Employers who don't provide health insurance will be spared penalties of up to $3,000 per worker until 2015, a one-year delay of a major component of President Barack Obama's health care reform law, the Treasury Department announced Tuesday.
Under Obamacare, companies with at least 50 full-time employees are required to provide qualifying health benefits to workers or face financial penalties called "shared responsibility payments." The provision of the law aims to shore up and strengthen the system that provides health benefits to most covered Americans. Under regulatory guidance to be published next week, the Obama administration will free companies from this mandate and from rules that they report information about their health benefits to the federal government next year.
"During this 2014 transition period, we strongly encourage employers to maintain or expand health coverage," Mark Mazur, assistant secretary for tax policy at the Treasury Department, said in a statement. The change does not affect people who will buy health insurance on their own or small businesses that will buy coverage through the law's health insurance exchanges.
More than half of Americans, 170 million people, are covered by employer-sponsored health insurance, according the census data. Of companies with at least 50 workers, 94 percent already offer health benefits, a survey by the Henry J. Kaiser Family Foundation shows. The one-year delay of the penalties won't have a meaningful effect on jobs being the leading source of health care coverage, said Paul Fronstin, a senior research associate with the Employee Benefit Research Institute.
"The fact is, employers have been offering coverage voluntarily for how many years now. They didn't drop it before the law was passed. They offered it for business reasons," Fronstin said. "I don't think you'll see a mass exodus because of this."
Postponing enforcement of the "employer responsibility" mandate also isn't likely to result in significantly fewer people gaining health coverage because of Obamacare next year, said Larry Levitt, senior vice president for special initiatives at the Henry J. Kaiser Family Foundation.
"The practical effect on how people will get covered is really small," Levitt said. "It might mean ever-so-slightly fewer people gaining insurance, but it'll be a very small number because the vast majority of larger employers already offer coverage." The Congressional Budget Office projected only a modest increase in job-based health benefits because of the law, he said.
Still, delaying enforcement of a policy designed in part to encourage companies to extend health benefits to workers not currently insured, such as part-time employees, does diminish the reach of Obamacare's coverage expansion, Fronstin said. "The question is, how many people would gain coverage anyway?" he said. "We don't know." Employees will still be subject to the law's individual mandate that most U.S. residents obtain health care coverage.
Putting off a major element of the 2010 health care reform law less than six months before the expansion of health insurance coverage to millions is supposed to take effect nevertheless stands as a setback for the administration and gives fodder to Obamacare critics to proclaim the law isn't ready for prime time.
"This announcement means even the Obama administration knows the 'train wreck' will only get worse," House Speaker John Boehner (R-Ohio) said in a statement. "This is a clear acknowledgment that the law is unworkable, and it underscores the need to repeal the law and replace it with effective, patient-centered reforms.'
The administration's move on the employer penalties follows a recent Government Accountability Office report suggesting the law's health insurance exchanges for individuals who don't get coverage at work and for small companies may not be ready for the six-month enrollment period that begins Oct. 1. In April, the administration also delayed part of the law intended to provide small-business workers with more health insurance choices.
These negative developments for the implementation of the health care reform law shouldn't been viewed as major warning signs, however, Levitt said. "I don't think people should read too much into this in terms of how ready the administration is to implement the rest of the law, but I think some people will draw those conclusions. I think it's more of an issue of perception than an issue of reality."
The White House insisted the health insurance exchanges and other elements of the law will be in place on schedule. "We are on target to open the Health Insurance Marketplace on October 1 where small businesses and ordinary Americans will be able to go to one place to learn about their coverage options and make side-by-side comparisons of each plan’s price and benefits before they make their decision," Valerie Jarrett, a senior adviser to Obama, wrote in a blog post on Tuesday.
Business groups including the U.S. Chamber of Commerce -- which largely opposed the health care law called the Affordable Care Act, or ACA -- have long sought a delay in the rules requiring them to report on their employees' health coverage and to pay penalties.
"They're not ready, we're not ready, and rather than plow ahead, they're going to take the right and wise approach," said Neil Trautwein, employee benefits policy counsel for the National Retail Federation. "The last thing the administration or the business community needs is for the ACA to come out of the gate sideways."
This article has been updated to include reaction, analysis and additional details.