When the Affordable Care Act (ACA) was passed in March 2010, it contained within it 2 mandates. The first, the individual mandate, was integral to the law’s success. It was intended to overcome the rational incentive for healthy people to opt out of buying insurance after key ACA provisions went into effect—provisions that prevented insurers from excluding people with preexisting conditions or charging them more for health insurance. Large numbers of healthy people opting out would increase the cost of insurance significantly, and cause a death spiral for the private market.
Aaron Carroll, MD, MS
The second mandate, aimed at businesses, served an entirely different purpose. The employer mandate was intended to shift some of the cost of insuring everyone onto businesses. It has nothing to do with the structure of the exchanges or the new regulations the law imposes on insurance companies.
According to the ACA, businesses that employ 50 or more people must pay a penalty if just 1 of their workers buys insurance from an exchange and qualifies for a subsidy from the federal government. If you have a large company, this could turn out to be a lot of money. Of course, providing insurance to many employees is expensive, too. So it wasn’t entirely clear what businesses would choose to do.
We still don’t know. In July of 2010, the employer mandate was delayed a year. In February of 2014, it was delayed again for businesses with fewer than 100 employees, and some rules were changed for larger companies.
Businesses have collectively issued a sigh of relief with each delay. They really don’t like the employer mandate. For many of them, it will cost a lot of money to provide qualifying insurance, especially high-volume, low-wage employers (think restaurant chains) that would have to pay a penalty if any of their workers purchase health insurance through an exchange and receive a subsidy because of their low earnings. It might make a number of businesses much less competitive in the economy. Many have already been struggling, and the last thing they need is a new “tax” on doing business.
Many economists hate the mandate as well. For businesses, the mandate is an incentive to hire more part-time workers for whom they aren’t required to provide benefits. It also incentivizes businesses to hire workers from more affluent families, because companies don’t have to pay a penalty on families that purchase insurance on the exchanges as long as those families don’t qualify for a subsidy.
A recent report from the Urban Institute put some numbers to these suppositions, however. Based on the insurance component of the Medical Expenditure Panel Survey, an annual set of surveys of US families and individuals, their medical providers, and employers, the report estimates that large employers who were not offering insurance before the ACA will likely be the employers not offering insurance after the employer mandate kicks in. Because these firms are predominately employing low-wage workers, it’s those at the low end of the socioeconomic spectrum who will bear the brunt of the pain.
Moreover, the report makes the case that eliminating the mandate entirely will do little to change the number of people who have insurance in the United States. If you eliminate the individual mandate, estimates have shown the number of uninsured Americans could increase by 13 million or more. But projections show that eliminating the employer mandate might decrease the number of insured (excluding those covered by by Medicare) in the United States from 251.1 million to 250.9 million, or about 200 000 individuals. In other words, the rate of insured would hold at 90.6%.
So projections suggest that eliminating the employer mandate would result in a slight drop in employer-based coverage from 58.1% to 57.9% of Americans, but most employees who offer insurance already did so before any mandate existed. They did it to be competitive employers, and there’s little incentive for them to abandon that stance now. Of the 0.2% who lose their job-based health coverage, half would likely purchase insurance on the exchange and half would qualify for coverage through Medicaid (at least in states that agreed to the Medicaid expansion) or the Children’s Health Insurance Program, CHIP.
This decrease in employer-based coverage would add an expense to the federal cost of the ACA: about $4.3 billion a year (for people seeking coverage through Medicaid or a subsidy for purchasing insurance), for a total of $46 billion between 2014 and 2023, the report estimates. This is significantly less than the Congressional Budget Office’s estimated $130 billion to cover costs for employers dropping health coverage for their employees. Still, it isn’t an insignificant amount of money, and it would need to be replaced.
There are many ways to do that. All have trade-offs. But eliminating the employer penalty would remove a number of labor market distortions and would reduce business opposition to the law.
And it wouldn’t really change the number of people who are insured in the United States. That’s what the law was about. The employer mandate isn’t a critical part of it, and it may be time for us again to consider eliminating it entirely.
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