Negative Consequences of the Employer Mandate
May 15, 2014
The Affordable Care Act's (ACA) Employer Shared Responsibility provision -- more commonly referred to as the employer mandate -- requires all employers with 50 employees to provide health insurance coverage beginning in 2014, explains Emily Egan, health care expert at the American Action Forum.
Failure to comply with the mandate results in fines. However, the Obama administration announced in July 2013 that it would be delaying enforcement of the mandate until 2015. Additionally, the administration announced further delays in February 2014, giving employers with less than 100 employees until 2016 to comply with the mandate.
Employer-sponsored insurance is the largest source of insurance for Americans under age 65, and companies compete for employees by offering health benefits. However, as insurance costs increase, fewer companies are likely to offer benefits.
- In 2011, employer-sponsored insurance coverage for non-elderly adults sat at just 59.5 percent, down from 70 percent in 2000.
- The ACA encourages employers to shift their employees onto the health car exchanges, because the cost of providing insurance exceeds the penalty (between $2,000 and $3,000 per employee) of not offering insurance.
- The mandate encourages businesses to stay small (under 50 employees) and not expand. An employer with 50 employees is subject to $40,000 in fines for failing to offer health insurance.
- According to a 2013 Gallup poll of small businesses, 41 percent held off hiring new employees, 19 percent reduced their workforce and 18 percent reduced employees to part-time work. Similarly, a survey from the International Foundation of Employee Benefit Plans found that 19 percent of small employers were reducing hiring in order to avoid the employer mandate, while 15 percent were adjusting their workers' hours so that fewer employees would be subject to the mandate.
Egan points out a loophole that exists in the law. Employers are penalized under the ACA for two reasons: failing to offer minimum essential coverage, or offering coverage that is unaffordable.
- When employers offer unaffordable coverage to an employee that receives a premium subsidy on the exchange, that employer is fined $3,000.
- The IRS plans to calculate "affordability" based on an employee's portion of the cost of individual coverage. However, many employees need family coverage, not individual coverage. Therefore, employers can require large employee contributions for family policies, while making their individual coverage affordable. This means that the employee would not qualify for subsidized exchange coverage -- because he has technically been offered affordable coverage -- and the employer will not be liable for the $3,000 penalty.
While the employer mandate, Egan writes, was intended to coerce companies to offer health insurance, it is unlikely to do so because of the many incentives in the ACA that will push workers to part-time work and discourage hiring.
Source: Emily Egan, "Primer: Employer Mandate," American Action Forum, May 2, 2014.
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