Patient Protection and Affordable Care Act (PPACA)

Yesterday, the IRS reiterated that employers violating the ACA can expect penalty letters in late 2017 and also updated that portion of its website dedicated to the Employers’ ACA obligations here. The update explains the form of notices employers can expect to receive as a result of IRS penalties pursuant to the ACA. Those notices are listed below with a brief description:

1) Letter 226J

  • Alerts the employer that a penalty is owed and why
  • Provides a table of applicable monthly penalties
  • Addresses the means of submitting penalty payments
  • Explains when employers may appeal and what action is required

Note – a response is required within 30 days after receiving a Letter 226J or the IRS will proceed with its stated action.

2) Letter 227

  • Response an employer will receive from the IRS acknowledging an appeal
  • Deadline for employers to request a pre-assessment conference with the IRS Office of Appeals

3) Notice CP 220J

  • The notice and demand for payment describing how payments will be made

Note – Payments will NOT be made on the ALE’s tax returns.

Late Thursday evening after President Trump issued an Executive Order earlier in the day directing various administrative agencies to take suggested actions for the hope of reducing the cost of health insurance, discussed here, the Trump Administration announced it would terminate cost-sharing reduction (“CSR”) payments based upon guidance to the Administration by the Department of Justice indicating that there is no federal appropriation for the CSR payments. The CSR payments are made by the Secretary of Health and Human Services to insurance companies to help offset the cost of providing reduced cost insurance to low income individuals who qualify for them on the Exchange. Insurance carriers providing products on the Exchange have already indicated significant premium hikes for their products if CSR payments are not made in 2018. Many industry experts fear this action would dramatically increase premium costs for those Exchange participants who can afford to remain on the Exchange if this change were to take effect, while leaving other individuals and families who cannot afford the premium increases no options for affordable coverage, discussed here. Although the Administration stated the payments would stop immediately, there really was no guidance as to when they would cease. Any cessation if implemented should not impact 2017 premium amounts as they have already been established but would be anticipated to apply to any 2018 premium amounts even though open enrollment has already begun. Already there are reports of anticipated litigation to oppose the action brought by insurers who are the recipients of the reimbursements as well as nineteen states who oppose the action. Congress has been considering legislation that would fund the CSR payments and the President’s action on Thursday evening may well prompt a quick response.

I received a few questions after last Thursday’s Executive Order asking if the Trump Administration’s actions did indeed nullify the ACA. The Administration is clearly trying to obfuscate the ACA after Congress failed to repeal it. However, employers and others charged with ACA compliance must keep in mind that the ACA remains a federal law that can only be repealed by Congress. As Chief Justice Roberts aptly noted in the Court’s majority opinion in King v. Burwell, “[w]e must respect the role of the legislature, and take care not to undo what it has done.” Those same constitutional constraints apply to the executive branch of government. The Trump Administration’s efforts last Thursday serve to deflate but not undo, or nullify, the ACA. However, this action, as compared to this Administration’s Executive Orders issued to Administrative Agencies regarding the ACA this year, has greater potential to put a chink on the ACA’s armor.

President Trump issued an Executive Order yesterday which purports to suggest three avenues for offering health insurance at a decreased cost to small employers and consumers for the overall goal of reducing healthcare costs on the grounds that the Affordable Care Act (ACA) has limited consumer choice resulting in an increase in healthcare insurance cost. The Order charges various administrative agencies to act within 60 days.

First, the Executive Order directs the Department of Labor (DOL) to issue proposed rules that would permit small employers to join together and create what can be likened to multi-employer plans for the purpose of obtaining the same discounts for insurance offered to large employers, interestingly one of the two premises behind creation of the ACA Exchanges, by expanding access to Association Health Plans. The proposed plan of action would rely on a “broader interpretation” of a provision of the Employee Retirement Income Security Act (ERISA) that permits multi-employer plans for employers who have a “commonality of interest.” ERISA is statutory law modifiable only by Congress although the Employee Benefits Security Administration (EBSA), a division of the DOL, is charged with enforcing ERISA as they pertain to employer’s healthcare plans.

