Until yesterday, the administration had basically put on a brave face about the difficulties arising in its implementation of Obamacare. With a few minor exceptions (now especially notable among them the one-year delay of key requirements for the new small-business exchanges), they have pretended everything was fine, and have enabled a chorus of defenders on the left to do the same. Last night’s announcement of a one-year delay in the implementation of the employer mandate is the first serious indication that the administration sees that the wheels are coming off the bus, and is very worried about it.
Attempts to downplay the significance of this decision fail, I think, to reckon with how very difficult and embarrassing it must have been for the administration. You don’t announce something like this just before the start of a long holiday weekend while Congress is out of town if you’ve got a good case to make for yourself. The administration presumably intended to announce the decision after business hours tonight, not last night, but the news leaked to two Bloomberg reporters and they had to scramble some. The formal announcement came through a “Treasury Note,” essentially a blog post by the Assistant Secretary for Tax Policy at Treasury, which had the hilariously Orwellian title of “Continuing to Implement the ACA in a Careful, Thoughtful Manner.” The post mostly discussed the administration’s decision to delay employer reporting requirements for a year (and more on that below), and toward the end noted in passing that this also meant the employer mandate would be delayed. That’s a very odd way to break news like this. It seems clearly to be a move the administration did not want to make.
This would have been a very tough decision to come to for several reasons. Not least of them is that, as I say, it is the first major acknowledgement of a serious problem implementing this law, and it is a problem with an element of the law that is by no means the most difficult to implement. If they’re actually telling the truth that they can’t handle getting employer reporting requirements into place, how are they doing getting the exchange system into place? But perhaps more troubling for the law’s defenders, this decision is even more likely an acknowledgement of some of the economic irrationality of the law. I doubt that just implementing reporting requirements is the issue here. More likely, the administration agrees with some of its critics who have argued that this element of the law would hurt the economy, and especially employment. And they probably also saw that the pressure from employers to avoid both the reporting requirements and the mandate was going to create huge problems for their PR effort in the fall. That would make this decision a little easier to understand, but there must be more to it to explain the enormous costs and risks they’re taking by doing this.
For one thing, they run the risk of badly dispiriting their supporters going into the fall. The administration’s brazen disregard for and denial of plainly evident problems with Obamacare has been absolutely central to sustaining the morale and dedication of the law’s defenders. If that mask is dropping, they could be in for serious trouble. Moreover, the central proposition of defenders of the law has been that continued conservative opposition to it is a denial of the basic reality that the law is on the books and will be implemented. But apparently, the administration does not think of the law as a done deal. They believe they can pick and choose elements to implement or to ignore, and think the nature of the health-care system in the coming years is still an open question. Defenders of Obamacare will need to recalibrate their case as a result. It is pretty clear from the reaction on the left today that the administration did not prepare its supporters for this decision, and that could leave them wondering what shoe will drop next.
That question is itself an additional risk of this decision, because it is hard to see how this could be the last concession to reality. The individual mandate, for instance, may now be politically untenable, since, by eliminating the employer mandate but keeping the individual mandate, the administration is freeing large employers but not workers of a burden and would put the government in the position of causing people to be dumped from employer coverage and then fining them for not getting individual coverage in an unfamiliar and expensive new system with lots of growing pains. This is certainly in line with the administration’s broader corporatism, but it is a politically uncomfortable expression of that approach and a huge vulnerability. A move to at least delay the individual mandate could be pretty hard for Democrats to resist.
This concession on the employer mandate also makes other concessions more likely: The administration will certainly face added pressure to ignore various taxes, rules, and mandates that can be shown to have detrimental effects on the economy or on some constituency—and pretty much every line of Obamacare falls into that category in one way or another. They have just announced that they can implement or ignore whatever portions of the law they wish, and so will be feeling lots of pressure from lots of people with lots views about lots of provisions.
Moreover, by announcing that they can implement or ignore whatever portions of Obamacare they want, the administration is also taking even more direct ownership of any other problems that arise with implementation, since this move suggests they believe that implementation is entirely up to them and they are not really bound by the particulars of the law. This greater ownership of troubles to come will be a particular problem for them with regard to employer dumping and the exchanges. Any such dumping (rightly or wrongly, after all some significant dumping was already expected anyway) will be understood as resulting from the special favor the administration has now done for large employers. And since more people will be in the exchanges than otherwise would have been, the difficulties and uncertainties in that system will be a bigger political problem. This amounts to a very risky bet on the viability of the exchanges.
And that points to what may be, as a matter of policy substance, the most serious problem for the administration with this delay of the employer mandate: its effect on the viability of the exchanges. Under the law, eligibility for exchange subsidies depends on an individual not receiving an affordable offer of qualified insurance from an employer. If employers will now not be required to report on their insurance offerings in 2014, I don’t see how the government will be able to determine eligibility for subsidies, and therefore how the exchanges will be able to function.
Making subsidies available without proof of eligibility would be very expensive and destabilizing to the insurance system, and would also require the retraction of such subsidies if the employer mandate ever does return. Coming up with other ways to prove eligibility would be very difficult at this late stage (as exchanges are supposed to start operating in three months), and would also be totally lawless—though I recognize that is a rather quaint and old fashioned concern in the age of Obama. Any losers in that process could sue, and the federal courts would have a hard time sustaining the administration’s novel approach to executive power. The exchanges are utterly central to the way Obamacare is supposed to function, and the delay announced yesterday leaves the prospects for their proper functioning even more grim than they already were.
In all these ways, I think the administration has just made its Obamacare problems worse rather than alleviating them. But it may have opened a path to alleviating the country’s Obamacare problem, by elevating the idea of delay. Opponents of Obamacare should not imagine that the law will just collapse by itself or that as problems arise Democrats will come to them asking for repeal. That’s just ridiculous. They should look for ways to make the most of opportunities to avert the implementation of this odious law and advance the cause of ultimately repealing and replacing it. And yesterday’s announcement offers such an opportunity. The employer mandate is very bad policy, and its delay (which likely means its elimination) is a good thing. But the rest of Obamacare is very bad policy too. The delay of the employer mandate by a year highlights the irrationality of the larger law and exacerbates its instability. It does not seem to be sustainable as a discrete measure. It calls at the very least for a broader delay.
The law will not be any better a year from now, but since Democrats remain staunchly opposed to any talk of repeal yet now have to be open to talk of delay, Republicans should move to delay implementation of the entire law by a year. I’ve argued before (as others have) that delay offers both sides some near-term benefits—though in the long run I think it advances the cause of replacing this law with real health-care reform. With yesterday’s announcement, the administration has once again proven that near-term benefits are all the president cares about. So fine—let’s delay, let’s use the time to better frame a serious alternative for the country, and let’s see where we are a year from now.
-Yuval Levin is Hertog Fellow at the Ethics and Public Policy Center.