Editorial: Employer mandate creates bad incentives

Published Jul 5, 2013 at 05:00AM

The Obama administration’s decision to push back the implementation of the Affordable Care Act’s employer mandate set off a predictable eruption of new debate.

The rule requires employers with at least 50 full-time workers to offer health care coverage or pay a penalty. Full time is defined as 30 hours or more a week.

The rule is still going into effect. Penalties will now be enforced in 2015 instead of 2014.

Administration officials say the delay came after employers asked for more time to comply with the law’s reporting requirements.

Some Republicans pounced on the delay. Some Democrats supported it.

You can add up and weigh all the arguments for and against the delay. We hit nine before we stopped counting.

But the real question is whether the employer mandate is a good policy.

Of course, it would be good if everyone had health care. And an employer mandate is one piece of the president’s reforms that push toward that goal.

The mandate, though, has defects. It creates perverse incentives.

To avoid the mandate, some employers are deciding to make more employees part time until their company is smaller than the magic number 50.

It also creates an incentive for employers to avoid hiring people with low and moderate incomes. The law imposes a penalty on employers whose employees qualify for subsidies on the new health insurance exchanges. That encourages businesses to hire people who don’t qualify for subsidies.

The mandate also says that if you have a successful business, there is an incentive to keep it smaller — below 50 employees — instead of going bigger.

There’s another problem. There’s little likelihood the problems in the mandate are going to get fixed by Congress.

That leaves employers and employees stuck.