Mandate delay hikes subsidy costs

July 3, 2013

As more individuals tap into subsidies, costs of reform will increase

It’s pretty obvious that nearly all large employers-94% of which currently offer health insurance-will continue coverage in 2014, unaffected by yesterday's delay of the employer-mandate provision. There’s no advantage for them in backpedaling.

A small portion of the 6% that do not offer health plans now will take the early leap and start up new health benefits next year. My guess might be that 20% of them will adopt coverage programs in 2014. It will be interesting to watch how it plays out.

According to federal officials, the administration’s decision to allow the additional one-year grace period was attributed to practical implementation issues related to the reporting mechanisms with the IRS. Essentially, the paperwork was too messy. While that’s probably true, many speculate that the decision was also a political move.

Without the pressure of the mandate, employers among the 6% that were previously on the fence about coverage won’t be as inclined to cut hours, layoff full timers or refuse new hires. And thus, the administration can say not only did they listen sympathetically and respond to small businesses’ concerns, but they also did the economy a favor by encouraging firms to retain jobs.

The individual mandate is still in place, however. Those who don’t have employer coverage- greater in number thanks to the delay in the employer mandate-will go to the exchanges, where they’ll probably get tax-payer-funded subsidies to buy insurance.

So now total subsidy costs have effectively increased. Spending even more tax dollars to bankroll insurance for lower-income individuals and families will come back to haunt the White House. What's more, the Congressional Budget Office had projected penalties of $5 billion would be paid by employers in 2014, offsetting the cost of subsidies. Now we don't have that either.

All is well

I predict subsidy outlays will become an easy political target in the next three years not just on behalf of taxpayers but also in relation to the federal deficit. Not to mention, some folks will pounce on any opportunity to point out the costly flaws of the reform law. But the administration is still confident all is well with implementation.

Via email, Baker & Hostetler employee benefits partner John McGowan tells me there is nothing in the U.S. Treasury’s statement that suggests the administration is pulling back from the individual mandate or from the implementation of public exchanges.

“Given that the Treasury Department alone made the announcement, it does not look like an attempt to float an idea, or signal the start of a general retreat from implementing the Affordable Care Act,” McGowan says.