Obamacare Business Mandate Delay Shows Fundamental Problem with the Law

July 3, 2013

In an earlier blog post, I argued that it is a stretch to assume the negative effects of Obamacare wouldn’t be so bad for businesses, jobs, premiums, etc. To believe this you must make the strong assumption that the complex set of incentives created by all the taxes, fees, mandates, and regulations will line up perfectly and work exactly as planned. Instead, it is far more likely that we will see overall negative effects throughout the economy due to all the perverse incentive structures and implementation issues that are arising in this law.

This week, it has become clearer that this law will not operate in the way that supporters hoped.

The Treasury announced that it would be delaying the Obamacare employer mandate for a full year. Originally, the law stated that starting in 2014 employers with more than 50 full-time employees would be required to provide adequate health insurance coverage. Otherwise, they would be faced with a $2,000 to $3,000 penalty. In order for a company to report whether they are meeting the requirements they need to fill-out a 21 page application, which businesses have called overly burdensome.

There were obvious problems with having a strict 50 full-time employee cut off. As a business, that 50th full-time worker is much more expensive than the 49th. You would likely see a discontinuity in employment patterns among employers around that 50 employee cutoff. Businesses won’t have an incentive to expand or hire. An incentive structure you don’t want to have in major public policy, especially in a time of high unemployment.

Whether this mandate was suspended due to public pressure, implementation problems, or a stealth way of fixing to a policy mistake before the midterm election, it doesn’t really matter. This action illustrates a serious problem with Obamacare. The success of the program rides on the precise implementation of a complex collection of taxes, fees, mandates, and regulations. When another piece of the law falls apart due to politics or poor implementation it just shows how fragile such a large piece of public policy is. As time goes on and more parts of it fail or get repealed it will become less reasonable to assume that the law will show us all these positive outcomes it promised.

More on the taxes and fees in Obamacare here, here, here and here.

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