In a previous blog we delved into what ACA compliance changes employers could expect under a Donald Trump presidency.
As noted in that blog, the ACA is expected to remain intact under Trump. However, there could be substantial changes based on his vow to improve affordability, which will have compliance ramifications.
In our view, there are areas that are ripe for improvement. We believe that with minor adjustments, healthcare would be made more affordable for employees while also cutting down on employer liability.
Understanding the Employer Mandate
For context, under the ACA’s Employer Mandate, an employer with 50 or more full-time employees and full-time equivalent employees, or an Applicable Large Employer (ALE), is 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 to the employee.
The term “Minimum Essential Coverage” is defined by examples to include certain government-sponsored programs, such as Medicare and Medicaid, eligible employer-sponsored plans, and healthcare plans in the individual market.
Only qualified plans in the individual market through a government-run exchange allow for Premium Tax Credits (PTCs). PTCs are refundable tax credits designed to help individuals and their families with low or moderate income afford health insurance purchased through a state or federal health exchange, in the event that such individuals were not offered employer-sponsored coverage meeting the requirements of MEC, MV, and affordability.
A couple key terms, as defined by the IRS:
- Minimum Value: The IRS determines that a health plan provides MV if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Typically, the Summary of Benefits and Coverage will confirm whether or not a plan meets MV requirements.
- Affordability: Affordability is calculated based on a cap of 9.5% of an individual’s annual household income. This 9.5% cap is adjusted annually. For the 2025 tax year, the affordability percentage is 9.02%.
Employers that fail to comply with the ACA can be penalized millions of dollars under IRC Section 4980H. Section 4980H penalties have two components. The “A” penalty, under IRC Section 4980H(a), for an ALE who fails to offer MEC to 95% (70% only for 2015) of full-time employees (and their dependents), is calculated at an annualized rate of $2,080 (for 2015 and adjusted upwards annually) multiplied by the total number of full-time employees.
The “B” penalty, under Section 4980H(b), is calculated at a rate of $3,120 (for 2015 and adjusted upwards annually) multiplied by the number of full-time employees who obtain a tax subsidy because the ALE did not offer MEC or, if such coverage was offered, that coverage failed to meet the requirements of MV and affordability for the employee. These penalties are currently being issued to employers through IRS Letter 226J.
Adjusting MEC Plans
MEC plans ensure more Americans have access to affordable healthcare and they meet the minimum health coverage requirement under the ACA.
By raising the standard of what qualifies as a MEC plan, more employees will have access to higher-quality healthcare. This, however, does impose added financial burden on employers, which could be particularly difficult for low-margin industries (such as the restaurant industry) that employs many full-time equivalent (FTE) employees.
In some scenarios, employees are still eligible to secure a PTC for more affordable healthcare. Thus, the Trump administration could look to address the MEC in a more strategic way — taking into account industry, workforce makeup, etc. — that strengthens the quality of healthcare for employees without putting added financial pressure on certain employers.
Adjusting or replacing the MEC requirements with a new healthcare standard could help the ACA move closer to fulfilling its original goal.
Strengthen IRS Enforcement on PTCs
A key talking point from the Trump camp on the ACA has been about finding ways to cut down on fraudulent enrollment in ACA exchange plans.
The Paragon Health Institute, a conservative think tank, outlined a proposed ACA reform policy to combat a rise in fraudulent enrollment in ACA exchange plans:
- Congress should permit the enhanced subsidies to expire after 2025;
- Congress should raise subsidy recapture limits to reduce incentives for people to misestimate their income;
- Congress or the next administration should limit automatic re-enrollment into exchange plans and end it for people moving from or into fully-taxpayer subsidized plans;
- Congress should appropriate cost-sharing reduction payments and prohibit silver-loading;
- Congress should conduct aggressive oversight of the Biden administration’s management of HealthCare.gov, enhanced direct enrollment, and insurer and broker actions to take advantage of misestimating income;
- Congress or the next administration should reverse policies of the Biden administration that enabled such widespread fraudulent enrollment, particularly the continuous open-enrollment period for people who report they have income below 150 percent FPL.
As noted above, the enhanced version of PTCs are set to expire after 2025 as part of the Inflation Reduction Act. There’s belief that removing the incentive of the current enhanced version of PTCs will reduce fraudulent enrollment, and force state governments and/or employers to offer better health coverage.
Improved Enforcement of the Employer Mandate
Overall, 60.4% of people in the U.S. under age 65 — roughly 164.7 million people — had employer-sponsored health insurance in 2023, according to KFF.
This means an incredible onus falls on employers to provide quality, affordable health coverage. Thus, it underscores the need for the IRS to strictly enforce the Employer Mandate in its current and future state.
For ALEs, the stakes for ACA compliance are high. The Congressional Budget Office has estimated that the IRS will collect $228 billion in ACA penalties over the period between 2017-2026.
And while enforcement is becoming more efficient, it still significantly lags. The IRS just began issuing penalty notices for the 2021 tax year in January. This creates a scenario where employers are receiving penalty notices for violations that (known or unknown) occurred years earlier.
This can cause organizations to cut corners with their ACA compliance responsibilities, knowing a penalty might not come until years down the road.
Stricter, real-time enforcement would strengthen the Employer Mandate and the ACA overall.
Leverage Trusaic for Assured ACA Compliance
What is clear is that the ACA’s Applicable Large Employer Mandate under IRC 4980H is not going anywhere. This means that employers with at least 50 Full Time Employees (including Full Time Equivalents) must continue to:
- Measure their workforce monthly to accurately identify ACA Full Time employees;
- Ensure that >= 95% of Full Time employees receive an offer of health coverage that is (a) affordable, and (b) meets minimum value cost-sharing requirements;
- Report to the IRS annually (generally March 31st reporting deadline) using IRS forms 1094-C and 1095-C. Employers report to the IRS on how well they complied with requirements 1 & 2;
- Distribute 1095-C forms annually (generally by March 2nd) to applicable individuals notifying the individual as to their (a) FT status, and (b) benefits eligibility and enrollment status by month.
If you need assistance with ACA compliance and the subsequent year-end filing, contact Trusaic.
Our comprehensive ACA Complete software offers all the resources employers need to achieve full ACA compliance and eliminate penalty risk.