The Executive Order directs the DOL, Department of Treasury and Department of Health and Human Services (HHS) to issue rules that permit healthcare coverage to be offered through short-term limited duration insurance which is not subject to the ACA by extending the allowable coverage under these types of plans for longer periods and permitting consumers to renew them. The Executive Order also directed the agencies to issue regulations applicable to Health Reimbursement Accounts (HRA) that increased the usability beyond what HRAs already offer.

One concern is the less costly healthcare insurance offered under AHPs or short-term limited duration insurance plans may not contain all of the coverage protections required by the ACA. As a reminder, the ACA requires that all healthcare plans offer coverage for essential health benefits and that the insurance plan provides minimum value (namely covering the cost of covered treatments up to a certain percentage of the total cost). Another concern regarding the proposals are that the changes would result in violations of other federal laws which prohibit disparity in premiums between younger, healthier workers or individuals as compared to premiums charged to those who are older or sicker.

The Executive Order identifies a number of statistics about healthcare insurance costs and coverage all to show that health insurance is becoming less affordable for consumers and too costly for carriers to offer resulting in a decrease of competitive healthcare insurance plans and an increase of uninsured.

President Trump also criticizes the consolidation of providers as a reason healthcare costs have increased, suggesting that the consolidations interfere with healthy competition, and requiring the Federal Trade Commission, along with DOL, HHS and Treasury, to report to him within 180 days on federal and state policies limiting competition and choice in the healthcare industry.

Similar to his January 31, 2017 Executive Order in which he asked enforcement agencies to soften penalties under the ACA where the law allowed, any agency attempting to comply with the admonishment cannot simply and quickly issue new rules that then become enforceable regulations. Finally, as a practical matter, because it is October, most calendar plan years are already engaged in the open enrollment process so the earliest any enforcement changes could be implemented for those plans would be 2019. The Executive Order can be found here.

In the meantime, employers should continue to abide by the ACA. The IRS anticipates issuing its first penalty letters to employers for noncompliance this December.

The Affordable Care Act’s current proposed replacement does not include an employer mandate and abolishing the employer mandate is a good thing proposed in the American Health Care Act and the Patient Freedom Act before it.  Employers are not in the business of health insurance and, to some, having to offer health insurance coverage hinders their ability to continue business operations, thereby negatively impacting the ability to offer employment to the detriment of the economy.  Before the ACA was passed in March 2010, employers were not required to offer health insurance coverage as an employment benefit. The U.S. Supreme Court has held, “employers had large leeway to design disability and other welfare plans as they see fit.”[1]  Employers voluntarily began offering health insurance coverage as a benefit to their employees after the Stabilization Act of 1942 was enacted to cap wages and salaries.[2]  Employers began offering health insurance when employers were prohibited by the 1942 Act from increasing wages in order to attract prospective employees.

Fast forward to the current day and employers are now the primary provider of health insurance coverage to the American population.  “Employment-based insurance covered the most people (55.7 percent of the population), followed by Medicaid (19.6 percent), Medicare (16.3 percent), direct-purchase (16.3 percent) and military health care (4.7 percent), according to the most current 2016 Census gathering 2015 information.”[3]  However, the cost of healthcare for the employer has increased by 1,106% since 1977.[4]

Many supporters of repealing the ACA believe that it will help reduce their health insurance costs, forgetting that those were well on the rise long before the ACA was passed in 2010.  The Organization for Economic Co-operation and Development (OECD) gathers healthcare costs data from 35 countries, including the United States.  The OECD’s data established that the United States was spending “two and a half times more than the OECD average health expenditure per person” by 2011, long before the more costly requirements of the ACA were implemented and well before the ACA could be blamed for increased healthcare costs.[5]

At the time the OECD data was gathered, there were no mandates enacted in the United States for either employers or individuals to purchase health insurance.  Thus, presumably any Act which returns America to the same system in place before the ACA will not remedy the rising cost of healthcare and healthcare coverage since those costs were well on the rise before the ACA was promulgated. Currently, employers bear the largest brunt of providing healthcare coverage to the American citizens.  This is not a burden that was originally intended for employers.  The impact is most strongly felt by small businesses which are the majority of businesses in the U.S.  48.4% of American private sector employers employ less than 500 or less employees, 34.3% employ less than 100 workers and 17.6% employ less than 20 workers.[6] The individual mandate, first proposed by conservatives and the Heritage Foundation in 1984, is a more viable alternative for healthcare insurance in that the majority of Americans bear the cost of healthcare insurance, thereby reducing the cost overall.[7]

Although many employers will continue to offer healthcare coverage to their employees, many other businesses may choose more appropriate solutions tailored for their businesses, such as internal health clinics, stipends towards health insurance payments, or other innovative ideas tailored to compliment the specific business of the employer. Thus, employers and their advocates should all be supporting the repeal of the employer mandate.

