Over the past year, there has been a significant focus in the press on various attempts to overhaul or repeal key elements of the Affordable Care Act (“ACA”), which was originally passed into law almost eight years ago. While there have been some changes to the ACA over the past few months, it is important to recognize that most of the obligations that the ACA imposes on employers remain untouched. Indeed, the IRS has recently begun to issue shared responsibility notices to employers related to their obligations to offer coverage to their full-time employees. At the same time, Congress has also made additional minor changes to important features of the ACA that employers should be aware of that relate to potential taxes and information reporting for coverage that it offered to employees in the 2017 calendar year. We address some of those changes in more detail below.
Employer Shared Responsibility Payment Notices: IRS Letter 226J
In late 2017, the IRS announced that it would begin issuing penalty notices related to coverage that employers offered to employees during the 2015 calendar year. As background, the ACA requires large employers to make an offer of affordable, minimum value health coverage to substantially all of its full-time employees. The shared responsibility requirement, also called the employer mandate, imposes an employer shared responsibility payment (“ESRP”) in circumstances where the employer fails to offer coverage, or offers coverage that does not meet certain affordability or minimum value standards, and one of its full-time employees receives a premium tax-credit to purchase coverage through a federally mandated state-based health insurance exchange.
While employers have been submitting information reports to both employees and the IRS (on IRS Form 1095-C), the IRS has only now begun to issue ESRP assessment notices related to coverage that employers offered in calendar year 2015. Specifically, over the past few weeks, some employers have received letters that outline proposed ESRP assessments on IRS Letter 226J. Letter 226J provides employers with a description of the ESRP penalty scheme, a summary of which months from 2015 the proposed assessment applies to, and a procedure for either paying the assessment or providing the IRS with a response disagreeing with the proposed ESRP assessment.
It is important that employers take the letters seriously and respond in a timely manner. Specifically, the employer has 30 days to provide a response to the IRS before the IRS formally makes a demand for payment as outlined in the letter. Further, employers should carefully consider whether the assessment is accurate, and, if possible, prepare a response to the IRS with evidence showing why the employer disagrees with the assessment. In preparing the response, it is important to work with counsel and other service providers to determine whether the IRS is accurate in its assessment.
Delay of Excise Tax on High-Cost Health Coverage (the “Cadillac Tax”)
As part of the recent legislation to fund the federal government through February 8th (and stop a partial government shutdown) Congress further delayed the tax on high cost health coverage from 2020 to 2022. The tax, also known as the “Cadillac Tax”, requires employers to pay a 40 percent excise tax on health coverage in excess of $10,200 for individual coverage and $27,500 for family coverage (as indexed for inflation). The tax remains unpopular and may eventually be fully repealed; however, employers should continue to take the tax into consideration, especially in the context of collective bargaining negotiations for contracts that extend into 2022.
Repeal of Penalties Associated with Individual Mandate to Purchase Health Coverage
The recent tax reform bill (titled the Tax Cuts and Jobs Act, or “TCJA”) contained a number of changes to the federal tax code, and included a repeal of the penalties related to the ACA’s individual mandate. Specifically, Congress left untouched the requirement that individuals maintain health insurance, but it repealed the penalties that individuals incur when failing to maintain health coverage. The repeal of those penalties under the TCJA does not directly impact employers, and is not effective until January 1, 2019. Some analysts have predicted that the repeal of the individual mandate will result in fewer healthy employees enrolling in employer group health coverage, subsequently causing an increase in rates for insured group health insurance products. It is hard to predict how this will ultimately impact employers and the coverage that they offer to employees, but the bottom line is that the employer requirement to offer coverage to substantially all full time employees remains in place for the time being.
Extended Due Dates and Good Faith Relief for 2017 ACA Information Reporting
As with prior years, the IRS extended the deadlines that employers have to provide information returns (IRS Form 1095-C) to employees. Originally due by January 31, 2018, employers now have until March 2, 2018 to issue those information returns to employees. Employers also have until April 2, 2018 (if filling electronically) to remit those same returns to the IRS under the relief. In tandem with the extension of the filing deadlines, the IRS also announced under Notice 2018-06 that it will extend the good faith compliance standard for information returns that are filed with the IRS. This means that the IRS generally will not impose penalties for incorrect or incomplete returns if the employer has made a good faith effort to file those returns in a timely manner.
While there have been minor changes to the ACA over the past few months, for the time being, the requirement that employers offer coverage (or pay a penalty) remains in place. There may be changes to that requirement and other related obligations in future legislation or administrative guidance, but for now it is important for employers to have a strategy in place for compliance.