July 4 (Bloomberg) -- While businesses hailed President Barack Obama’s decision to delay penalizing companies that fail to offer benefits under the health law, workers and states may struggle with the uncertain aftermath.
In postponing the mandate for a year, the president has lessened the need for employers to provide coverage or improve on skimpy benefits, and opened questions about who may be eligible for U.S. subsidies being offered in the online insurance exchanges now being created under the law. The government may also lose as much as $10 billion in revenue next year, the amount expected to be generated by employer penalties.
For employers, “this is relieving, temporarily, a burden,” said Joseph Antos, a health economist at the nonprofit American Enterprise Institute in Washington. “The usual question is, well, who is harmed?”
The administration, in a blog post July 2, said it would release guidelines next week that it hoped would clarify enforcement of the Affordable Care Act rule going forward.
The delay was welcomed by economists, who saw uncertainty over the law as a drag on hiring.
“I see this as a reason to take a pretty big sigh of relief for the near-term economic outlook,” said Stephen Stanley, chief economist at Stamford, Connecticut-based Pierpont Securities LLC. “There were a lot of firms that probably were just not doing anything because they had no clarity on what labor costs were going to be next year.”
Under the provision, companies with 50 or more workers face a fine of as much as $3,000 per employee if they don’t offer affordable insurance. The rule covers those working 30 hours a week or more. Valerie Jarrett, a senior Obama adviser, said in a blog post announcing the move that the administration decided on the delay so officials could simplify reporting requirements.
While surveys suggested the mandate wasn’t deterring most businesses, the administration has faced a steady stream of reports about employers limiting hours or holding off on hiring. Employees at Darden Restaurants Inc., owner of the Olive Garden and Red Lobster chains, who work fewer than 30 hours a week will be considered part time and won’t be offered insurance, Bob McAdam, the company’s senior vice president of government and community affairs, said in a phone interview. The company expects about 75 percent of its workforce to remain part time, he said.
The one-year postponement “could help boost payroll growth,” Maury Harris, a New York-based economist at UBS, said in a research note to clients. “For those employers on the cusp of the 50-employee threshold, this delay may prompt them to hire as they may be unwilling to continue to postpone hiring” to avoid offering benefits.
U.S. payrolls have been growing this year, with the economy adding 175,000 jobs in May and 149,000 in April, according to the Labor Department. The unemployment rate climbed 1/10th of a percentage point last month to 7.6 percent as more Americans entered the workforce. The government will report job growth for June on July 5.
Still, the delay may do little for hiring, said Amanda Austin, director of federal policy for the National Federation of Independent Business, a Washington trade group that calls itself “the voice of small business” in the U.S.
“Businesses like to plan for more than a year out,” she said in a telephone interview. “If they were looking at a plan to put in place for this, they will probably continue on with it. Just one year is not going to provide substantial relief.”
The downside could come for Americans lacking insurance coverage, said Rich Umbdenstock, president of the Chicago-based American Hospitals Association.
“The goal of the ACA was to extend coverage to the uninsured, which required a shared responsibility from all stakeholders,” he said in a statement. “We are concerned that the delay further erodes the coverage that was envisioned.”
Without the penalties, the U.S. government may lose as much as $10 billion in revenue next year, the amount expected to be generated according to congressional estimates.
The White House suggested the impact of the decision would be limited. Ninety-eight percent of workers in firms with 50 or more employees worked for a company that offered health coverage to at least some of its employees in 2012, according to the Kaiser Family Foundation’s Employer Health Benefits Survey.
In March, meanwhile, a survey of large employers found 84 percent said they were unlikely to cut part-timers’ hours to avoid the mandate, according to Towers Watson & Co., the New York-based benefits adviser that conducted the research. Small employers were a different matter: An April poll by Gallup found 41 percent said they had backed off on hiring due to the law and 18 percent said they would have to cut workers’ hours.
Other requirements for businesses will remain in effect, said J.D. Piro, leader of the health-law group at benefits consultant Aon Hewitt, in a telephone interview.
Companies still must offer insurance to their workers’ children until age 26, and they must pay a minimum of 60 percent of medical bills and provide preventive health services, including birth control, without cost-sharing by employees, Piro said. Those provisions carry $100 daily fines per violation.
The delay “only applies to the employer mandate,” Piro said. “It doesn’t apply to any other part of the act.”
The individual mandate, a linchpin of the law that requires most Americans to carry health insurance, also remains in effect. So, too, will the online insurance exchanges, which are expected to sell subsidized health plans to some 7 million people next year.
While the Obama administration said the exchanges were on track to open for enrollment at the law’s Oct. 1 deadline, the delay promises to complicate their operations, said Kevin Counihan, executive director of the state of Connecticut’s exchange, in a telephone interview.
Government subsidies for uninsured people who buy coverage through the exchanges are supposed to be available only for those not offered affordable health insurance on the job. The markets will now have to figure out how to verify eligibility without employers reporting their benefits, Counihan said.
The government could demand subsidies back from consumers when they file tax returns in 2015, although that might produce a political “horror show,” he said.
Counihan said he was waiting to see what the administration proposes in follow-up regulations.
“There’s going to clearly be confusion about this,” he said. “There’s going to be a percentage of the population that also thinks that the whole thing has been delayed by a year.”
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