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Capretta's Must-Read Congressional Testimony

10:00 AM, Jul 10, 2013 • By WILLIAM KRISTOL
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The employer mandate is terribly flawed policy. It is harmful to lower income workers, to job growth, and to the strength of the broader economy. With the administration’s delay of the mandate, there would appear to be a growing bipartisan consensus on these points.

The mandate’s negative effects on employment and job growth are well known and obvious. For starters, the law exempts any employer with under 50 workers from the mandate’s requirements. Not surprisingly, firms are adjusting to stay beneath this 50- worker threshold. This is exactly what the American economy does not need at this moment in our history, with the unemployment rate holding at 7.6%. Large firms, with many workers, usually start as small firms with big potential, but the health care law is discouraging today’s small business entrepreneurs from become tomorrow’s big employers.

The structure of the mandate’s penalties provides powerful incentives for firms to avoid hiring lower income workers because the size of the penalties firms must pay are tied directly to the number of lower-wage workers getting subsidized insurance in the law’s health exchanges. If a firm with at least 50 employees does not offer “affordable insurance” to its workers, and those workers get federally-subsidized insurance in the exchanges instead, the firm must pay a penalty of $3,000 per worker. As the Center for Budget and Policy Priorities warned in 2009, this kind of penalty provides a strong disincentive for firms to hire workers from lower income households because they might become eligible for subsidies in the exchanges, and therefore also trigger penalties on their employers. This is not true if a firm hires low-wage workers from households with higher overall incomes. For instance, a small restaurant chain might find it more attractive to hire a low wage service worker who happens to live in a middle class neighborhood than to hire someone from a lower income area who might be eligible for the health law’s premium subsidies.

The law also exempts part-time workers from the penalty structure and establishes 30 hours per week as the upper limit for determining which workers are considered “part- time.” Firms at risk of paying fines under the mandate have a strong incentive to keep as many workers as possible in part-time status. Thus, we have been reading scores of news stories about companies and even local governments racing to move as many workers as possible from above 30 hours per week to just below that threshold. This is of course very troubling to the workers who are seeing their hours, and incomes, cut.

In addition, it was known in advance of enactment that the employer mandate, as designed in the PPACA, would be particularly burdensome to enforce. Former Congressional Budget Office (CBO) Director Robert Reischauer made this point to a meeting of journalists in 2009, stating that it would be an “immense hassle on the administrative front” as he urged a different approach. Last week’s announcement by the administration made it clear that he was right.

The administration’s decision not to enforce the employer mandate for one year does not alter these problematic effects of the law’s requirements. At best, the decision delays the problems for a matter of months. This is very unlikely to effect how employers are reacting to the law’s incentives. Employers that are today hesitant to hire new workers, or allow their part-time employees to work more than 30 hours per week, are not going to change their plans based on a one-year reprieve. Moreover, firms that have already downsized or made other adjustments to get around the law’s requirements are unlikely to undo what they have already implemented. After all, the administration is insisting that the mandate will go into effect in 2015.

The only way to really free up employers from the burdens of the law’s employer mandate, and thus to improve job growth and the economy, is to permanently repeal it.

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