The Obama administration recently announced it would delay the implementation of the employer penalty for a year, until 2015. This move is sure to please businesses that employ a large number of lower-wage employees who don’t receive comprehensive health insurance. But it’s also been met with other cries of dismay.
Some have declared the delay another bit of evidence that Obamacare is fatally flawed and that it should be repealed immediately. Others have declared that this delay bodes poorly for the individual mandate, which should not be attacked.
For the most part, these are all political posturing. The employer penalty, like the individual mandate, is just one small part of a very large law. It serves a specific purpose, and although Obamacare will not perform as efficiently without it, it will still function.
The employer penalty is complicated. The first thing to know is that it only applies to businesses with more than 50 full-time-equivalent employees. Any “small business” with 50 or fewer employees doesn’t have to provide insurance at all.
If you have more than 50 workers, you have to provide comprehensive insurance to your employees that covers a core set of benefits, and the premiums can’t cost workers more than 9.5 percent of their income. If you don’t, you pay a penalty of $2,000 for each full-time worker — your total of employees minus 30.
Alternatively, you can provide them with much less comprehensive plans that meet “minimum essential coverage.” But employees can refuse this coverage and instead go to an exchange in their state to obtain health insurance. If they do, businesses will pay a penalty of $3,000 for each employee who goes to an exchange and qualifies for a subsidy from the federal government.
These penalties can add up to millions for large employers. So companies are taking them seriously. But it’s important to put things in perspective. It’s likely that more than 95 percent of businesses are smaller than the 50-employee limit, so few need concern themselves with the penalty at all.
When all is said and done, the employer penalty will likely apply to about 10,000 companies out of about 6 million in the United States.
So why have an employer penalty at all? The simple reason is that it lowers the cost of Obamacare.
Helping people buy insurance is expensive. When people get their insurance in the exchange with a subsidy, it costs the federal government money. When they get their insurance at their job, it costs the federal government much less. So pushing the uninsured to their employers, through the penalty, lowers the cost of Obamacare overall.
Dr. Aaron E. Carroll is an associate professor of pediatrics at the Indiana University School of Medicine and the director of the university’s Center for Health Policy and Professionalism Research.
