From its very genesis, the Affordable Care Act (ACA) has caused a head-spinning change in regulations, forcing business owners to keep up with a seemingly everchanging legal landscape. Failure to do so, however, could result in significant penalties that no business wants to be subject to.
The ACA has changed significantly since its inception, even though multiple attempts to repeal it have failed. Here's what entrepreneurs need to know about where federal health insurance policy stands today, and where it might be headed.
The basic requirements
On its face, the ACA maintains straightforward rules that employers with 50 or more full-time employees must adhere to. These employers are known as "applicable large employers" (ALE.) If an ALE fails to meet their obligations under the ACA, they could be subject to one of two tax assessments known as "employer shared responsibility payments." These obligations include:
- Offer minimum essential coverage that is both "affordable" and provides "minimum value" to employees and their dependents
- Fulfill reporting requirements to demonstrate minimum essential coverage to the IRS.
And just because a company does not yet have 50 full-time employees, doesn't mean these regulations aren't important. As a company grows, it should be prepared to come into compliance with the ACA before it is required to by law, said Arthur Tacchino, chief innovation officer at SyncStream.
"Any employer that is below 50 full-time equivalent employees should continue to document employees and monitor ALE status," Tacchino said. "If an employer is approaching the 50 full-time equivalent employees threshold, they should play close attention to business decisions that would increase the number of full-time equivalent employees and understand the potential ACA implications of becoming an ALE."
Failing to meet the standards set by the government triggers one of two employer shared responsibility payments. The first is triggered if minimum essential coverage is not offered to at least 95 percent of an employer's full-time employees, and at least one of those employees receives a premium tax credit for purchasing coverage through the government's Health Insurance Marketplace. This payment is equal to $2,000 for each full-time employee, excluding the first 30.
The second type of payment is triggered when an employee obtains a premium tax credit through the Marketplace because the insurance plan offered by the employer was either not affordable, did not provide minimum value, or the employee is not one of the 95 percent covered by the employers offering. This payment is equal to $3,000 multiplied by each full-time employee who receives a premium tax credit.
For specific definitions that further clarify these regulations, visit the IRS's information page on the ACA.
Where do we stand today?
The ACA is still largely in the same form as it was during its implementation, at least nominally. However, there have been practical changes which have altered the system significantly. For example, President Donald Trump used his executive authority last year to end federal subsidies to open healthcare exchanges, as well as reduced the individual mandate penalty to $0, meaning people who choose to go without health insurance would no longer face a disincentive.
"While last year we saw several attempts to repeal and replace the ACA, there is much less talk about repealing the ACA this year," said Tacchino. "There was a proposal to include some marketplace stabilization in the recent spending bill, but that ultimately did not occur."
Employer shared responsibility collections have begun
Until now, the Internal Revenue Service (IRS) has not collected payments assessed to employers who failed to provide affordable coverage to their employees, even though the employer shared responsibility provision went into effect in 2015.
Today, the IRS is coming knocking. The first round of the letters known as 226J, which notice employers they might be subject to the employer shared responsibility payment, have been issued, said R. Pepper Crutcher, Jr., an affordable care act strategist and labor and employment litigator for Balch & Bingham, LLP.
"The IRS appears to have relied on employer mistakes in the forms they filed in each of these letters," Crutcher said. "These employers now face the task of trying to persuade the IRS to accept after-the-fact corrections to what they filed in 2015."
The IRS, for its part, has indicated that if an employer made "a good faith effort" in its 2015 filings, those businesses might still avoid penalties, Crutcher added. But the fact is, the issuance of letters 226J from 2015 means the IRS is ready to move on employer mandate payments, and the agency is three full years behind.
"What I think is going to go on mid-year or later is that the IRS is going to have to catch up," Crutcher said. "It wouldn't surprise me at all if we get another round of 226J letters this year. We could have employers having to explain or pay for two years' worth of taxes."
Congress struck down subsidies for the healthcare exchanges
President Trump eliminated the ACA's cost-sharing subsidies for healthcare exchanges in October and, in its most recent $1.3 trillion spending bill, Congress chose to double down on that decision. While this move doesn't directly impact regulations facing employers, it might change things when it comes to employer shared responsibility payments.
"The subsidies, especially the premium subsidy, is what was driving people to exchanges," Crutcher said. "If you take those subsidies away now, a huge population leaves the exchanges. Who would still be in? Pre-Medicare individuals with no other option who must have coverage because they're unhealthy. Prices would just explode."
As a result of fewer people signing up for the exchanges, there would be a reduction in an employer's risk of getting an employer shared responsibility payment assessed. This is because those payments are triggered when a full-time employee signs up for a healthcare plan on the exchanges, because it is taken as an indication their employer did not offer an affordable health insurance plan.
"If fewer people go to exchanges, employers' exposure to the mandate tax will be reduced," Crutcher said.