Tuesday, July 2, 2013

Administration Delays the Employer Mandate––But What About Small Employers?

The administration suddenly announced tonight that the requirement that all employers with 50 or more workers offer health insurance has been delayed until 2015.

If an employer with 50 or more workers did not provide health insurance to their full time workers in 2014, they would have been subject to a fine of $2,000 per worker. The employer would have also been subject to a $3,000 fine for each worker that went to the insurance exchanges if the employer package was not affordable.

Why did the administration delay the large employer mandate?

Because many employers have been in the early stages of planning to cut back the hours of workers in order to avoid having to offer insurance to those customarily considered part time, those who work at least the 30 hours per week the law established for defining a full time worker––and they haven't been bashful in telling their employees why. In addition, there has been growing evidence that some employers were holding back on hiring in order to avoid more of the mandate costs at a time of high unemployment.

While the administration cited employer administration issues with mandate reporting as the reason for the delay, the bottom line is that the Affordable Care Act ("Obamacare") was looking like it was about to be successfully labeled a job killer and the administration wanted to avoid that.

You also have to wonder if all of the reporting challenges were just with employers or was the administration also having trouble with the complex employer mandate information systems they will ultimately have to build?

However, this is only a one-year delay. It doesn't take any of the uncertainty off the table for employers––it simply delays things. But the delay does give employers a chance to see just how the overall law will impact the health insurance market before they make any final decisions. It also gives the Obama administration a chance to reconsider many of the new law's regulations that have rankled employers.

The administration did not delay the many new requirements facing employers who choose to offer health insurance in the small group market––employers with less than 50 workers. They are faced with the essential health benefit requirements as well as the rating reforms––a small group with lots of young people will see their rates increase significantly because of the new 3:1 age compression rules, for example.

While small employers are not required to offer coverage, if they do they come under that large number of new essential health benefit mandates and group rating rules that won't apply to large employers. These small group requirements are expected to increase the cost of small group coverage by an average of 15%––with wide variation by state and the average age of the group.

While the new health law enabled small groups to benefit from "grandfather" rules by being able to keep their current benefit package, it has been estimated that only about 15% of employers will still be grandfathered come 2014 because of how stringent the administration made those rules.

These small employers are suffering much the same anxiety large employers are suffering over how they will be able to continue offering coverage under the Affordable Care Act. Many of these small employers are now thinking about dropping their coverage.

Small employers don't have to comply with the new benefit and rate mandates until their coverage renews in 2014. Earlier this year, a number of insurance companies announced that they were willing to change the anniversary date for small group plans until late 2014 in order to give their small group customers more time to comply.

That offer was met by sharp criticism from some supporters of Obamacare, as well as some state insurance regulators, because it smacked of trying to get around the law.

But now the administration, seemingly out of nowhere, has done just that for large employers.

Why not do the same for small employers as well? And while they are at it, use the time to reconsider the impact many of these regulations are likely to have on the number of small employers continuing to offer coverage.

Perhaps the most significant part of this announcement is that we have finally seen a huge crack in the fa├žade the administration has been maintaining over how well implementation has been going and will go.

What’s next?
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