Proponents of the Affordable Care Act say the law did not adversely impact employers and employer health plans. That’s not true.
Although not as significant as the impact on individual-market health plans, health-plan requirements under the law — such as covering adult children up to age 26, paying for certain preventive services before the deductible is met, and the prohibition against annual and lifetime limits — raised insurers’ costs and were factored into the price of group insurance.
In addition, the ACA’s “employer mandate” tax penalty increased compliance costs for all employers with 50 or more full-time-equivalent employees. While many large employers were already offering health plans that satisfied the mandate’s minimum coverage standards, employers in certain industries were required to increase their level of coverage, which simply boosted costs even further for them.
Moreover, new employer reporting requirements — which were added to the law to help the IRS enforce both the employer mandate and the individual mandate — resulted in increased administrative and compliance costs.
And, although the Cadillac tax has yet to take effect, many employers have already expended resources to make sure the health coverage they offer will not trigger the tax. Employers have also taken steps to comply with other tax changes that are currently effective, like the contribution limit for flexible spending arrangements.
So yes, if the ACA is fully repealed, employers will surely benefit.
It appears that congressional Republicans are pursuing a strategy that would only repeal portions of the ACA before a full ACA replacement plan is enacted. Under this strategy, the employer mandate penalty tax amounts would be reduced to $0 (from the current $2,160 and $3,240 penalty amounts for 2016 under two provisions of the law).
This action would be akin to repealing the tax, although the current rules (other than the penalties) would stay on the books. But it’s a virtual certainty that the incoming Trump administration will assure employers that they no longer need to comply with the mandate’s requirements, so in effect the repeal will be immediate.
Employer Reporting Requirements
Does that mean the employer reporting requirements will go away? Unfortunately, no.
Another aspect of the Republicans’ strategy of partial repeal is that the premium subsidies available to people who are not offered an affordable/minimum-value employer plan will remain in place for up to two or three years.
It’s important to point out that while the employer reporting forms are used to enforce the employer mandate, the forms are also used to determine eligibility for the premium subsidies. So, if the premium subsidies remain in the law, there will be a need for employers to continue to furnish these forms to full-time employees and file them with the IRS. Otherwise, the federal government will be handing out premium subsidies unchecked — something that goes against republican orthodoxy.
Note that there is interest among congressional Republicans and Democrats to simplify the reporting requirements, so it is advisable that the employer community continue to pressure Congress to pass a simplification measure.
Group Health Plan Requirements
Will the ACA’s group health plan requirements be repealed immediately? No. The legislative pathway Republicans have chosen to repeal portions of the ACA — known as the “reconciliation” process — prevents immediate repeal of these requirements. That means they will remain in effect until specifically replaced through a new, ACA-replacement plan, which likely will not be enacted until 2018 or 2019.
The Cadillac Tax
What about the Cadillac tax? It’s likely to be repealed immediately, despite the two-year delay in its effective date, currently scheduled for 2020. That should provide certainty to employers and the labor community that the Cadillac tax — and the limitation it places on the current tax preference for employer-sponsored plans — will never go into effect.
However, congressional Republicans have indicated that they would include some type of limitation on the tax preference in an ACA replacement plan. As a result, it’s advisable that the employer and labor communities pressure Republicans — and Democrats who also support this policy — to develop a limitation with precision.
Some examples: limiting the number of employers impacted in the early years; ensuring that the limitation’s thresholds vary by geography: and indexing the limitation to premium increases, or at least to medical inflation.
Christopher Condeluci is principal of CC Law & Policy. Prior to starting his own practice, Chris served as tax counsel to the U.S. Senate Finance Committee, where he participated in developing portions of the ACA, including the ACA exchanges, state insurance-market reforms, and all of the taxes under the law.