Healthcare Reform Mandate Delay: History Repeating Itself

July 14, 2013

So one key provision of the Affordable Care Act - large-employer provided health insurance - is delayed. But the true answer to why can be found 200 years ago.

The Obama administration announced July 3, 2013, that it is giving large employers another year before it will try to enforce an Affordable Care Act (ACA) provision requiring large employers to offer medical coverage to their workers or pay a fine.

The large-employer mandate is intended to force larger employers to do their part to reduce the number of uninsured Americans. The individual mandate is designed to force individuals who have some ability to pay, to pay what they can, with the balance being picked up by the federally subsidized health insurance marketplace. The Society for Human Resource Management provides a nice detailed explanation of the employer mandate.

The large-employer mandate ignores the financial reality that any large employer (who also owns a calculator) can figure out that it is actually cheaper to forego coverage and pay the $2,000 fine, than to offer health insurance to all full-time workers (defined as 30 or more hours per week). It is anticipated that the employer mandate will backfire, and will additionally burden the federal government, which likely must pay the difference between the fine and the actual cost of all these newly uninsured employees who would be added to the roles of Medicaid, or driven to the subsidized health insurance exchange/marketplace.

Understand too, that the idea of employer-provided coverage came into full vogue during WWII, when there were no workers to be found (the men, and women, were all fighting and serving overseas). In order to deter "wage inflation," (more war dollars chasing fewer workers naturally leads to "wage inflation") the government imposed "wage freezes," but exempted a certain percentage of wages being paid in fringe benefits, such as healthcare. Today, we have the opposite problem. There are too many workers chasing too few jobs. This leads to wage and benefit "deflation." Employers, particularly employers of low-skilled workers, do not need offer benefits to find workers.

The official version of why the rollout of the employer mandate has been delayed was described as "employers needed more time." Perhaps the real reason has a bit more history behind it.

Nearly 200 years ago, on August 24, 1814, British troops sailed up the Potomac and set fire to the White House. In school we were taught that this, perhaps the worst of all national embarrassments, was unavoidable (and at least we won the war.) In the 2012 book, "White House Burning, The Founding Fathers, Our National Debt, and Why it Matters to You," authors Simon Johnson and James Kwak offer a different perspective. In 1812, Congress voted to do something very expensive, then went home; where members quickly learned that if they tried to use taxes to pay for the war effort, they certainly would not be returning to Congress the following term. Washington was left virtually undefended; because we didn’t raise enough money to provide a defense - and we got burned.

Johnson and Kwak observe our highly polarized political system is on the course set by the 1812 Congress: higher spending without higher taxes. Although the American people in 1812 got the message the British delivered, and raised taxes in 1813 and 1814, today, we have no such messenger. 

Raising taxes to cover the costs of Medicare and Medicaid is frustrated by the fact that many voters do not understand what the federal government actually does. According to a 2008 survey, 44 percent of people who receive Social Security retirement benefits say they "have not used a government program." The figure is 40 percent for Medicare recipients, and 43 percent of those receiving unemployment benefits. People who do not realize they benefit from the government’s largess, naturally think the government is too big, theirtaxes should be lower, spending should be lower, but unsurprisingly feel their favorable programs should not be touched. Anyone not following this clearly understandable, albeit illogical voter mandate will be punished at election time.

Thus, in passing Obamacare, Congress and the president tried to "slip one past us" (and the Supreme Court called them on it). The individual mandate, (and the employer mandate by extension) is a really a "tax." The delay in the employer mandate buys Democrats at least one more election term to think of something more clever - and they likely will.