Obamacare Going Off the Rails, And Taking Democrats’ Electoral Hopes With It

The Obamacare train wreck appears to be happening sooner than even its harshest critics anticipated. Yesterday, the Obama administration announced that it would delay a key portion of the health care law – the mandate that larger employers provide coverage for their workers – until 2015.

As drafted, the mandate requires companies with more than 50 full-time employees to offer health insurance plans to their employees that meet minimum cost and coverage or pay a substantial fine. From the beginning this provision was fraught with problems. Namely, it creates all sorts of bad incentives for employers.

For instance, since plans must meet affordability benchmarks, which are judged based on whether an employee is eligible for subsidies in the exchange, Obamacare discinentivizes employers from hiring people from low-income families. By targeting only at larger companies, the law also deters smaller businesses from growing beyond the 50-person limit, and encourages companies hovering just above that number to lay off employees. And by focusing on full-time employees, Obamacare creates an artificial inducement for employers to convert their workers to part-time employees. Not to mention the huge piles of costly paperwork and regulatory red tape that the bill heaps on businesses at a time when every dollar and every hour counts.

None of that is exactly the direction you want to go if you’re trying to generate more economic growth, spur hiring and raise wages. So in that sense, maybe it’s a good thing that the Obama Administration pulled back the reins in order to have the time to fix this debacle.

Sadly, the decision to delay the employer mandate seems about as well thought out as the provision itself. The move was announced in a blog post (no, really) by Mark Mazur, Assistant Secretary for Tax Policy at the Treasury Department – not exactly who you’d expect for the biggest Obamacare announcement since, well, the law was passed. And the reason given was quite odd. The Treasury claimed that they “heard concerns about the complexity of the requirements and the need for more time to implement them effectively.” But as economist Josh Barro writes for Business Insider, that’s an awkward rationale:

If the real reason for the delay is that Treasury couldn’t get its act together on the reporting requirements, that is very embarrassing for the Obama Administration. Unlike setting up health care exchanges and expanding Medicaid, Treasury’s administration of tax reporting requirements is a purely federal matter. Problems with it can’t be blamed on obstructionism Republicans.

Of course that’s likely nowhere close to the truth. The real reasons behind delaying the employer mandate are likely twofold.

First, a number of large businesses, especially restaurant chains, have been publicly voicing their displeasure with the law. At the time it was passed President Obama simply had to grin and bear it because the employer mandate, and its attendant penalty, made the bill’s bottom like look better. Now that the law has been officially passed, President Obama has much more wiggle room to reconfigure some of the law’s more politically unsavory parts without a concern for their impact on the deficit.

And let’s be clear – this move will cost taxpayers money. That’s because without a penalty, more employers will likely encourage their employees to seek coverage through the exchange, which means more people will receive government subsidies.

Second, this allows President Obama to largely delay the negative press that was going to come from a botched roll-out in a crucial election year. As we wrote earlier, businesses have already been clamoring for a delay because they don’t want to be forced into a huge paperwork burden or face hefty fines. Once the provision actually went into effect that clamoring could turn into an uproar, not exactly the spectacle you want to have if you’re facing an uphill election.

It also would not have looked good for the Administration to have recurring headlines about businesses laying off employees to get under the 50-employee cap, or news articles about companies slashing worker hours to get around the mandate. Better to not have to deal with that in an election year, so Obama was able to conveniently punt the problem until 2015 – just after the midterms.

That’s not to say the strategy, whatever its root cause, isn’t risky. After all, delaying a crucial provision gives credence to the argument that implementing Obamacare will be impossible and that the law will inevitably collapse on itself. It’s not definitive proof, but it sure looks like this bill is heading off the rails, and maybe taking Democrats’ electoral hopes with it.