3 minute read:
Challenges and proposed changes to the Affordable Care Act continue to take place, except to provisions of the ACA’s Employer Mandate.
President Trump’s administration continues to modify the ACA through executive actions, finally moving forward with a plan to provide employers more flexibility in how they use Health Reimbursement Arrangements (HRAs).
And in a show of bi-partisan support, the U.S. House of Representatives moved to strike down the Cadillac Tax provision of the Affordable Care Act this month.
Implementation of the Cadillac Tax provision was delayed twice, once in 2015 and again in 2018. The provision was to go into effect in 2020. The Cadillac Tax is a 40 percent excise tax on employer plans exceeding $10,200 in premiums per year for individuals and $27,500 for families. A study by the Kaiser Family Foundation found that the Cadillac Tax could have a negative impact on middle-class workers. One in every 5 employers (21%) would be affected by the Cadillac tax beginning 2020 and the study projects that by 2030, 37% could be affected. The number of employers is even higher when flexible savings accounts are included (46% by 2030).
As the legislation to repeal the Cadillac Tax moves to the U.S. Senate, the legal challenge to the ACA continues. A judge representing the U.S. District Court for the Northern District of Texas, Fort Worth Division has ruled that the ACA is unconstitutional because the Individual Mandate that requires Americans to purchase health insurance has been made invalid because of the Tax Cuts and Jobs Act of 2017 passed by Congress, which lowered the penalty to $0 for not purchasing insurance, starting this year.
As expected, that ruling has been appealed to the U.S. Court of Appeals for the 5th Circuit and a hearing was held this month. Whatever decision is reached by the Appeals Court will likely be appealed to the Supreme Court.
Until a final ruling is determined, the ACA remains in effect, along with its Employer Shared Responsibility Provisions, also known as the Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs), organizations with 50 or more full-time employees and full-time equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to IRC Section 4980H penalties.
As these issues play themselves out, the IRS is stepping up its enforcement of the ACA.
The tax agency has started to send Letter 226J penalty notices to employers it believes failed to comply with the ACA in the 2017 tax year. The tax agency just completed sending its Letter 226J penalty notices to employers for the 2016 tax year. This is the quickest we have seen the tax agency transition from issuing penalty notices for one tax year to the next.
The IRS also is issuing Letter 5005A penalty notices to employers that have failed to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by required deadlines for the 2015 and 2016 tax years, in violation of IRC Section 6721/6722.
Employers also need to be alert to receiving Letter 5699, which requests specific information that could lead to employers being issued ACA penalties by the IRS.
If you haven’t been taking enforcement of the ACA seriously, perhaps it’s time to start doing so.
