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Three Reasons Why Congress Should Repeal the Employer Mandate

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Three Reasons Why Congress Should Repeal the Employer Mandate

July 15, 2015

The Affordable Care Act’s employer mandate will take full effect on January 1, 2016. The mandate stipulates that businesses with fifty or more full-time workers must cover their employees’ health insurance or pay a substantial fine. The law was supposed to take effect in 2014, but the Obama administration postponed the mandate’s enforcement until 2015, then reconsidered once again and pushed the start date for small businesses with fewer than 100 workers to 2016. The employer mandate may be the most controversial aspect of the ACA. The administration’s ongoing scramble to delay and adjust the law foreshadows the damage that President Obama knows it will impose on the economy. 

Repealing the employer mandate has support among Democrats and Republicans. Here are three reasons why Congress should pass a bill getting rid of this onerous law and send it to the president for his signature:

1. Strong Disincentives for Job Growth

 The employer mandate presents businesses with strong disincentives for growth. Because employers are forced to pay for workers’ insurance or risk paying a fine, the cost of hiring full-time employees naturally rises. The Act requires that employers cover 60 percent of the value of each employee’s coverage for a broad, generous plan. If employers do not comply, they must pay a $2,000 fine per worker. They are liable for a penalty of $3,000 for each worker who receives a federal subsidy to buy a health plan on the ACA marketplace. Considering such costs, businesses that fall at or below the 50 worker threshold are discouraged from employing more than 49 people, keeping full-time employment lower in order to work around the mandate. Further, since penalties are not due on part-time workers, those working fewer than 30 hours per week, employers have incentives to cut workers’ hours. The Affordable Care Act encourages employers to lay off full-time workers and replace them with part-time workers. Regal Entertainment, Sea World, and Wendy’s are just some of the companies that have said they will reduce hours to under 30 per week as a consequence of the mandate. 

2. Employer-based Health Insurance is Working Just Fine

 The employer mandate is wrecking health insurance systems that already work efficiently. In general, people were satisfied with employer plans, which were provided voluntarily before the ACA. Employers offered health insurance because it was a tax-free benefit. When the ACA first took effect, companies received waivers to continue their plans.  People who work for companies without  employer-provided health insurance will be able to purchase it on the exchange.

Unions are one of the most vocal opponents of the employer mandate. They argue that union-employer benefit funds (Taft-Hartley funds) are functioning well without the law, particularly in industries where employees tend to work fluctuating hours. Unions want to keep their Taft-Hartley funds because employers and workers contribute to the fund based on how many hours an employee works. Health care coverage is then purchased for employees with the fund’s revenue. Since the government provides subsidies for some workers, the employer mandate will lead to employers opting out of paying into the funds, which will dismantle a system that works well for the majority of union members. 

3. Small Benefits, Big Costs

The benefits to employees from the employer mandate are negligible. In a report titled “Why Not Just Eliminate the Employer Mandate?”, the left-leaning Urban Institute found that close to two-thirds of America’s workers already have coverage through their employers, regardless of the impending mandate. Employers have an incentive to offer coverage because of tax benefits, and because these benefits attract high-quality workers that might otherwise choose to work elsewhere. Through most employer-provided health plans, workers receive nontaxable compensation in the form of health plans. If employers did not offer health insurance, employees would likely receive a higher, taxable salary and would have to purchase coverage in through ACA exchanges. The Urban Institute found that the number of employers offering coverage, and the number of workers receiving coverage through their employers under the ACA would not change much if the employer mandate were to be eliminated. If the mandate were removed, the number of workers receiving employer-based health coverage would fall by just 0.3 percent. 

The Congressional Budget Office estimates that employer penalties will bring in $5 billion a year to the federal government. Repealing the employer mandate would require Congress to find the revenue from elsewhere. However, according to CBO estimates, repealing the Act would increase the supply of labor and aggregate compensation for workers by an amount between 0.8 to 0.9 percent, and GDP by around 0.7 percent. Increased economic growth and associated income tax revenue would make up for the missing revenue from the penalties.

The employer mandate’s costs outweigh its few benefits. The law is hampering growth and creating distortions in the labor market. It made commonly-used health insurance plans illegal, even though employees and employers found them satisfactory. Enforcing or repealing the employer mandate would have negligible effects on the number of American workers receiving health insurance through their jobs. Congress should do right by America’s employers and employees and repeal the mandate. 


Savannah Saunders is a contributor for Economics21.


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