Skip to main content

Obamacare penalty delay no big deal

By Aaron Carroll, Special to CNN
July 7, 2013 -- Updated 2015 GMT (0415 HKT)
Obamacare will not perform as efficiently without the employer penalty, Aaron Carroll says, but it will still function.
Obamacare will not perform as efficiently without the employer penalty, Aaron Carroll says, but it will still function.
STORY HIGHLIGHTS
  • Employer penalty for not providing full health care delayed for a year, till 2015.
  • Aaron Carroll: Outcry oversized since penalty applies only to companies with 50-plus workers
  • Employer penalty will likely apply to about 10,000 companies out of about 6 million, he says
  • Carroll: It's all political theater -- Obamacare would hurt without penalty, but it would function

Editor's note: 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. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll.

(CNN) -- Few laws can drive political discourse and posturing like the Affordable Care Act, otherwise known as Obamacare. The individual mandate was one of its most contentious aspects. Today, though, it's another mandate -- the employer penalty -- that is garnering headlines.

The Obama administration 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.

Aaron Carroll
Aaron Carroll

Some have declared the delay another bit of evidence that Obamacare is fatally flawed and that it should be repealed immediately.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. And still more have taken it as a larger indication of the state of the administration, that it spells doom for immigration overhaul, that it's a sign of a tyrannical administration, or that it's just one more illustration of incompetence in getting Obamacare off the ground.

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% 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.

Obamacare requirement delayed
Free breast pumps under Obamacare

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% of businesses are smaller than the 50-employee limit, so few need concern themselves with the penalty at all.

Moreover, of the 4% of employers who are large enough to have the penalty affect them, about 95% already offer coverage. 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. Those companies employ about 1% of American workers. But the penalty will still be real to these companies. They will be thrilled to see it delayed, and they will certainly fight to see it pushed back even further, or repealed.

Any 'small business' with 50 or fewer employees doesn't have to provide insurance at all.
Aaron Carroll

There are some reasons to cheer them on. The employer penalty, as designed, has a lot of flaws. It encourages employers to push people into part-time jobs to have fewer full-time employees to count. It also is an incentive to get people to hire more well-off employees as opposed to poorer employees, because they can't get subsidies in the exchanges and won't incur a penalty for the employer if insurance isn't offered.

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.

If we get rid of the employer penalty, the likely effect is that the number of uninsured will not drop as much, and the cost of the law will go up. It's really that simple. Supporters of the law don't like the former, and opponents don't like the latter. So everyone will have something about which to complain. But still, the law will function, albeit less efficiently.

These (criticisms) are all political posturing. The employer penalty, like the individual mandate, is just one small part of a very large law.
Aaron Carroll

As for me, I've never had a huge problem with the employer penalty. For better or for worse, we have an employer-based insurance system in the United States. The majority of people living here get their insurance through a job. Partly that's historical, because of wage freezes in World War II, and partly that's because the tax deduction for employer-sponsored insurance makes it all the more enticing to get insurance instead of wage increases. So if we want to continue this type of system, it makes sense to have employers either provide insurance to their workers or pay some sort of tax, or penalty, to help the government do it for them.

That doesn't mean there aren't better ways to do this. First of all, we could uncouple insurance from jobs entirely. There's really no good reason to have the system function this way. Past proposals, such as the Wyden-Bennett plan, would reduce employer-based insurance substantially. Sen. John McCain proposed eliminating the employer-sponsored insurance deduction in his 2008 presidential campaign. Even a single-payer plan, such as Medicare for all, would accomplish this task.

Short of that, if you want to keep this system intact, other mechanisms such as an overall payroll tax instead of this employer penalty would have removed the various bad incentives to favor wealthy or part-time employees. It's a fixable problem.

But fixing it would require a functioning government. It would need Congress to pass a bill replacing or eliminating the employer mandate, and then the president to sign it. That's not going to happen.

Opponents of Obamacare don't appear eager to fix the law in ways that would make it less unpopular or repeal less likely. Supporters don't appear eager to spend political capital to tinker with a law that cost them so much to pass in the first place. So we'll get administrative fixes such as this one, which wind up pleasing few, other than those who enjoy political theater.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions in this commentary are solely those of Aaron Carroll.

