Delaying the Employer Mandate

Small Change in the Short Term, Big Cost in the Long Run

by Carter C. Price, Evan Saltzman

This Article

RAND Health Quarterly, 2013; 3(3):6

Abstract

In July 2013, the Obama administration announced a one-year delay in enforcement of the Affordable Care Act's (ACA) penalty on large employers that do not offer affordable health insurance coverage. To help policymakers understand the implications of this decision, RAND analysts employed the COMPARE microsimulation model to gauge the impact of the one-year delay of the so-called employer mandate. They found that the delay will not have a large impact on insurance coverage: Because relatively few firms and employees are affected, only 300,000 fewer people, or 0.2% of the population, will have access to insurance from their employer, and nearly all of these will get insurance from another source. However, a one-year delay in implementation of the mandate will result in $11 billion dollars less in federal inflows from employer penalties for that year. A full repeal of the employer mandate would cause revenue to fall by $149 billion over the next ten years (10% of the ACA's spending offsets), providing substantially less money to pay for other components of the law. The bottom line: The one-year delay in the employer mandate will have relatively few consequences, primarily resulting in a relatively small one-year drop in revenue; however, a complete elimination of the mandate would have a large cumulative net cost, potentially removing a nontrivial revenue source that in turn funds the coverage provisions in the ACA.

For more information, see RAND RR-411 at https://www.rand.org/pubs/research_reports/RR411.html

Full Text

In July 2013, the Obama administration announced that it would delay enforcement of the Affordable Care Act's (ACA's) penalty on large employers (those with 50 or more workers) that do not offer affordable health insurance coverage to their employees (Jarrett, 2013). Originally slated to take effect on January 1, 2014, the so-called employer mandate will instead take effect at the beginning of 2015. The goals of the mandate are to discourage firms from discontinuing health insurance and to encourage firms that do not currently provide affordable health insurance for some or all of their workers to begin offering coverage. Most Americans currently get their health insurance through their employer, so the employer mandate is intended to provide some stability to the health insurance market as the other parts of the ACA are phased in. Given the complexity of the issues surrounding the implementation of health care reform, we felt an objective, analytically rigorous review of the impact of the one-year delay of the employer mandate would help inform debate on the issue.

Methodology

Our analysis builds on a 2010 RAND study that examined the effect of the ACA on employers, including a detailed analysis of the employer mandate (Eibner et al., 2010). Similar to the 2010 study, we used the RAND Comprehensive Assessment of Reform Efforts (COMPARE) microsimulation model to assess the impact of the employer mandate. The COMPARE model allows for the fact that firms may choose the kind of insurance they offer, if any, based on the aggregate utility to their workers and accounting for any penalty payments or tax benefits (a full description of the methodology used in the COMPARE model can be found in Eibner et al., 2010). Our present analysis leverages a refined version of COMPARE that incorporates more-recent input data; key model upgrades; and legislative, executive, and judicial adjustments to the ACA. In particular, the current version of COMPARE uses the 2008 Survey of Income and Program Participation (SIPP; United States Census Bureau, 2013), updating the previous version, which used the 2001 SIPP. We have also modeled the effects of recent changes to the law, such as the 2012 Supreme Court ruling. For example, our analysis assumes that 27 states will choose not to expand Medicaid in response to the Supreme Court ruling, as estimated by the Kaiser Family Foundation (Kaiser Family Foundation, 2013).

Key Findings

A one-year delay in the implementation of the Affordable Care Act's (ACA's) employer mandate will not have a substantial effect on insurance coverage.

  • Only 300,000 fewer people, or 0.2% of the population, will have access to affordable insurance in 2014 because of the delay.
  • About 1,000 fewer firms, or 0.02%, will offer coverage in 2014 given the delay.

The employer mandate will affect relatively few firms and employees.

  • We estimate that only about 0.4% of firms, employing approximately 1.6% of workers, will pay a penalty for not offering health insurance at all.
  • Based on current employer health plan contribution rates, we estimate that 1.1% of firms will pay some penalty for offering unaffordable coverage to a total of less than 1% of the workforce.

The delay in implementation of the employer mandate will lead to less revenue to offset the costs of the ACA.

  • We estimate that the one-year delay in enforcement amounts to $11 billion dollars less in revenue for the federal government—$7 billion less in penalties that would be assessed on firms that do not offer insurance and $4 billion less from fines of employers that offer unaffordable care.
  • A full repeal of the employer mandate, not merely a one-year delay, would result in the loss of approximately $149 billion in federal revenue over the next ten years.

References

Eibner, Christine, Federico Girosi, Carter C. Price, Amado Cordova, Peter S. Hussey, Alice Beckman, and Elizabeth A. McGlynn, Establishing State Health Insurance Exchanges: Implications for Health Insurance Enrollment, Spending, and Small Businesses, Santa Monica, Calif.: RAND Corporation, TR-825-DOL, 2010. As of July 2, 2013: http://www.rand.org/pubs/technical_reports/TR825.html

Jarrett, Valerie, “We're Listening to Businesses about the Health Care Law,” The White House Blog, July 2, 2013. As of July 5, 2013: http://www.whitehouse.gov/blog/2013/07/02/we-re-listening-businesses-about-health-care-law

Kaiser Family Foundation, “Status of State Action on the Medicaid Expansion Decision,” webpage, July 1, 2013. As of July 19, 2013: http://kff.org/medicaid/state-indicator/state-activity-around-expanding-medicaid-under-the-affordable-care-act/

United States Census Bureau, “Survey of Income and Program Participation,” webpage, June 6, 2013. As of July 10, 2013: http://www.census.gov/sipp/

Support for this article and for RAND Health's Comprehensive Assessment of Reform Efforts (COMPARE) initiative is provided by RAND's corporate endowment and through contributions from individual donors, corporations, foundations, and other organizations. The research was conducted in RAND Health, a division of the RAND Corporation.

RAND Health Quarterly is produced by the RAND Corporation. ISSN 2162-8254.