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Surprise delay in Obamacare will be costly

  • McClatchy Washington Bureau
  • Published Wednesday, July 3, 2013, at 7:07 p.m.
  • Updated Monday, July 29, 2013, at 5:12 a.m.

— One day after the Obama administration delayed the Affordable Care Act’s employer mandate until 2015, critics and supporters of the legislation were hotly debating the cost and effects of the surprise move, while business owners breathed a sigh of relief.

The law required companies with more than 50 full-time employees to provide health coverage in 2014 or face fines of $2,000 per worker. By giving business owners like Zach Davis of Santa Cruz, Calif., an extra year to ponder their next moves, employers may be more comfortable that they’re making an informed decision rather than taking a chance on legislation that is still unfolding more than three years after its passage.

Although Davis’ restaurant and ice cream shop isn’t subject to the mandate because most of his employees work part time, he had been considering expanding his employee coverage through the new health insurance exchanges that are scheduled to come online in October.

“If I had all the information about what the exchanges would do for us in front of me right now, that would be great and I would probably be prepared, as we move toward our (health plan) renewal date, to take that into account,” Davis said. “But given that we might not get that (health plan cost) information until August or September, it makes the window pretty small and it definitely increases the likelihood that we’ll just renew with what we have, see how things shake out with the exchanges and then be in a position to make a really good decision come the end of 2014.”

While Beltway lawmakers and stakeholders were surprised by the decision to postpone enforcement of the employer mandate, Davis, 37, said he was not caught by surprise.

“At this point, with so many things still up the air this late in the game, it doesn’t shock me that something had to be delayed,” he said. “I wanted to believe it could be done in the timetable that was initially laid out because I do think, on balance, it’s a program that would be good for this country. But I also understand it’s a pretty complex, pretty monumental initiative to put in place.”

The delay is the second this year to significantly affect the rollout of the Affordable Care Act. In the spring, the Obama administration said small businesses that want to offer employee coverage through the exchanges will only be able to select one plan in the 34 states where the marketplaces are run by the federal government.

Tuesday’s delay will be costly.

The Congressional Budget Office estimates the federal government will lose $10 billion in employer penalties in 2015 because of the delayed enforcement. Likewise, many expect that federal outlays to help low- and moderate-income people purchase coverage will grow with employers no longer required to provide coverage next year.

“At a minimum, the federal revenue from fines is gone. More realistically, the costs of already bloated insurance subsidies will escalate and the red ink will rise,” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank.

Jon Gruber, an MIT economist who helped design the federal health law, said the decision to forego the $10 billion in penalties was both pragmatic and political.

“Basically, it was their judgment that it was causing too many logistical and political headaches and it wasn’t that essential to the law, so they decided to just delay it a year and live with the revenue loss,” Gruber said Wednesday.

Obama officials said as much on Tuesday, when they announced plans to “revamp and simplify” the process of reporting the status of employee coverage and calculating appropriate penalties. “We will convene employers, insurers and experts to propose a smarter system and, in the interim, suspend reporting for 2014,” said White House special adviser Valerie Jarrett.

But Roger Feldman, the Blue Cross professor in health insurance at the University of Minnesota, disagrees.

“The regulations were quite complicated and it certainly was difficult to calculate the number of full-time employees and how employers were going to be penalized, but I don’t see that as the real reason. I see this as just caving in to a demand from industry,” Feldman said of the move. “I think the computer problems are just a way to explain it. The real reason is you got strong pushback.”

The result, Feldman predicted, will be fewer employers offering coverage, more federal funding to help people get coverage through the exchanges, and more people without coverage. “This is counterproductive,” Feldman said.

Gruber of MIT said he doesn’t expect the move to spur a huge bump in federal spending for premium subsidies, which will go to working-class people who buy coverage on the exchanges. Nor does he expect large numbers of employers to drop employee coverage during the one-year amnesty.

“I just don’t think it’s going to have a huge effect on employer behavior. It just means they’re not going to raise as much money,” Gruber said

On Wednesday, Rich Umbdenstock, president of the American Hospital Association, called the delay “troubling” for people who will lose employer coverage because of the delay.

“We are concerned that the delay further erodes the coverage that was envisioned as part of the ACA,” Umbdenstock said in a statement. Because the mandate won’t be enforced, he called on the Obama administration to issue a two-year delay on funding cuts to hospitals that serve high numbers of uninsured people.

But Judy Solomon, of the left-leaning Center on Budget and Policy Priorities, said the delay shouldn’t severely impact coverage because the people it causes to lose job-based care will still be eligible for subsidies to help buy coverage in the exchanges.

“The goal of health reform is to provide coverage for all Americans – whether through Medicaid, private plans in the marketplace, or employer coverage. Nothing in yesterday’s announcement puts a roadblock in these pathways,” Solomon said.

The delay came as good news for Grady Payne, CEO of Conner Industries in Fort Worth, Texas. Conner employs about 550 people making wooden crates and packing materials. Payne had been working on three health care benefit options to meet the law’s mandates.

“The law is so complex, we still don’t know exactly what all this will cost and what coverage the company will offer,” said Payne, who currently provides health benefits to about 100 administrative workers. He said it has been difficult to receive firm quotes from health insurers because there are so many unknowns, like how many of his now-uncovered workers will opt for coverage.

“They’re not going to pay the $30 a week or so that would represent their share of the premium payments on a policy that has a sizable deductible before coverage kicks in,” Payne said. Especially when they know federal law requires a hospital to treat them if they have a serious accident.

Payne sounded a familiar Republican narrative in summarizing his feelings about the ACA: “I’d like to see it repealed,” he said.

Jim Fuquay of the Fort Worth Star-Telegram contributed.

Email: tpugh@mcclatchydc.com

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