Orszag: Delaying employer insurance mandate was the right call

Clamps, scissors and other surgical instruments are seen

Clamps, scissors and other surgical instruments are seen in the operating room during a kidney transplant at Johns Hopkins Hospital in Baltimore, Maryland. (June 26, 2012) (Credit: Getty Images)

The Obama administration should be commended for delaying implementation of the employer mandate under the Affordable Care Act. The delay won't do much damage -- other than perhaps symbolically -- to the effort to expand insurance coverage, and it allows the administration to focus on more pressing issues in carrying out the law.

The delay was front-page news across the country. But what are the actual effects? The mandate requires companies with 50 or more employees to provide health insurance or to pay a $2,000 to $3,000 penalty for each worker who gets subsidized individual coverage through the public exchanges created by the legislation. The administration's announcement means that no company will face this penalty until 2015.

The penalty is far from perfect. At the margin, for example, it has the effect of discouraging employment of low- and moderate-wage workers -- the ones who could get subsidized coverage through the exchanges -- relative to high-wage workers. But what impact will delaying it by one year have on coverage? The effects can be assessed for two types of companies: those that currently lack coverage, which would face the penalty unless they created a plan, and those that currently offer insurance, which would face the penalty if they dropped their plan.


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Any impact from the penalty is much more likely to be in the second category, for the simple reason that the vast majority of companies covered by the mandate already offer insurance, as Mark Duggan of the University of Pennsylvania has highlighted.

It's possible that delaying the penalty will cause some companies to drop their plans in 2014 even if they would have maintained those plans in the face of the penalty, but I highly doubt it. First, many if not most companies have already made their insurance decisions for next year; it's unlikely that they will change their plans. Second, how many companies that would have maintained their plan under the penalty would be willing to drop that plan when the penalty will be effective in 2015? That type of short-term decision-making doesn't find favor with many human-resources directors.

By the way, the effect of the penalty on whether companies ultimately drop their plans and force their workers onto the public exchanges is an important question -- but a one-year delay is unlikely to be a major influence on those decisions. Most of the analyses of this question seem off to me because they don't take adequate account of the domino effect: If some iconic companies drop their plans, a lot of others may follow; if the iconic companies retain their plans, employer dropping may be much more modest.

The irony in the employer mandate delay is that when the legislation was passed, most of the commentary was that it did a lot to address coverage but very little to contain costs. Since then, the news on cost has been much better than expected.

Medicare costs rose only 3.3 percent in nominal terms last fiscal year, and 4 million Medicare beneficiaries are enrolled this year in accountable care organizations, the groups of hospitals, doctors and other providers that coordinate to make treatment more efficient. At the same time, the coverage effort has met understandable but nonetheless real challenges -- as the delay in the employer mandate illustrates.

All of which brings me back to the administration's decision. Given the major challenges associated with getting the exchanges up and running, the anxiety that the employer mandate was creating in the business community, and the minimal harm from a delay itself, the administration was wise to postpone the mandate for a year -- but only if it now redoubles its focus on successful implementation of the exchanges, which are absolutely crucial to the coverage effort. That would also help the administration avoid the real risk that the delay is perceived as the beginning of an unraveling of all the steps needed to carry out the law.

Peter Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration.

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