The Real Problem

07.03.13

The Obamacare Delay

The news of the one-year delay in the employer mandate announced yesterday is being discussed as if it's some huge earthquake, and I guess I can see why, but I wonder if the actual effects of the decision will be that great. First of all, 90 to 95 percent of all employers targeted in this mandate (between 50 and 100 employees) already provide coverage anyway, so this will impact only a fairly small number of firms.

It will, however, reduce the number of people who sign up for coverage by whatever percentage, and that reduction in the size of the pool will presumably have a negative effect on the extent to which costs for average health-care consumers can be reduced. One of the huge challenges of implementation, of course, will be getting uninsured people to go sign up. I've spoken with experts who think getting a few million people to sign up would be kind of miraculous, but remember that a few million is a small percentage of the total uninsured.

As for these medium-size employers, health-care experts--yes, even liberal ones who on balance backed the ACA--have long recognized that these provisions were complex and problematic. This permits me to plug my journal, Democracy, where two years ago we published a piece by Jacob Hacker, the father of the public option and one of the country's top health-care experts.

As Jacob saw it then, the exemption for firms with under 50 employees was problematic. He proposes a system based not on number of employees but size of payroll. Why? Well, because a diner wiith 15 employees is one thing, and a boutique investment house with 15 employees is quite another. Hacker:

Exempting small employers entirely from the coverage requirement, as under the current law, has two salient drawbacks. First, it means that millions of Americans do not receive automatic coverage at their place of work. More than half of the working uninsured are either self-employed or work in firms with fewer than 50 workers. Because these firms are not required to contribute even a token amount on behalf of their workers, coverage for these workers has to come through Medicaid outreach or enforcement of the individual mandate, neither of which is likely to work as well as simply signing workers up for employer- or government-sponsored coverage at their place of work.

Second, a blanket small-business exemption is ill-targeted, since it treats small high-wage firms with substantial financial capacity to provide coverage (such as law firms) no differently than small low-wage firms without such capacity. Instead, employers that do not sponsor coverage should have to contribute to the cost of their workers’ coverage on a sliding scale based on firm payroll, which is a better measure of a firm’s ability to provide coverage than the number of employees. Moreover, such a change would still take into account firm size as well as wages, easing the burden on the smallest firms. For example, firms could be required to pay 1 percent on the first $250,000 of payroll, 4 percent on the next $750,000, and so on, up to the full levy of, say, 7 percent. The lower contributions required of low-wage firms could be financed by redirecting the law’s ill-targeted tax breaks for small business, which would no longer be necessary to encourage these firms to participate.

As Hacker notes, this kind of approach would decrease the reliance on the individual mandate, because most people work somewhere, or are married to someone who works somewhere, and so most people would get coverage through their employer here and not have to sign up for it themselves.

This delay will save the administration some headaches and some bad press, but there's still plenty of bad press to come with respect to the individual mandate, which is going to cost people a lot of money and has always been my biggest concern about this thing. Look at this example.

This is a link to a Kaiser Family Foundation Subsidy Calculator. You can enter household income, number of people in household, press enter, and see what comes up. So I entered a family of four, two 33-year-old non-smoking parents, and two kids, living on $50,000 a year.

This family would be above 188 percent of the poverty level and so would not qualify for a subsidy. Its coverage would cost $11,064 a year, "up to" $7,699 of which they could get back in the form of a tax subsidy, for a final cost of $3,365 a year. That's not nothing. And the $11,000, if I'm not mistaken, is out of pocket, until they file their taxes and get the credit. That's quite a lot of money for a family that isn't quite poor but is hardly living in comfort. And I'm told deductibles on most such plan will be pretty high. You can be sure that Fox News is going to go out and find a lot of such families, and they won't be happy. So that's the real political problem, and it ain't a small one.