“Be careful what you wish for…”
That old saying has long been used as a caution against asking for something that, once you’ve achieved it, just might come back to bite you. It’s likely a sentiment that has crossed the minds of certain legislators and healthcare policy activists as the Affordable Care Act (ACA) has picked up steam, fueled by subsidies that have driven a steep increase in applications.
New healthcare marketplace signups increased by more than 3.6 million people in the latest enrollment period that ended in January 2023; more than 16 million people are now signed up to receive healthcare benefits through the ACA.
Those signups have largely been driven by subsidies made available through legislation put forward by President Biden during the pandemic: first the American Rescue Plan in 2021, and then its extension through the Inflation Reduction Act in 2022.
Why is that a problem?
ACA Marketplace Plans: Subsidy, Entitlement—or Both?
The Inflation Reduction Act provides enhanced Premium Tax Credit (PTC) subsidies for individuals with incomes up to 150% of the Federal Poverty Level (FPL), allowing them to acquire coverage at no cost. Moreover, individuals at 400% of the FPL or more are required to spend no more than 8.5% of their household income on coverage.
Additionally, the act includes provisions to assist with Medicare expenses. For instance, Medicare will be permitted to negotiate prescription drug costs over the next few years. Moreover, the bill aims to limit certain Medicare out-of-pocket expenses to $2,000 by 2025.
However, subsidies aren’t generally designed to last forever. They serve as a way to introduce consumers to a good or service that they’re likely to continue purchasing on their own—without the benefit of a subsidy.
Unfortunately, when these subsidies occur in the political landscape, they tend to morph into entitlements. And, as any politician and many constituents know, entitlements are very hard to take away.
That’s one of the reasons that the political divide over the ACA is growing significantly these days, with the White House and Democrats angling to keep the subsidies in place and make them entitlements, and Republicans rumbling that they need to be phased out—if not eliminated entirely.
According to The Hill, “the House Budget Committee suggested capping ACA subsidies to 400 percent of the poverty level and below, essentially returning to the original standards set by the ACA.” That could potentially save the government $65 billion. But whether Republican stakeholders could get behind such a proposal remains to be seen.
Implications for Employees
For employees, the battle over how the ACA and its subsidies play out will have a direct impact on their pocketbooks—especially their disposable income. Healthcare benefit costs have risen exponentially in recent years, creating challenges for many working Americans. According to the 2022 Kaiser Family Foundation Employer Health Benefits Survey, since 2010, average premiums for individuals and families have increased by $225 per year and $700 per year on average.
The subsidies have certainly helped, but they may also have served to create a false sense of security. That sense of security could be challenged if these subsidies are impacted by legislative shifts in the coming years. Not to mention, employers are also subject to implications, largely based on which way the political wind blows.
Implications for Employers
The Inflation Reduction Act also holds some potential consequences for employers. These consequences include a set aside of $80 billion for enhanced IRS tax enforcement, including enforcement related to ACA non-compliance. That money could be allocated to additional audits, more tax examiners, and an update to the IRS infrastructure to expedite tax communication processing. These additional audits could identify employers who are not following ACA mandates, resulting in fines.
Applicable large employers, or ALE’s (who employ 50 or more full time or full time equivalent employees) are mandated by the ACA to:
- Offer “Minimum Essential Coverage” for employees equal to up to 95% of their full-time employees (and dependents) and whereby the coverage meets minimum value.
- Ensure that full-time employee coverage is affordable according to an IRS-approved calculation method.
Whenever an employee obtains employee healthcare benefits through a state or federal marketplace, that coverage is cross-referenced back to the employer’s ACA filings, allowing the tax agency to identify companies that have—and have not—complied with requirements.
These critical ACA subsidies are set to expire in 2025. They would then need to be renewed by Congress in order to continue. This inevitable expiration sets up a battle within next year’s race for the White House and the congressional majorities. It also puts employees and employers in limbo, again, as the battle wages.
Regardless of the outcome, there is one certainty for employers—they must adhere to the ACA requirements, whatever they may be, and be poised to verify that adherence through documentation as required. To learn more about the ACA’s Employer Mandate, check out our interactive guide below.