ADVERTISEMENT
Part of complete coverage on
October 22, 2014 -- Updated 2101 GMT (0501 HKT)
Paul Callan says the grand jury is the right process to use to decide if charges should be brought against the police officer
October 23, 2014 -- Updated 1619 GMT (0019 HKT)
Theresa Brown says the Ebola crisis brought nurses into the national conversation on health care. They need to stay there.
October 21, 2014 -- Updated 2235 GMT (0635 HKT)
Patrick Hornbeck says don't buy the hype: The arguments the Vatican used in its interim report would have virtually guaranteed that same-sex couples remained second class citizens
October 24, 2014 -- Updated 1336 GMT (2136 HKT)
Paul Begala says Iowa's U.S. Senate candidate, Joni Ernst, told NRA she has right to use gun to defend herself--even from the government. But shooting at officials is not what the Founders had in mind
October 23, 2014 -- Updated 2208 GMT (0608 HKT)
John Sutter: Why are we so surprised the head of a major international corporation learned another language?
October 23, 2014 -- Updated 2154 GMT (0554 HKT)
Jason Johnson says Ferguson isn't a downtrodden community rising up against the white oppressor, but it is looking for justice
October 24, 2014 -- Updated 1621 GMT (0021 HKT)
Sally Kohn says a video of little girls dressed as princesses using the F-word very loudly to condemn sexism is provocative. But is it exploitative?
October 21, 2014 -- Updated 2006 GMT (0406 HKT)
Timothy Stanley says Lewinsky is shamelessly playing the victim in her affair with Bill Clinton, humiliating Hillary Clinton again and aiding her critics
October 23, 2014 -- Updated 1414 GMT (2214 HKT)
Imagine being rescued from modern slavery, only to be charged with a crime, writes John Sutter
October 21, 2014 -- Updated 1600 GMT (0000 HKT)
Tidal flooding used to be a relatively rare occurrence along the East Coast. Not anymore, write Melanie Fitzpatrick and Erika Spanger-Siegfried.
October 21, 2014 -- Updated 1135 GMT (1935 HKT)
Carol Costello says activists, writers, politicians have begun discussing their abortions. But will that new approach make a difference on an old battleground?
October 21, 2014 -- Updated 1312 GMT (2112 HKT)
Sigrid Fry-Revere says the National Organ Transplant Act has caused more Americans to die waiting for an organ than died in both World Wars, Korea, Vietnam, Afghanistan and Iraq
October 21, 2014 -- Updated 1851 GMT (0251 HKT)
Crystal Wright says racist remarks like those made by black Republican actress Stacey Dash do nothing to get blacks to join the GOP
October 21, 2014 -- Updated 2207 GMT (0607 HKT)
Mel Robbins says by telling her story, Monica Lewinsky offers a lesson in confronting humiliating mistakes while keeping her head held high
October 20, 2014 -- Updated 1329 GMT (2129 HKT)
Cornell Belcher says the story of the "tea party wave" in 2010 was bogus; it was an election determined by ebbing Democratic turnout
October 20, 2014 -- Updated 2012 GMT (0412 HKT)
Les Abend says pilots want protocols, preparation and checklists for all contingencies; at the moment, controlling a deadly disease is out of their comfort zone
October 20, 2014 -- Updated 0336 GMT (1136 HKT)
David Weinberger says an online controversy that snowballed from a misogynist attack by gamers into a culture war is a preview of the way news is handled in a world of hashtag-fueled scandal
October 20, 2014 -- Updated 1223 GMT (2023 HKT)
Julian Zelizer says Paul Krugman makes some good points in his defense of President Obama but is premature in calling him one of the most successful presidents.
October 20, 2014 -- Updated 0221 GMT (1021 HKT)
Conservatives can't bash and slash government and then suddenly act surprised if government isn't there when we need it, writes Sally Kohn
October 22, 2014 -- Updated 1205 GMT (2005 HKT)
ISIS is looking to take over a good chunk of the Middle East -- if not the entire Muslim world, write Peter Bergen and Emily Schneider.
October 20, 2014 -- Updated 1300 GMT (2100 HKT)
The world's response to Ebola is its own sort of tragedy, writes John Sutter
October 17, 2014 -- Updated 2033 GMT (0433 HKT)
Hidden away in Russian orphanages are thousands of children with disabilities who aren't orphans, whose harmful treatment has long been hidden from public view, writes Andrea Mazzarino
