The Employer Mandate: Examining the Delay and Its Effect on Workplaces

On July 23, 2013, Grace-Marie Turner testified before the Subcommittee on Health, Employment, Labor, and Pensions and the Subcommittee on Workforce Protections of the House Committee on Education and the Workforce. The following is a summary of her written testimony. A pdf version of her full testimony can be found here. Information about the hearing and testimony from the other witnesses can be found here.

Large and small businesses across America have been making painful decisions to lay off employees, cut workers’ hours, and make do with fewer workers than they really need.  This is not what you would expect in a recovering economy.

The clear distorting factor is the Affordable Care Act, especially the employer mandate. The decision by the administration to delay the reporting requirements for the mandate only adds to the questions and concerns business owners and workers have about the law.

The statute clearly says that the mandate is to begin in 2014, not 2015, as the administration has now directed. Last Wednesday, the House of Representatives passed legislation to give the administration legal authority to postpone the mandate.  However, the administration said in a puzzling statement that the president would veto the legislation to delay the mandate that he himself is delaying by administrative directive. No wonder businesses are confused!

Who made the decision?  CMS administrator Marilyn Tavenner testified last week that she was not consulted on the decision to postpone.  She said she was “made aware” of the delay just a few days before it was announced.

I understand that you had invited Howard Shelanski, the administrator of the OMB’s Office of Information and Regulatory Affairs, to testify today about the decision. In a call to committee staff, his office indicated it was not involved in the decision and therefore he would not testify.

Congressman Michael Burgess questioned a Treasury official during an Energy and Commerce Committee hearing last week regarding the timeline of the administration’s decision. The official was not able to provide the date the decision was made, nor who made the final decision to delay the mandate and whether that person was a Treasury Department or a White House official.

Certainly a decision with such significant implications should have been reviewed by those in the administration with responsibility for implementing the law to determine its legality, its implications for other provisions of the law, and its impact on businesses and their employees.

Now, employers are more confused than ever about their responsibilities and liabilities, including whether delay of the reporting requirements does in fact also absolve them of the mandate itself.

What business is saying

A part-time nation:  A recent survey by the U.S. Chamber of Commerce found that 71% of small businesses say the health law makes it harder to grow. Only 30% say they are prepared for the requirements of the law, and a quarter say they don’t even know what is required of them. Among small businesses that will be impacted by the employer mandate, one-half say they will cut hours to avoid the penalties.

An earlier Gallup poll found that 41% of small businesses surveyed had frozen hiring because of the health law. One in five said they already had reduced the number of employees “as a specific result of the Affordable Care Act.”

Employers have been providing health insurance for their workers voluntarily for more than 70 years, but the ACA places significant new burdens on employers, including onerous reporting requirements and higher costs because of new mandated benefits.

While most employers want to provide health insurance, not all can afford it and still keep their prices competitive.  For companies with very tight profit margins, the mandate to provide health insurance can send their bottom line from black to red.

Some critics have argued that if all businesses are forced to provide health insurance and raise prices, they will not lose customers because all of their competitors will be operating under the same requirements. But customers are smarter than that:  They will buy less, substitute more, and more business transactions will simply vanish.

Employers already are responding to the mandate

Backers of the health law have said that the one-year delay in reporting requirements for the employer mandate is largely irrelevant because the great majority of employers subject to the mandate already offer health insurance. But offering isn’t the same as accepting.  Almost half of the nation’s nearly 28 million uninsured workers are employed by firms that are mandated to provide health coverage.

Federal data show that 96.8% of firms with 50 or more employees do offer health benefits. However, Professor Chris Conover of Duke University has examined the distribution of the nation’s 28 million uninsured workers age 18-64 by firm size, and he found that 46.1% are employed at firms subject to the mandate.

Therefore, to say that delaying the mandate is inconsequential is belied by the facts.

Incentives to drop coverage: While the health law tried to lock-in employer coverage, it may very well have the opposite effect of incentivizing employers to drop it instead.  The Wegmans grocery chain, for example, is cutting health benefits for its part-time employees and plans to send them to the ObamaCare exchanges where they may get more generous benefits and subsidies than the company says it can offer.

Cutting hours:  The health law is redefining a full-time work week as 30 hours rather than the traditional 40.  Because there is a look-back period, many employers already are scaling back employee hours.  And many of them are cutting workers to 25 hours to provide a cushion in case shifts run over.

That is a significant income loss for workers, many of whom are at the lower-end of the income scale.  But employers, especially in the restaurant and retail industries, say that their decisions are driven by an attempt to keep their doors open.

And a one-year delay in the employer mandate will not change the hiring behavior of employers.  They won’t hire full-time workers while knowing they would have to let those workers go a year from now.  If anything, the delay gives employers more time to figure out how to restructure their businesses and workforces to avoid the added costs of the health law.

Redefining 30 to 40 hours:  Some business groups are advocating a change in the law to move the definition from 30 to 40 hours.  While that seems logical, many businesses will continue to build a cushion into their schedules and that would likely mean the full-time work week would be 35 rather than 40 hours.  I would recommend that Congress not make this change.  The only solution to avoid these and other distortions in the labor market is to repeal the employer mandate.

Labor unions unhappy

Those who say that the employer mandate has little or no effect on businesses also should listen to those who represent organized labor.  Representatives of three of the nation’s largest unions recently warned Democratic leaders in Congress that Obamacare would “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

“Perverse incentives are causing nightmare scenarios,” they write. “The impact is two-fold: fewer hours means less pay while also losing our current health benefits.”

Last week, Laborers International Union of North America President Terry O’Sullivan wrote that the law has “destructive consequences” for the types of health plans that cover millions of unionized construction workers and their family members.

But the delay of the reporting requirements for the employer mandate does not mean that businesses can take a year off from other provisions of the law, and the president has not given them relief from these requirements that will further burden businesses with compliance costs and distract them from their core business activities.

Next steps

One of the things that businesses had most hoped to get from the law was more affordable coverage through the small business exchanges called for in the law. But the administration announced in April that it would delay until at least 2015 implementation of these exchanges.

The administration also has announced it will rely on an “honor system” for health insurance subsidies, presenting a significant potential for fraud and waste of taxpayer funds.  Additionally, very little information has been provided by the administration about the status of the exchanges that the federal government is creating.

The risks, complexities, delays, and confusion surrounding the ACA strongly indicate that the only responsible path is to delay implementation of the exchanges and related subsidies until taxpayers can be assured funds are being spent properly and legally.  In the meantime, Congress could authorize funds to help states develop or strengthen high-risk pools so people with pre-existing conditions who are waiting for the exchange coverage to begin on January 1 can get coverage immediately.

A full version of Grace-Marie’s testimony can be found here.
Information about the hearing and testimony from the other witnesses can be found here.

 

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About the author

Grace-Marie Turner is president of the Galen Institute, a public policy research organization that she founded in 1995 to promote an informed debate over free-market ideas for health reform.

Full biography