The Implications of Delaying the Employer Mandate

The Obama Administration’s decision to delay enforcement of the PPACA’s employer mandate could have far-reaching implications for PPACA implementation and the politics of health care reform.

First, it’s important to recognize what the Administration’s decision does not do.  Contrary to some suggestions, this decision does not affect the so-called “contraception mandate” that is currently the subject of several dozen suits in federal court.  The contraception mandate is a function of the Preventative Services Mandate contained in a separate portion of the Act.  The penalty for failing to include coverage for all FDA-approved forms of contraception in an employer-provided health plan is provided for in a different portion of the Act and remains in force.  Thus, as the folks at the Becket Fund explain (see also here), the Administration’s announcement should not affect any of the pending suits against the contraception mandate.

Delaying enforcement of the employer mandate will have significant implications, political and practical, as the EPPC’s Yuval Levin notes.

Until yesterday, the administration had basically put on a brave face about the difficulties arising in its implementation of Obamacare. With a few minor exceptions (now especially notable among them the one-year delay of key requirements for the new small-business exchanges), they have pretended everything was fine, and have enabled a chorus of defenders on the left to do the same. Last night’s announcement of a one-year delay in the implementation of the employer mandate is the first serious indication that the administration sees that the wheels are coming off the bus, and is very worried about it. . . .

This would have been a very tough decision to come to for several reasons. Not least of them is that, as I say, it is the first major acknowledgement of a serious problem implementing this law, and it is a problem with an element of the law that is by no means the most difficult to implement. If they’re actually telling the truth that they can’t handle getting employer reporting requirements into place, how are they doing getting the exchange system into place? But perhaps more troubling for the law’s defenders, this decision is even more likely an acknowledgement of some of the economic irrationality of the law. I doubt that just implementing reporting requirements is the issue here. More likely, the administration agrees with some of its critics who have argued that this element of the law would hurt the economy, and especially employment. And they probably also saw that the pressure from employers to avoid both the reporting requirements and the mandate was going to create huge problems for their PR effort in the fall. That would make this decision a little easier to understand, but there must be more to it to explain the enormous costs and risks they’re taking by doing this. . . .

[A]s a matter of policy substance, the most serious problem for the administration with this delay of the employer mandate [may be] its effect on the viability of the exchanges. Under the law, eligibility for exchange subsidies depends on an individual not receiving an affordable offer of qualified insurance from an employer. If employers will now not be required to report on their insurance offerings in 2014, I don’t see how the government will be able to determine eligibility for subsidies, and therefore how the exchanges will be able to function.

Making subsidies available without proof of eligibility would be very expensive and destabilizing to the insurance system, and would also require the retraction of such subsidies if the employer mandate ever does return. Coming up with other ways to prove eligibility would be very difficult at this late stage (as exchanges are supposed to start operating in three months), and would also be totally lawless—though I recognize that is a rather quaint and old fashioned concern in the age of Obama. Any losers in that process could sue, and the federal courts would have a hard time sustaining the administration’s novel approach to executive power. The exchanges are utterly central to the way Obamacare is supposed to function, and the delay announced yesterday leaves the prospects for their proper functioning even more grim than they already were.

Cato’s Michael Cannon elaborates on how this decision could complicate exchange implementation.

the employer mandate is so intimately tied to the rest of the law that the IRS cannot delay it without delaying the rest of Obamacare.

In addition to penalizing employers that fail to offer acceptable coverage, Obamacare offers tax credits and subsidies to certain workers who don’t receive an offer of acceptable coverage from an employer. The law requires employers to report information to the IRS on their coverage offerings, both to determine whether the employer will be subject to penalties and whether its employees will be eligible for credits and subsidies.

The IRS both delayed the imposition of penalties and “suspend[ed] reporting for 2014.” As the American Enterprise Institute’s Tom Miller observes, without that information on employers’ health benefits offerings, the federal government simply cannot determine who will be eligible for credits and subsidies. Without the credits and subsidies, the “rate shock” that workers experience will be much greater and/or many more workers will qualify for the unaffordability exemption from the individual mandate. Either way, fewer workers will purchase health insurance and premiums will rise further, which could ultimately end in an adverse selection death spiral. The administration can’t exactly solve this problem by offering credits and subsidies to everyone who applies, either. Not only would this increase the cost of the law, but it would also lead to a backlash in 2015 when some people have their subsidies revoked.

Thom Lambert has still more on this point at TOTM.

Not only are there questions about this decisions effects, there are also questions about its legality.  It’s not immediately clear that the PPACA authorizes this sort of decision. At TIE, the University of Michigan’s Nicholas Bagley considers one potential argument this action is authorized before noting that it is unlikely there will be anyone with standing to challenge the Administration’s move.

 any individual worker is going to be hard-pressed to convince a court that her employer would have given her health insurance in 2014 but for waiver of the tax penalty. Under current doctrine, that’s much too speculative a potential injury to support standing. Unless I’m missing something, no one has standing to challenge the waiver—whether it’s legal or not.

I’m inclined to think Bagley is correct on this point.

Finally, this Bloomberg story quotes the VC’s own Randy Barnett and notes that this decision could set a precedent for executive discretion in statutory implementation:

Can the administration do that?

It isn’t altogether clear it has the statutory authority in the health-care law to waive the requirement. If it doesn’t, the move could be challenged in court. In either case, it could set a precedent for a level of executive discretion in the law that the administration probably won’t like. . . .

If the enforcement of the mandate is indeed discretionary, then a future Republican president will be tempted to pull the same trick.

“So tell me again why a future Republican administration can’t just waive Obamacare” said Barnett.