ACA & 2018 Midterm Election - Employer Mandate Cadillac Tax

3 ACA Compliance Reminders as Midterm Elections Approach

With a conservative majority on the Supreme Court secured, and the prospect of Republicans maintaining control of Congress after the midterm elections, employers may be tempted to think that they don't need to worry about the Affordable Care Act (ACA) anymore.

But despite renewed legal challenges and the effective elimination of the individual coverage mandate, the bulk of the ACA remains the law of the land.

Even though the Tax Cuts and Jobs Act of 2017 zeroed out the tax penalty for individuals who forgo health insurance (effective for 2019), companies with 50 or more full-time employees can still be penalized for not offering qualifying health coverage to those full-time employees, per the ACA's so-called employer mandate.

And while there is currently a Texas-led lawsuit challenging the constitutionality of the entire law1, and a bill in the House of Representatives that would, among other things, remove employer mandate penalties from the 2015 - 2018 tax years, experts agree that these efforts aren't likely to be fruitful.

Employers do, in fact, still need to worry about the ACA. Specifically, here are three ACA compliance issues that should remain in focus for employers who want to avoid significant financial liabilities.

1. The IRS continues to assess employer mandate penalties.

In 2017, the IRS began assessing penalties – officially referred to as employer shared responsibility payments (ESRPs) – for non-compliance with the ACA's employer mandate during the 2015 tax year. It's expected that penalties for the 2016 plan year will start being assessed before the end of 2018.

An ESRP penalty assessment comes in the form of a 226-J letter, which notifies an employer that they may be liable for the penalty, based on information obtained by the IRS from 1095-C forms filed by the employer for that coverage year, and tax returns filed by the employer’s employees.

It’s important to note that Letter 226-J is not a determination of liability. Rather, it serves to notify the employer that a full-time employee received a premium tax credit for coverage on the public exchange and that the IRS has reason to believe the employer failed to comply with the ACA's employer mandate.

In many cases, these letters have come about as a result of reporting errors, which were to be expected in the first years of filing. Providing the IRS with updated information or correcting filing errors is likely to reduce or even eliminate the assessment.

Here's what employers need to do if they receive a 226-J letter:
  • Respond within 30 days or request an extension (the IRS usually will grant one) for more time to understand what’s in the letter.
  • Review 2015 1094-C and 1095-C forms to make sure the information is correct and properly reflected in the IRS letter.
  • Challenge the assessment if necessary. File an ESRP Response form (Form 14764) including a signed statement explaining the reason(s) for the disagreement and any supporting documentation, such as calculation of the adjusted employer mandate assessment and the correction of any errors on 1094/1095s.
  • Review 2016 and 2017 filings to make sure any errors from 2015 filings were not repeated.

As IRS agents become more sophisticated and educated with ACA rules, experts predict a steady increase of citations in the coming months, along with higher standards for employers' responses to those citations. To avoid unwarranted scrutiny, employers should continue to focus on making sure they're accurately tracking and reporting on coverage eligibility

Get our experts' take on the future of the ACA's employer mandate in this on-demand webinar!

2. Summary of Benefits and Coverage forms are still required.

The ACA introduced a new disclosure requirement for employer health plans, called a “Summary of Benefits and Coverage” (SBC), which is intended to help employees make an easy “apples-to-apples” comparison of various plan features, such as deductibles, out-of-pocket maximums, and co-payments for different benefits and services.

This requirement still applies, and SBCs must be provided during open enrollment, upon an employee’s initial eligibility for coverage under the health plan, and anytime at the request of an employee. While the level of effort required to provide SBCs is nowhere close to that of employer mandate compliance and reporting, failure to do so can still come at a high cost for employers—a penalty of $1,128 per plan participant for 2018.3

Requirement or not, though, giving employees a clear breakdown of their benefits and enabling them to easily compare different plans is just good business. As health insurance becomes more complicated and employees take on higher and higher out-of-pocket costs, employers who provide user-friendly tools and resources to guide cost-effective employee benefits enrollment decisions put themselves in a stronger position to not only curb unnecessary health care spending, but also make employees feel empowered and well cared for—leading to better talent attraction and retention.

Learn more about what you can do to empower employees to make better benefits decisions with Benefitfocus' Open Enrollment Success Kit.

3. The threat of the Cadillac Tax remains.

The ACA’s 40 percent excise tax on high-cost employer health plans, also known as the "Cadillac tax," was initially scheduled to take effect in 2018. But since the ACA became law, the tax has been repeatedly delayed, and now it's not set to kick in until 2022.

There continues to be wide bipartisan support for repealing the Cadillac tax. However, there is no consensus in Congress on how to replace the lost revenue from total repeal—estimated at $87 billion over a decade.While it remains unlikely that the tax will ever fully take effect, until it's completely revoked, employers should keep an eye on their health plan designs with the Cadillac tax in mind.

Get a full breakdown of how results of the upcoming midterm election could impact ACA compliance and employer benefit programs in this on-demand webinar!

1.NBC News: A Texas lawsuit threatens the Affordable Care Act
2.ThinkAdvisor: House Agrees to Debate ACA Employer Mandate Bill Next Week
3.Leavitt Group: 2018 Increases to DOL Fines for Violations of ERISA and Other Federal Laws
4.Congressional Research Service: Excise Tax on High-Cost Employer-Sponsored Health Coverage: In Brief