully implemented. If it were eliminated, 250.9 million people would still have insurance. The projected change is so small because there are clear tax benefits to employers offering health insurance in lieu of higher salaries. Employer-provided health insurance is tax-exempt, unlike individual coverage.
The Congressional Budget Office estimates that, despite the Affordable Care Act’s best intentions, 31 million people will still be without insurance in 2016. An additional 200,000 people without health insurance is a small price to pay for removing a major disincentive to hiring. The employment benefits of eliminating the mandate clearly outweigh the few insurance losses. Businesses need to plan for the future to be successful, and a delay does little to encourage growing workforces.
With employment still below pre-recession levels, policies that make it more costly to hire workers are clearly misguided.
Abolishing the employer mandate would cost the Treasury lost revenue because the financial penalties paid by employers would disappear. The Urban Institute estimates revenues would fall by $4.3 billion per year. However, this is money that would remain in the hands of businesses to invest or hire more workers. Taking the resulting economic boost into account could turn elimination of the employer mandate into a revenue-neutral reform.
The Affordable Care Act was designed to reform the healthcare market. However, its provisions include major roadblocks that prevent business expansion and reduce employment. This is not a partisan issue. Though these flaws in the law have been known for a long time, it is not too late to eliminate the employer mandate permanently. Replacing the ACA's job-killing requirements should be a priority.
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