Editor’s note: This post has been updated several times on July 2 and 3 as new information has emerged.

Late in the day on July 2, 2013, Mark Mazur, Assistant Secretary for Tax Policy at the Department of the Treasury, announced in a memorandum ironically entitled “Continuing to Implement the ACA in a Careful, Thoughtful Manner” that implementation of the Affordable Care Act’s employer mandate would not be implemented on time, but rather delayed until 2015.   Valerie Jarrett released a similar statement from the White House.

The Administration has been under tremendous pressure from the business community to delay implementation of ACA provisions affecting employers; it had already delayed the implementation of statutory provisions prohibiting insured employers from discriminating in favor of highly-compensated employees and requiring large employers to automatically enroll new full-time employees in a health insurance plan, subject to the employee opting out.   The Administration has now accommodated business one more time.

The reason given for the delay this time was difficulty in implementing ACA provisions requiring insurers and self-insured health plans to report information regarding individuals whom they cover and requiring large employers to report coverage offered to their full-time employees.  The administration asserts that an additional year will give employers and insurers the time they need to adapt to the reporting requirements and give the Departments time to simplify the reporting requirement.

Without reporting, however, enforcing the employer mandate will be impractical, so it is put off for a year.  The Administration promises guidance within the next week on how this will work and proposed rules this summer to implement the reporting requirement.

As a practical matter, most employers subject to the mandate already offer insurance.  The mandate only covers employers with more than 50 full-time or full-time-equivalent employees.  Ninety-eight percent of employers with more than 200 employees offer health insurance, as do 94 percent of employers with 50 to 199 employees.  The vast majority offer insurance that is both affordable and adequate, as those terms are defined in the ACA.  All of the reasons employers now have for offering coverage to their employees — significant tax subsidies, recruitment and retention of employees, and increased productivity and decreased absenteeism when employees are healthy — will continue to exist without the mandate penalty.

It can be expected, therefore, that most employees will continue to offer coverage.  It is to be hoped, moreover, that employers who have been claiming that they have to reduce their employee’s hours of work to below 30 to avoid the penalties will restore the lost hours, and small employers fearful of growing over the 50 FTE threshold will focus on growing their businesses rather than worrying about the ACA.  Perhaps the extra year is what is needed to reduce anxiety and build confidence in the business community in the workability of the law.

The delay will also free employers from penalties for another year with respect to employees with incomes between 100 and 133 percent of poverty who receive premium tax credits because their employers fail to offer affordable health insurance in states that  refuse to expand Medicaid.   Employers are not penalized if their employees receive Medicaid, but are if employees get premium tax credits because employee coverage is inadequate, unaffordable, or unavailable.  The delay gives recalcitrant states an extra year to expand Medicaid before their employers of low income employees begin to be penalized.

Some have raised the question whether the Administration has legal authority to delay enforcement of the employer mandate.  The effective date of the mandate is January 1, 2014.  I see no authority in the ACA for the Administration to delay enforcement of the requirement.  On the other hand, this is not the first time an administration has failed to enforce or delayed the enforcement of a law when it has faced practical difficulties enforcing the law, or even when it simply disagreed with the the law.  The Administrative Procedures Act gives courts the authority to “compel agency action unlawfully withheld or unreasonably delayed.”  A lawsuit to force the IRS to enforce the mandate would have to be brought, however, by someone who could prove an injury from lack of enforcement (other than the loss of revenue to the United States Treasury), and it is hard to think of who could prove injury.   Employees, for example, would have a hard time proving that their employer would have offered health insurance rather than simply paying the tax.  In any event, by the time the lawsuit wound its way through the courts, the mandate would already be in place.

One has to hope, however, that the Administration has thought through the ramifications of this delay for the other provisions of the ACA.  The statements say that implementation of the rest of the ACA, including the availability of premium tax credits, is going forward on schedule.  From all appearances this is true.  But tax credits are only available to employed individuals who are either not offered health coverage by their employers or are only offered employer coverage that costs more than 9.5 percent of household income or that fails to offer “minimum value”– covering 60 percent of health care costs.  Also, taxpayers are subject to the individual mandate penalty if they fail to accept coverage from their employer that meets the minimum value requirement and costs 8 percent or less of household income.

A fair question is, if employers have no obligation to report coverage, how will the exchanges or the IRS verify claims that coverage is unaffordable or inadequate?   For some time it has been assumed that employers and insurers would not report coverage information until 2015.  The ACA itself requires employees, not employers, to provide information about employer coverage.  The form provided for individuals to use for applying for premium tax credits asks for information on employer coverage and requests employees to contact their employer to fill out the form, but does not require employers to fill out the form itself. The process set out in proposed regulations, likely to go final within days, relies on employees to attest to coverage, and exchanges to verify the attestations using available databases and, if information is not compatible with the attestation, by contacting a random sample of employers. The delay of the employer mandate will not affect premium tax credit eligibility.

The lack of an employer mandate will likely mean that many more individuals will become eligible for premium tax credits, either because their employers drop or do not expand coverage.  If employers fail to expand coverage to employee’s children, as they would have had to under the mandate, more children may end up on CHIP or Medicaid, or become eligible for premium tax credits.  Moreover, if more people are freed from the individual mandate because they lack access to affordable coverage, we are likely to have more uninsured Americans.

If more people receive premium tax credits, Medicaid, or CHIP,  this is likely to expand the deficit (an issue that seems to have disappeared from the radar screen as Republicans in the House try to repeal the ACA insurer fee at a cost of $100 billion over 10 years without an offset).   The CBO has projected most recently that the employer penalty would yield $10 billion in 2015, presumably from employers who fail to provide coverage in 2014.  This is a significant amount of revenue.

The Administration has promised guidance in the near future explaining the delay.  Perhaps the promised guidance will address some of the questions the delay presents.  Or perhaps we will find out only in 2014.

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