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Should We Repeal the Employer Mandate?

    In March of 2015, the Affordable Care Act, popularly known as “Obamacare,” will turn five years old. Upon being signed into law, this federal statute represented the most significant overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in the 1960s. “A number of statistics seem to indicate that it has been well-received by the public. More than nine million Americans have signed up for health insurance under it, and the number of uninsured Americans continues to drop. Yet public approval of the Affordable Care Act remains low, with a majority of Americans—more than 50 percent of responders in a variety of polls—opposing it”, says Walton.

    One of the most controversial aspects of the plan has long been its employer responsibility requirements. With 55 percent of Americans already insured through their workplaces, many were worried that making individual insurance coverage more affordable would cause group insurance coverage to suffer. What if, as a financial strategy, employers took away group insurance coverage altogether, hoping their employees would find affordable insurance via the individual market? Obamacare’s “employer mandate” was added to ease those concerns. Effective January 1, 2015, it stipulates that large employers of 100 or more full-time employees must offer adequate and affordable coverage for every employee- otherwise, they’d pay a penalty. This threshold drops to 50 in 2016.  Regardless of political leanings, this mandate has proven unpopular in the business world. It has made an already complex industry that much more complicated. By defining a full-time worker, as someone who works at least 30 hours a week, it has proven especially hard for retail and restaurant employers whose workers’ hours fluctuate. To avoid being subject to required coverage, some businesses have already slashed the hours of full-time employees to put them below 30 hours a week.

    Looking forward, small businesses approaching the seemingly arbitrary 100 and 50-employee threshold might hold off on new hiring to steer clear of the mandate, hampering job growth. The required reporting process to the federal government adds an unprofitable administrative burden on these employers as well. And for what purpose? To keep from being penalized, employers must only offer a very limited, minimum coverage—and employees who accept it no longer qualify for the tax credits and reductions they might otherwise receive.  Here’s the worst part: Studies have shown that implementation of the employer mandate might result in a net gain of just 200,000 newly insured employees across the United States.  All this change, all these drawbacks, and all that productivity-ruining paperwork for a difference of 200,000 people nationwide?

    In short, the employer mandate is a disaster. That’s one reason the Obama administration keeps delaying its implementation and softening its reporting requirements. Meanwhile, experts on both the left and the right have been calling for its repeal. One of the creators of Obama’s plan, David Cutler, even admitted that scrapping the employer mandate wouldn’t be much of a problem. It doesn’t necessarily have to be repealed, though. The law could easily be fixed with a simple replacement—a regulation that makes better sense, doesn’t hurt the job market, and still incentivizes employers to provide insurance. What would a replacement look like?  One decent idea came from a version of the Affordable Care Act considered in a 2009 House bill. It called for a payroll tax of 8% to cover health care, much like employers do now for FICA. This approach maintains the goal of encouraging employers to offer health insurance to their employees, but removes the incentive to hire only part time employees, reduce the hours of current full time employees, or keep your workforce under 50 employees.  Health insurance is rated based on age, not income. So, taken as a percentage of an employee’s wages, a $5,000 a year policy is 16% of wages for a $30,000 a year employee, but only 4% of the pay for a $120,000 employee. Paying a percentage of payroll tax, makes it more affordable to hire a low to middle wage worker- otherwise you are paying $30,000 a year + the cost of benefits, rather than a flat 8% of payroll.      

    Regardless of the solution, Obamacare is broken and the employer mandate is its biggest problem. With the significant headwinds of a Republican majority in the House and Senate, change is in the air. The question is: How and when will it be improved?

Richard Walton is a risk consultant for employee benefits at NCW Insurance. Born and raised in Amarillo, Richard earned a degree from West Texas A&M University in Finance. Richard's community involvement includes the Amarillo Museum of Art, Panhandle PBS, and the City of Amarillo Planning & Zoning Board. When he's not at work, Richard enjoys glass-blowing and sculpting with clay. Richard was recently awarded the Golden Nail Award.