Maybe we don’t need the employer mandate

Source: Moresheth (Flickr / Creative Commons)

Although written into law in March 2010, the Affordable Care Act’s requirement for employers to provide health insurance has been delayed and modified until 2016. Now some are asking- would we be better off just eliminating the employer mandate altogether? The mandate, which would penalize employers of 50 workers or more if they do not provide insurance to at least 95 percent of full time workers, faces staunch opposition from business owners. This paper deals with the workforce impacts of the employer mandate as well as the coverage and cost estimations if this feature of the ACA was eliminated.

Even if the employer mandate stays, most employers currently providing insurance would continue to do so and those not currently would likely not start. High wage employers benefit from offering health insurance because it is nontaxable compensation – higher wages means more benefits.  Conversely low wage employers would refrain due to the individual mandate, the selective expansion of Medicaid, and premium tax credits.

This prediction of the mandate’s small impact on the number of workers receiving employer based coverage is substantiated using the Urban Institute’s Health Insurance Policy Simulation Model. They predict a relative decrease of 0.3% of workers losing employer coverage if the mandate were eliminated, about  500,000 workers. The uninsured would increase by roughly 200,000 from 26 to 26.2 million, which is a relative increase of 0.6% and similar to estimates from the Congressional Budget Office.  These estimates are also in line with evidence from the Massachusetts health insurance reform of 2006, which had even less harsh employer penalties and better marketplace subsidies than the ACA. According to Urban Institute’s models, without the mandates, the federal government would forgo almost $4.3 billion per year in lost revenue from penalty payments and the shift of workers to Medicaid and the Marketplace, about $46 billion from 2014 to 2023.

Those most adversely effected by the employer mandate would be low wage employees in  smaller firms. Small low wage firms are most likely to continue not offering, incurring penalties which are inevitably passed to employees as reduced wages. Only 4.1% of employers don’t offer insurance, but of that number, over 70% are low wage employers.

Commentary

This paper reveals two important implications of the ACA’s employer mandate that run contrary to the intent of the mandate.  First, employer penalties are essentially regressive: low wage employees of smaller companies face a disproportionate impact via wage reduction while high wage employees would face little change with or without the mandate.  Second, the existence of the employer mandate would not substantially change the number of insured workers.  These reasons are enough to pump the breaks on mandate. However, the issue is complicated to the point of foreseeable paralysis by the price tag associated with repeal: though Urban Institute estimates the 10 year price to the government at $46 billion, the CBO estimates it substantially higher at $130 billion. Increasing payroll taxes or reducing tax benefits of employer insurance as suggested by the CBO to compensate the losses essentially codifies redistribution of wealth towards a two tier system of employer based private insurance versus Medicaid and subsidized Marketplace insurance.  At a time when the ACA is losing much of its popular appeal, eliminating the mandate could be a powerful political tool to reduce opposition to the ACA from the business sector.

Blumberg, LJ, et al. Urban Institute. May 2014.

by

Rachel Solnick