Late last week news broke regarding a $300 billion bill that would extend the enhanced ACA subsidies issued via Premium Tax Credits (PTC) through 2025.
It all started when Senator Joe Manchin reached a deal with Senate Democrats to pass the proposed bill, HR 5376. The new bill, officially titled the Inflation Reduction Act of 2022, is an abbreviated version of Biden’s Build Back Better plan, and it includes a host of healthcare, tax, and energy policy changes.
Unpacking the Inflation Reduction Act
One of the significant items named in the bill relates to healthcare and the extension of ACA PTC subsidies. If passed, the Act would ensure that the enhanced PTCs first introduced via the American Rescue Plan remain accessible through 2025. This is a three-year extension, as they are set to expire this December. While it’s not the permanent change Biden was seeking in his American Families Plan, it’s progress.
As a reminder, the enhanced PTCs allow individuals with incomes up to 150% of the Federal Poverty Level (FPL) to obtain coverage for $0 a month. The PTCs apply to those with greater incomes as well. Americans with incomes at 400% of the FPL and beyond can obtain coverage for no more than 8.5% of their household income.
Also included in the Inflation Reduction Act are provisions that assist with Medicare costs. Namely, Medicare would be able to negotiate prescription drug costs over the next several years. In addition, the bill would cap certain Medicare out-of-pocket costs at $2,000 by 2025.
Senator Manchin said in an official statement, “Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs…”
Manchin’s newfound appreciation for the enhanced PTC subsidies and healthcare benefits is timely, as August is the month that health insurance carriers start to finalize plan rates for the upcoming coverage year.
While the news of the bill is great, it will still need to pass through various legislative steps before being signed into law. Fortunately, Democrats are prioritizing the bill in a procedural move known as reconciliation to expedite the process. More news on the status of the bill should be released in the coming weeks.
The impact of extended ACA subsidies
Extending the enhanced PTCs through 2025 bodes well for the general public. The expansion of affordable quality healthcare resulted in 14.5 million enrollees in ACA coverage during last year’s open enrollment. It also curbed the uninsurance rate, which currently hovers around 8%, down from over 10% last year.
Recent studies point out that if the PTCs aren’t extended soon the prices of premiums for 2023 medical plans could increase as much as 25%.
In short, signing the Inflation Reduction Act into law would save millions from losing coverage.
While there are many benefits to extending the enhanced PTC subsidies, there are some potential consequences for employers. PTCs are the trigger for the IRS to identify organizations that fail to comply with the ACA’s Employer Mandate. And with PTCs being more accessible for the next three years, we can anticipate more penalties as a result.
As a reminder, under the ACA’s Employer Mandate, Applicable Large Employers, or employers with 50 or more full-time employees and full-time equivalent employees to:
- Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value (MV)
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability
Every time an employee receives a PTC from a state or federal health exchange, the tax information is relayed to the IRS. The information is then cross-referenced with an employee’s 1095-C information. After examining the information, the IRS can determine if an employer extended affordable, sufficient coverage to its employees and subsequently assess an IRS penalty via Letter 226J.
With penalties increasing, employers should verify their ACA filings prior to reporting the information to both the IRS and any state governments.
For assistance in accurately coding your ACA filings, download The Employer’s Guide to Coding Form 1095-C below.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.