ACA Regulatory Update: Employer Mandate on Life Support

The fate of the Affordable Care Act employer mandate is becoming clear. Proposed ACA replacement legislation released Monday, entitled the American Health Care Act, aims to dismantle the employer mandate by zeroing out the associated penalties. Despite this, the AHCA maintains both employer and insurer reporting requirements. The employer mandate is one of the key points of the proposed legislation, as it carries great implications for businesses. But what else would the American Health Care Act do?

High-Level Policy Changes

The bill addresses 11 basic provisions:

1. Individual Mandate: AHCA would strike the individual mandate by eliminating penalties for those who do not obtain coverage. However, the mandate would be replaced by a “continuous coverage incentive,” which imposes an additional 30 percent premium for those who allow their coverage to lapse for longer than the prescribed time period.
2. Employer Mandate: The bill relieves applicable large employers of their legal duties to provide insurance under the current law by setting the penalties to zero.
3. Out-of-Pocket Subsidies: The law would repeal the cost-sharing subsidy for out-of-pocket expenses, effective in 2020.
4. Premium Subsidies: The new law changes the way in which premium subsidies would be distributed. Instead of using income, the determining factor would be age. However, full tax credits will be available for those falling within the designated income brackets. More types of plans would qualify for subsidies under the new law.
5. Medicaid Expansion: States would keep the Medicaid expansion and continue to receive federal funding until 2020, at which point funding for newly eligible individuals would be reduced. The new law would cap federal funding per individual based on each state’s 2016 Medicaid spending.
6. Health Savings Accounts: The law would remove contribution limits for HSAs and allow spouses to make additional contributions.
7. Price Restrictions for Older Individuals: Under the new law, insurers would be permitted to charge older patients five times as much as younger patients; however, states may also set their own ratios.

The following provisions would be maintained as they currently appear:

8. Dependent Coverage until 26
9. Pre-existing Condition Coverage
10. Essential Health Benefits
11. Prohibitions on Annual/Lifetime Limits.

Continuous Coverage Requirement: The New “Mandate”

The AHCA would effectively replace existing mandates with a “continuous coverage requirement,” which imposes a 30 percent premium surcharge for those who have coverage gaps in any given year for at least 63 continuous days. The burden of proving gaps do not exist appears to fall on consumers. The new penalties would be enacted for special enrollments in 2018 and would be applicable for coverage gaps in the remainder of the year. In contrast, the lookback period for 2019 and beyond would be the entire year. If the president signs AHCA into law, individual and employer mandate penalties would be retroactively eliminated for 2016 and succeeding years. For procedural reasons, the text of the mandates would not be stricken from the law because no nexus exists between the mandates and government revenues in the reconciliation bill. However, they will be effectively eliminated due to the zeroing out of the associated penalties.

Reporting Under the American Health Care Act

The AHCA maintains the provision imposing the employer and insurer reporting requirements. There are several potential reasons for this:

• As with the mandates, the reporting requirements cannot be stricken through the budget reconciliation for procedural reasons.
• Congress is giving the HHS and IRS discretion to enforce reporting requirements going forward.
• The reporting requirement is remaining in place as a means of facilitating implementation of the “continuous coverage requirement.”

The government’s willingness to maintain these requirements demonstrates its expectation of continued reporting for the immediate future. Reporting requirements will remain intact barring further legislative or administrative action. In its current state, the AHCA would maintain the 1095 reporting and employee notice requirements in addition to the requirement for employers to report the total cost of sponsored coverage on each employee’s Form W-2. This legislation actually provides for additional reporting requirements that previously did not exist, such as an indication on the W-2 of which months each employee was eligible for group coverage. The new information reporting requirement, slated to take effect in 2020, would require employers to notify the IRS of which employees received offers of employer-sponsored coverage. Employers would annually indicate whether or not each employee was offered coverage during that year. Additionally, because the law would provide tax credits that can be claimed in advance, the employee would be required to obtain a written statement reflecting whether or not the employer offered coverage for that relevant tax period. The existing reporting regime would continue up until 2020, as the IRS will need to determine the eligibility of ACA tax credit recipients who purchased on the individual market. Such recipients would be ineligible if they had received an offer of employer coverage. There are certain measures the administration could take to “ease the burdens” of reporting pursuant to the executive order. For example, it could eliminate the “full-time employee” reporting requirement to simplify the process. Businesses should expect these reporting requirements to continue despite the end of the employer mandate because, although penalties for failing to provide coverage would be eliminated, the IRS may still impose its own penalties for failure to report. The new law would also leave employee notification requirements unchanged. As such, summaries of benefits and coverage will still be required through Tax Year 2018. The bottom line: Businesses should plan to continue to abide by current reporting requirements, subject to regulatory relief from the IRS, until 2020. At that point, health care reporting will likely be simplified and incorporated on Form W-2.

Further Reading

• New York Times: House Republicans Unveil Plan to Replace Health Law
• New York Times: The Parts of Obamacare Republicans Will Keep, Change or Discard
• Bloomberg: Republicans Unveil Health Care Bill to Bridge Gaps in Party
• HR Dive: ACA Bill Finally Released: Employer mandate gone but Cadillac tax remains
• Health Affairs: Examining The House Republican ACA Repeal and Replace Legislation
• Budget Reconciliation Legislative Recommendations
• Society for Human Resource Management: Will the GOP’s ACA Replacement End the Employer Mandate and Required Reporting?