One of the most divisive U.S. government programs in decades is being voluntarily slowed by the Obama administration. The “employer mandate” of President Obama’s expanded healthcare program requiring businesses with 50 or more employees to pay health benefits to their full-time workers is being delayed by a year.
While 96% of American businesses affected by the employer mandate are already complying, the Administration announced it will delay enforcing the requirement on the remaining 4% until 2015, giving them an extended grace period to transition into the program.
Is the Administration’s change of heart a relief measure to help small businesses through these tough economic times? Or is it simply a change of political strategy? More importantly to investors, are there investment opportunities to be found here?
Why the Delay
Since the requirement for employers to pay into their full-time employees’ medical insurance was first presented, Republicans and business owners have voiced their opposition.
The Business Roundtable indicated that the mandate’s extensive reporting requirements would demand “substantial changes in administrative procedures and reprogramming of recordkeeping systems,” Bloomberg cites.
“Employers need more time and clarification of the rules of the road before implementing the employer mandate,” Randy Johnson, a senior vice president at the U.S. Chamber of Commerce, the nation’s largest business lobby, stressed in an e-mail obtained by Bloomberg.
Senior Obama adviser Valerie Jarrett, who first announced the mandate’s delay on her blog, presents it as a response to the business community’s concerns. “In our ongoing discussions with businesses we have heard that you need the time to get this right,” she offered, assuring that the administrators “have and will continue to make changes as needed.”
Mark J. Mazur, assistant secretary for tax policy, continued the “you spoke – we listened” theme in a post on the Treasury Department’s website, as cited by CNN Politics:
“We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so. We have listened to your feedback. And we are taking action,” he confirmed, adding that the extra time afforded by the delay will enable the simplification of the reporting process.
Just Politicking?
Yet the postponing of the enforcement of the employer mandate until after the next congressional elections to be held in November 2014 has lead many to believe the delay is not in response to complaints from business owners at all, but is rather a political strategy designed to remove some firepower from the Republican campaign.
“If Democrats thought delaying Obamacare would make it easier for them in 2014, they thought wrong,” Matt Gorman of the National Republican Congressional Committee announced on Twitter, as transcribed by FoxNews.com.
Tyler Harber, a Republican strategist and partner in Harcom Strategies International, indicated that instead of weakening the Republican campaign, it would actually strengthen it: “The delay has done nothing but fuel Republican arguments that ObamaCare isn’t ready for prime time and has not diminished the liability that it is for Democrats in 2014 and 2016,” he affirmed.
Harber extends the impact even further:
“In fact, delaying the employer mandate may guarantee that Republicans pick up the White House in 2016 since ObamaCare could be responsible for the largest shuttering of small business the United States has ever seen when the employer mandate is actually implemented.”
Democrats, however, reject this notion that the President’s delaying of the enforcement of the employer mandate was a ploy to improve their chances at the next elections, including Adam Jentleson, a spokesman for Senate Majority Leader Harry, Reid (D), who emphasised in an email obtained by FoxNews.com:
“Both the administration and Senate Democrats have shown – and continue to show – a willingness to be flexible and work with all interested parties to make sure that implementation of the Affordable Care Act is as beneficial as possible to all involved. It is better to do this right than fast.”
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The Employer Mandate’s Impact
The crucial factor in the debate over the employer mandate will always be the requirement’s impact on the economy.
“I’ve heard from countless employers in Maine who say that the onerous penalties and provisions in ObamaCare provide perverse and powerful incentives to not hire new workers or to cut back on the hours that their employees are allowed to work,” Senator Susan Collins revealed to FoxNews.
Since the mandate requires employers to extend healthcare coverage to full-time employees, the added costs may force smaller businesses to cut worker hours below the eligibility cut-off.
Even worse, some fear the mandate provides an incentive to keep workforces below the 50 worker threshold stipulated by the mandate, thereby stifling economic expansion. House Speaker John Boehner concluded, “The president’s health care law is already raising costs and costing jobs,” FoxNews.com quotes.
But former White House health policy adviser Ezekiel Emanuel downplayed the effect the mandate would have on the economy, indicating in an MSNBC interview that 94% [others report 96%] of obliged companies already offer healthcare to their workers, with only the small remainder facing non-compliance penalties in 2015. And those who are complying have not scaled back their workforces below 50.
Investments That Will Benefit
Since the employer mandate raises the cost of labour, companies that depend heavily on low wages to keep their operating costs down will likely be the most adversely affected when enforcement kicks in.
This would hurt such businesses as hotels, retailers, and restaurants – especially fast food chains. These industries go to great lengthens to cut their bottom lines, skimping on anything and everything, including labour.
Investors shouldn’t necessarily dump their shares of companies like McDonald’s (NYSE: MCD) or Walmart (NYSE: WMT). But they might expect a small hit to net profits in the near future, possibly warranting a slight drop in share price as they correct down to a lower sustainable value.
The beneficiaries, on the other hand, could stand to gain substantially, especially healthcare insurance providers. Already a $650 billion a year industry, health insurance sales can only soar higher with the full implementation of both the employer mandate and the individual mandate on workers not covered by their employers.
U.S. News and World Report provides a list of the top 25 U.S. health insurance providers, including Unitedhealth Group (NYSE: UNH), Wellpoint Inc (NYSE: WLP), Kaiser Foundation, Aetna Inc (NYSE: AET), and Humana Inc (NYSE: HUM) as the top 5.
Joseph Cafariello
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