It would be interesting to see what the Obama Administration has to say about the latest round of research released regarding it’s health reform law. 

The Urban Institute, a nonprofit social and economic policy research center, has produced a brief report suggesting the Affordable Care Act’s employer mandate should be eliminated.

This is surprising news, because the Urban Institute is widely considered a left-leaning organization, which has produced research that seems to paint the (ACA) in a positive light. In fact, the Obama Administration has pointed to the institute’s research in the past to refute findings of other organizations when it comes to the controversial law.

Example: In 2011, a McKinsey & Co. study ruffled the feathers of the Obama Administration because it said 30% of all employers will “definitely” or “probably” stop offering health insurance to their workers due to the ACA’s mandates.

Upset by the bad publicity, the White House immediately started try to discredit McKinsey’s findings by pointing to previous studies — one by the Urban Institute — that showed a much small percentage of companies were planning to drop coverage.

‘Not great for the workforce’

So why is the Urban Institute not on board with the employer mandate?

For starters, it says the mandate will have little effect on the number of individuals with health insurance — even when fully implemented.

The institute says that after taking all of the law’s coverage provisions into account, it estimates that keeping the employer mandate in place will only result in about 200,000 more people obtaining coverage than would be covered if the mandated were repealed (251.1 million if in place versus 250.9 million if repealed).

The institute’s report goes on to opine that obtaining coverage for an extra 200,000 isn’t enough to offset the damage the mandate could do in parts of the workforce.

According to the report:

Eliminating [the employer mandate] will remove labor market distortions that have troubled employer groups and which would harm some workers.

What labor market distortions is the Urban Institute referring to?

It claims the employer mandate will result in:

  • some employers moving to a more part-time workforce, to avoid having to provide workers with health insurance or pay the ACA’s penalties
  • firms choosing to avoid increasing their workforce beyond 49 full-time workers, again, to avoid the ACA’s provisions, and
  • decreasing wages at some employers who feel the need to offset their added expenses of either providing insurance to workers or paying the law’s penalties for failing to provide coverage.

One big problem

The Urban Institute says all this while acknowledging its recommendation to repeal the employer mandate causes a huge problem — a $46 billion funding shortfall for the law over the next 10 years ($130 billion according to the Congressional Budget Office).

This shortfall would come from eliminating the federal revenues from the penalty payments many employers would be forced to make under the mandate.

The institute pointed out that several options have been proposed by the Congressional Budget Office for making up that shortfall should the mandate be repealed, such as:

  • increasing income and payroll tax rates
  • raising taxes on alcoholic beverages and cigarettes, and
  • reducing the tax advantages of employer-sponsored insurance.

However, the institute acknowledges that any change in the tax code would be very complicated and difficult to push through Congress.

Still, it believes eliminating the mandate would be worth it:

Concerns over labor market distortions and employer financial burdens related to the ACA’s employer penalties can be eliminated with little relative impact on overall insurance coverage or the distribution of that coverage; the cost is agreeing upon an alternative source of $130 billion in federal revenue over 10 years.

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