Obamacare Mandate Delay Adds to Confusion

Posted by Jake Richardson on Jul 23, 2013 3:47:00 PM

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It's well known by now that the Obama Administration has delayed by one year the necessity of most businesses to comply with the The Affordable Care Act. However, it is not entirely clear why the White  House is giving more time.  

Big questions remain: 1) why the delay? and 2) why so sudden?

One can argue the delay was politically motivated. The rules were creating quite a backlash, at first in the small business community, and later the blogosphere, where the issue has taken on a life of its own. Now, mainstream media outlets like CNN are reporting that small business owners are responding to the mandate in creative ways, like radically altering employee schedules to avoid compliance with the new rules.

Fast Food Tactics

One fast food chain, Fat Burger, reportedly has started reducing employee hours below the threshold of thirty hours, so they cannot be defined as full-time employees. This strategy completely sidesteps the dilemma that so many employers find themselves in: pay for more expensive health insurance benefits or face a government penalty. This, of course, is an old tactic, and fast food chains are hardly in the healthcare business, so it is not surprising that they would reduce their full-time employee headcount to avoid the new rules. But there are newer more advanced methods, such as assigning employees to work at different locations. In this case, each location is considered a separate workplace. We'll see if that one holds up.

Other reports suggest avoidance of the rules is becoming a trend, "Many companies at the International Franchise Expo in New York City last month acknowledged they've been adopting that slash-and-share method, cutting hours and splitting workers." (Source: CNN)

Chicago Tribune icolumnist Dennis Byrne has written recently what some of these employers are probably hoping fervently - cutting these new requirements altogether. He argues the delay was not well-intentioned, but rather was bourne out of the administration's fear that the law of unintended consequences was becoming quite real for Obamacare. As small business owners dramatically shift employees off their full-time payrolls, the mandate to get universal insurance coverage is leading to employees losing their coverage. Clearly, this is the opposite of what they want.

"The Treasury Department's inspector general reported in March that the administration hadn't come close to smoothly implementing the 40 provisions that were added to the tax code —  that largest set of tax law changes in more than 20 years — that would help generate the
$438 billion needed to help pay for health care reform." (Source: Chicago Tribune)

For now, about 10,000 of the country's 5.7 million firms are expected to have to deal with the mandate. Though a small percentage, in practical terms it still frustrates and angers  employers. While some on the political left might dismiss this resistance as knee-jerk partisanship that is anti-anything-coming-out-of the Obama Administration. However, the reality is more dollars and cents, that years of recession have been real and the bottom line matters to employers more now than ever. As in many government mandates, historically, which stakeholders will bear the cost of change is often unclear at first. Forced bussing is a good example. Rather than the U.S. government providing more resources to poor schools to help disadvantaged minority students, a mandate was created to "desegregate" schools. Elaborate bussing schemes were develped, court cases ensued, horrendous protests and there were a few success stories here and there after thirty years. The true cost of the mandate fell on middle class homeowners, and white and minority children riding the bus for hours more per week. The families affected had few choices:  stay or flee. White flight from inner city neighborhoods became common and radically changed the face of many major cities and suburbs.

In this case, employers are not fleeing. They generally have locally-based businesses and have no where to go.  This is after all a federal mandate. Their reaction as business people, to figure out how to comply with the law in cheapest way, might lead to a bad outcome: the true cost of this policy is absorbed by the workers the law was meant to help. 

Mandate is Complex, Misunderstood

Obamacare is perhaps more complex than anyone realizes. As a mandate, it requires enforcement using taxing authorities, federal and state agencies, medical care providers, and insurance companies. It was conceived in a political environment.  It will be implemented in a political environment. Imagine if a universal auto insurance mandate was implemented this way. If you did not get insurance for your car the IRS would fine you. Or, maybe as you reached a certain age, the government would start picking up the tab for your car insurance. If you had multiple speeding tickets a year or multiple DUI's you could not be denied insurance. And there you have it! Yet another attempt at an analogy to universal health care that doesn't work. The truth is, there's nothing that works quite like health coverage as an economic good. The thinking and arguments on all sides never quite add up in a common sensical way. You have by all accounts a brilliant jurist, Antonin Scalia, saying we cannot be mandated to eat brocolli in this country. There are other policy experts saying the healthy should subsidize the unhealthy. Yet others, who won't step up and say in a loud voice, but really are thinking: small businesses should be patriotic, step up and do what they have not had to do before. It's a lot of noise and little clarity. It will twist and turn its way through toward some unpredictable outcome for years to come.

One thing is certain. Ordinary folks cannot sustain another 25 years like the last 25 years of health care inflation. Some forecasts say at this rate two thirds of our GDP will be dedicated to health care provision and consumption. Obviously, the cost of our current health care delivery is unsustainable. The number of middle class adults and children falling out of the system every year is too high. We have to do something to right the ship. We just don't quite know if Obamacare will work, half work, or be a bust. And if it doesn't work at all, we don't know what to put in its place. 

We will continue to cover issues of employer health care, Obamacare, what's happening, and what's likely to happen.  Stay tuned.

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