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The Significance of the Missing Employer Mandate

10:02 PM, Jul 30, 2013 • By JAMES C. CAPRETTA
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After getting over the shock of the Obama administration’s unilateral decision to delay the employer mandate for a year, supporters of the law have taken to downplaying the significance of the step. Jonathan Chait and Ezra Klein, among others, have said it is just not that big of a deal to delay a provision that they claim affects so few employers. After all, they argue, most employers offer coverage today without the mandate, so it can’t be true that imposing the mandate is essential to making the rest of the law work well. Klein goes even further and says it would be best just to get rid of the employer mandate altogether because its perverse employment incentives outweigh whatever positive role the provision plays in the rest of the law.      

Obamacare signing

In his first public comments on the mandate delay, President Obama picked up on this “it’s no big deal” theme in an interview with the New York Times, stating, among other things, that “the number of employers who are potentially subject to the employer mandate is relatively small,” thus echoing the argument that the mandate is not a central provision of Obamacare.

It’s certainly a welcome development that some defenders of the law are willing to publicly admit that the employer mandate is already having disastrous consequences for employment, especially for workers from low income households, and therefore should not be allowed to go into effect. They are right. It is terrible policy for sure, and needs to be repealed for that reason, along with the rest of the law.

But it is not true that the employer mandate is a minor provision in Obamacare. In fact, the assertion that it is inconsequential is shameless revisionist history. For instance, Klein, now pooh-poohing the mandate’s significance, previously wrote about its crucial role in getting a favorable cost estimate from the Congressional Budget Office (CBO). And he was right the first time.

One of the keys to understanding how Obamacare works is the so-called “firewall.” This is the provision that is supposed to prevent widespread dumping by employers of their workers into the Obamacare exchanges. The “firewall” precludes workers who receive an “affordable” offer of insurance coverage from their employers from getting premium assistance in the exchanges.

This is important because these subsidies are worth much more to lower-wage workers than the implicit federal tax subsidy associated with employer-paid insurance premiums (employer-paid health insurance is non-taxable compensation for workers). For instance, the Congressional Budget Office (CBO) has estimated that, in 2016, a family of four with household income of $50,000 would be better off by more than $11,000 if they got their insurance through an Obamacare exchange instead of from an employer. Without the firewall, and the related employer mandate, this large differential in federal support would be a magnet drawing lower-wage workers out of job-based health insurance. In short, the employer mandate–and the firewall it supports--is highly consequential not because it forces large numbers of employers that do not offer insurance today to do so in the future but because it prevents large numbers of employers now offering coverage from dropping what they offer today..

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