In a startling move, the Obama administration delayed the employer mandate (for companies with 50 or more workers) to offer health insurance to workers or pay a penalty, until January 2015 (a one-year delay) while it reassesses employer reporting burdens and gives employers more time to arrange compliance with the health care reform statute and rules.
Mark Mazur, Assistant Treasury Secretary for tax policy, who posted the news as a blog entry on the evening of July 2, gave two reasons for delay:
First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law.
Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees.
Unworkable for Business
Business was accusing the administration of imposing unreasonable paperwork, recordkeeping and reporting demands on companies. Mazur alluded to this, saying:
Just like the Administration’s effort to turn the initial 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible about reporting requirements as we implement the law.
A similar example that rankled businesses was the summary of benefits and coverage, which initially required a substantial amount of detailed information to be fit on a too-small amount of space. The government took months to correct that problem as well.
Many observers saw that administration had taken on more than it could handle. Reform implementation was held up because of legal challenges, unforeseen complications, details that needed to be ironed out and opposition from various kinds of employers.
In Over Their Heads
“I was not surprised at all by the news. I have been saying for quite some time that there was no way this could be implemented on time. … I suppose the next issue is whether it will be delayed further. As things progress, you never know where a delay will lead,” says employee benefits lawyer Paul Hamburger, with Proskauer Rose in Washington, D.C.
“It seems pretty clear that they were over their heads in believing that all of this could have been implemented so fast,” attorney Adam Russo, president of the Phia Group in Braintree, Mass., tells the Guide.
Mazur said the administration would issue formal guidance describing the delay and transition.
In a White House blog post, senior adviser Valerie Jarrett wrote that the administration believed it needed to give employers “more time to comply with the new rules.”
Details and Open Questions
The delay raises questions about how the individual mandate will work without the employer mandate undergirding it. The individual mandate is still in effect. Some of those workers will be able to get insurance on exchanges, which are still slated to be up and running Oct. 1, selling coverage that takes effect Jan. 1, 2014.
The government has just added the requirement to attest whether or not they offer minimum essential coverage. Revision of this requirement will be on the table, Mazur noted:
[The reform law] includes information reporting (under section 6055) by insurers, self-insuring employers, and other parties that provide health coverage. It also requires information reporting (under section 6056) by certain employers with respect to the health coverage offered to their full-time employees. We expect to publish proposed rules implementing these provisions this summer, after a dialogue with stakeholders – including those responsible employers that already provide their full-time work force with coverage far exceeding the minimum employer shared responsibility requirements – in an effort to minimize the reporting, consistent with effective implementation of the law
Enforcement of the mandate, collection of penalties, and the pressing need for employers to calculate the number of covered workers will not begin for another year, Mazur wrote:
We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014. Accordingly, we are extending this transition relief to the employer shared responsibility payments. These payments will not apply for 2014. Any employer shared responsibility payments will not apply until 2015.
State-based health insurance exchanges where individuals can buy government-approved health coverage are still required to be up and running, but their operations could be hindered if they are unable to determine whether employers offer minimum essential coverage or not.
The delay puts another mid-term election in between now and employer implementation, which could turn into a potentially destabilizing referendum on health reform.
Reasons for the Delay
According to Hamburger, the government was trying to build — in an impossibly short time frame — a gigantic data collection and organization infrastructure for insurers and employers to report information about the affordability and value of coverage to covered individuals and the government.
“This information and the infrastructure needed to collect and coordinate are not easy to explain and build,” Hamburger tells the Guide.
Also impossible to build in the limited time frame was the structure for data interchange between employers (and insurers), state exchanges, government agencies (including the IRS) and individuals needed to properly enforce penalties, he says.
Legal challenges to the health care reform law (culminating but by no means ending with the June 2012 U.S. Supreme Court decision upholding the constitutionality of the statute) put its implementation in a holding pattern. “As long as there was a chance the Supreme Court would strike down the law, there was a delay in building the regulatory and infrastructure base,” he says.
In fact, true implementation didn’t even resume in earnest until President Obama was reelected in November 2012.
The Law Threatened to Backfire
Business reaction to the new mandate included proposals to move to part-time workforces, which would not only put those workers out of the reach of needing health insurance, it would harm them by lowering their earning power. Eliminating workers’ full-time status affected wages and benefits, not just health coverage.
Hamburger says: “There were many stories circulating about employers contemplating ‘workforce realignment’ or workforce restructuring. That meant that employers were thinking about firing people to stay under the 50 full-time employee threshold or reducing employee hours to below 30 hours a week to avoid penalties. This was a significant area of concern to regulators and policymakers.”
Note: The U.S. House of Representatives is presently considering legislative proposals to change the definition of full-time employee (from 30 under reform) to 40 or more hours a week, to mitigate employer desires to modify work schedules. This would further destabilize health care reform, as it would change the calculation method for penalties and lives that must be covered by employers.
“Legislative action might lead to significant changes as Congress has a chance to look closely at the impending health care reform implementation in 2015. Now that employers have had a taste of what will come when the pay-or-play mandate is fully implemented, they might put more pressure on Congress and the administration to modify the rules significantly,” Hamburger says.
The federal rules could hardly interface well with the huge variety of companies in the U.S. economy, he adds. “Employment patterns vary among industries and geographic locales,” he notes. “Also, employment practices have developed over decades in this country without such a regulatory scheme and it is not easy to turn those practices over based on incomplete proposed regulations that do not come close to answering so many key questions.”
Implications for Employers
Employers will enjoy reduced pressure to develop systems to track full-time employees based on complex rules. That will save a lot of aggravation and money, Russo says.
Most large employers (with 50 or more workers) already provide to full-time employees the kind of coverage that would comply with the employer mandate, he adds.
James A. Klein, president of the American Benefits Council, said in a statement that the delay “provides vital breathing room to implement the law in a more thoughtful and administrable way. … Major employers have led the way in providing coverage to their workers and are expending great resources to ensure compliance with the new law.” He said ABC would continue to work with the Obama administration to mitigate burdens and costs of health reform implementation.
Reform Has Still Left Its Mark
Employers are still required to comply with reform’s insurance mandates, including: (1) coverage for dependent children up to age 26; (2) no exclusions for preexisting conditions; (3) no annual or lifetime limits on payments; and (4) coverage with no cost-sharing for preventive services.
The requirements to prepare and distribute SBCs and notices of the availability of exchanges remain, as do penalties failing to comply with them.
The bottom line is that the delay is welcome relief to employers struggling to get a handle on the new rules and how they will impact their businesses. At the same time, it builds some uncertainty on its long-term impact on health care reform implementation.