October 18, 2014 -- Updated 1722 GMT (0122 HKT)
When you hear "trick or treat" this year, think "nudge," writes John Bare
October 18, 2014 -- Updated 0442 GMT (1242 HKT)
The more than 200 kidnapped Nigerian schoolgirls have become pawns in a larger drama, writes Richard Joseph.
October 17, 2014 -- Updated 1345 GMT (2145 HKT)
Peggy Drexler said Amal Alamuddin was accused of buying into the patriarchy when she changed her name to Clooney. But that was her choice.
October 16, 2014 -- Updated 2043 GMT (0443 HKT)
Ford Vox says the CDC's Thomas Frieden is a good man with a stellar resume who has shown he lacks the unique talents and vision needed to confront the Ebola crisis
October 18, 2014 -- Updated 0858 GMT (1658 HKT)
How can such a numerically small force as ISIS take control of vast swathes of Syria and Iraq?
October 17, 2014 -- Updated 1342 GMT (2142 HKT)
How big a threat do foreign fighters in Syria and Iraq pose to the West? It's a question that has been much on the mind of policymakers and commentators.
October 17, 2014 -- Updated 1221 GMT (2021 HKT)
More than a quarter-million American women served honorably in the Iraq and Afghanistan wars. Now they are home, we have an obligation to help them transition back to civilian life.
October 16, 2014 -- Updated 2027 GMT (0427 HKT)
Paul Begala says Rick Scott's deeply weird refusal to begin a debate because rival Charlie Crist had a fan under his podium spells disaster for the Florida governor--delighting Crist
October 16, 2014 -- Updated 0407 GMT (1207 HKT)
The longer we wait to engage on Ebola, the more limited our options will become, says Marco Rubio.
October 15, 2014 -- Updated 1153 GMT (1953 HKT)
Democratic candidates who run from President Obama in red states where he is unpopular are making a big mistake, says Donna Brazile
October 16, 2014 -- Updated 0429 GMT (1229 HKT)
At some 7 billion people, the world can sometimes seem like a crowded place. But if the latest estimates are to be believed, then in less than a century it is going to feel even more so -- about 50% more crowded, says Evan Fraser
October 20, 2014 -- Updated 1653 GMT (0053 HKT)
Paul Callan says the Ebola situation is pointing up the need for better leadership
October 15, 2014 -- Updated 2245 GMT (0645 HKT)
Nurses are the unsung heroes of the Ebola outbreak. Yet, there are troubling signs we're failing them, says John Sutter
October 15, 2014 -- Updated 1700 GMT (0100 HKT)
Dean Obeidallah says it's a mistake to give up a business name you've invested energy in, just because of a new terrorist group
October 15, 2014 -- Updated 2301 GMT (0701 HKT)
Fear of Ebola is contagious, writes Mel Robbins; but it's time to put the disease in perspective
October 14, 2014 -- Updated 1744 GMT (0144 HKT)
Oliver Kershaw says that if Big Tobacco is given monopoly of e-cigarette products, public health will suffer.
October 18, 2014 -- Updated 1335 GMT (2135 HKT)
Stop thinking your job will make you happy.
October 15, 2014 -- Updated 0208 GMT (1008 HKT)
Ruben Navarrette says it's time to deal with another scandal involving the Secret Service — one that leads directly into the White House.
October 14, 2014 -- Updated 1125 GMT (1925 HKT)
Americans who choose to fight for militant groups or support them are young and likely to be active in jihadist social media, says Peter Bergen
October 13, 2014 -- Updated 1303 GMT (2103 HKT)
Stephanie Coontz says 11 years ago only one state allowed same sex marriage. Soon, some 60% of Americans will live where gays can marry. How did attitudes change so quickly?
October 14, 2014 -- Updated 2004 GMT (0404 HKT)
Legalizing assisted suicide seems acceptable when focusing on individuals. But such laws would put many at risk of immense harm, writes Marilyn Golden.
October 13, 2014 -- Updated 1307 GMT (2107 HKT)
Julian Zelizer says the issues are huge, but both parties are wrestling with problems that alienate voters
October 13, 2014 -- Updated 2250 GMT (0650 HKT)
Mel Robbins says the town's school chief was right to cancel the season, but that's just the beginning of what needs to be done
October 11, 2014 -- Updated 1543 GMT (2343 HKT)
He didn't discover that the world was round, David Perry writes. So what did he do?
ADVERTISEMENT