By Thomas P. Miller

In late June, the Congressional Budget Office (CBO) updated its recent series of 10-year estimates of federal subsidies for health insurance coverage for Americans under age 65. The latest guesstimates did not draw much attention overall but buried in the numbers were several “Oops, They Did It Again” miscalculations of the recent past that illuminate the limited purpose and value of such exercises.

If you squint your eyes closely, you might notice some trace elements of the vestigial effects of the once-touted employer mandate under the Affordable Care Act (ACA). Its original requirements, applying to businesses with 50 or more full-time equivalent employees (FTEs), involved offering minimum health insurance to at least 95 percent of them and their dependents. (Whether the accompanying “affordability” requirement extends beyond self-only coverage for employees to their family remains in dispute, at least if one chooses to reinvent the ACA’s statutory language through regulation.) 

Once upon a time, in the storybook version of the law, employers
that failed to comply—and actually caused one or more of their FTEs subsequently
to qualify for and receive other tax-subsidized coverage on an ACA health
insurance exchange—would become subject to stiff employer mandate penalties.
Under several make-believe assumptions almost a decade ago, CBO projected that
the employer mandate penalties would produce more than $140 billion in revenue
from FY2014 to FY2023, one of many payfors once promised to keep the spending
costs of the ACA’s benefits promises budget neutral (or at least close enough to
that for government work).

Well, as the passive voice phrase in Washington policy circles
goes, “Mistakes were made.”

It turned out that the Obama administration was not all that enthusiastic about implementing, or enforcing, the employer mandate, when it was supposed to start in 2014. It first was delayed for a year, then reduced in scope for another year, and even when finally put into place, enforced inconsistently if at all. (Good times were had by some in highlighting the start of this fiasco.)

At the same time, some critics of an employer mandate that actually would be enforced projected a host of negative consequences for relatively smaller businesses and their lower-wage employees.

“As If!”

The purported negative employment effects from smaller employers restructuring to drop below the mandate’s 50 FTE enforcement floor remain hard to quantify, let alone impress most outside observers. Despite projections of a gross effect of as many as 250,000 jobs lost from 2012 to 2016 due to employers restructuring the size of their firms to avoid the 50-FTE employer mandate “enforcement” threshold, multiple causation caveats remain, and other measured effects on employer health insurance coverage offer rates in the overall market, and even in firms in the 20–49 versus 50–199 FTE range from 2013 to 2021 tend to bury any minor effects (see Figures 2.1 and 2.2).

It turned out that the IRS in practice had assessed $264 million in employer mandate penalties as of June 2020 and collected only $66 million. An older, but at least slightly updated, CBO baseline in March 2015 projected net revenue from the employer penalty payments of $167 billion from 2016 to 2025.

To be fair, the IRS collection data arrives with a time lag and is incomplete, but the CBO’s older estimates were more than “just a bit outside.”

Some late-inning budget scoring relief is tucked away
quietly in the new CBO 10-year projections in Table A-2, where gross
collections of penalty payments by employers are estimated to amount to a total
of $9 billion in all from FY 2022–2032. Even straining to find associated
effects on changes in taxable compensation provided by employers (such as extra
revenue losses under the ESI tax exclusion) brings the 20-year net revenue
figure down to $6 billion. However, this is some modest progress in this phased
retreat back to budgetary reality. In July 2021, CBO’s 10-year revenue
estimates for the employer mandate were $17 billion and $12 billion,
respectively (Table A-4).

Although the vastly exaggerated effects of the employer
mandate on the federal budget and employee coverage might be the biggest
whoppers in CBO’s ACA forecasting history, they are not alone. In part II, I
will highlight several other ones underemphasized in the latest report on
federal insurance subsidies, why they should not be forgotten, and what still might
be done about some of them.

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