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[1] Black & Decker v. Nord, 538 U.S. 822 (2003).

[2] http://www.legisworks.org/congress/77/publaw-729.pdf

[3] https://www.census.gov/newsroom/press-releases/2016/cb16-158.html

[4] See Chart appendixed to blog and courtesy of Rick Gantt, South Carolina Area President, Benefits and HR Consulting, Arthur J. Gallagher & Co.

[5] https://www.oecd.org/unitedstates/49084355.pdf

[6] http://sbecouncil.org/about-us/facts-and-data/

[7] http://www.heritage.org/research/lecture/assuring-affordable-health-care-for-all-americans

President Trump issued the “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” on January 20, 2017, one of his very first actions upon taking the oath of office.  The Executive Order directs the Department of Health and Human Services (HHS) and “heads of all other executive departments and agencies with authorities and responsibilities under the Act” to “exercise all authority and discretion available to them to waive, defer, grant exemptions from or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any state or a cost, fee, tax, penalty or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products or medications.”[1]  The Executive Order acknowledges that the agencies can only act as he has instructed “to the maximum extent permitted by law.” President Trump reiterated in the Executive Order that “[i]t is the policy of my Administration to seek the prompt repeal of the [ACA].”

In short, the Executive Order mandates that the fines and penalties associated with the ACA not be enforced as long as their enforceability is not mandated by law. The admonishment applies to any of the agencies charged with enforcing the ACA and specifically mentions HHS but the Internal Revenue Service (IRS) and Department of Labor (DOL) are two other agencies with significant responsibilities under the ACA.  The issue becomes determining where the ACA has given the agencies latitude in deciding when fines or penalties for compliance under the ACA can be waived or what other practical solutions the agencies have to honor the Order, such as delaying all attempts to pursue fines and penalties.  The Executive Order also states that the agencies may promulgate new rules and issue Notice of Proposed Rule Making as required by the Administrative Procedures Act, possibly as encouragement to do so as most ACA compliance requirements are contained in Regulations as opposed to the ACA itself. Further, those agencies to whom the Executive Order is directed are the ones who have recently worked so intently to educate, promulgate, pass and enforce the regulations amplifying provisions of the ACA since it as passed in March 2010.

While the news of the Executive Order is no surprise, it is difficult to know how to react to it. The difficulty is enhanced by President Trump’s contradictory statements about retaining certain aspects of the ACA such as his comments after being elected in November  2016, wherein President Trump said that he would like to retain the ACA requirements that health insurance plans cover Americans with pre-existing conditions or young adults on their parents’ plans until age 26.  The safest practice for employers and individuals alike is to continue to abide by the ACA until these issues are resolved by Congress.

[1] https://www.whitehouse.gov/the-press-office/2017/01/2/executive-order-minimizing-economic-burden-patient-protection-and

During 2015, employers with an aggregate number of full-time and full-time equivalent employees between 50 and 99 have enjoyed a reprieve from the Patient

Protection and Affordable Care Act (“ACA”) Employer Mandate.  Although these employers qualify as Applicable Large Employers (“ALE’s”) under the ACA – and therefore must offer their full-time employees affordable, minimum value health insurance coverage or pay a penalty – the Government promised not to impose such penalties if ALE’s with less than 100 full-time and full-time equivalent employees (“Small ALE’s”) did not comply with the Employer Mandate during 2015.  However, beginning on January 1, 2016, Small ALE’s must comply with the Employer Mandate or be subject to potentially significant monetary penalties.

As the January 1, 2016 deadline looms, many Small ALE’s are struggling to analyze and select what they consider to be the lesser of two evils:  (1) bear the likely onerous costs of offering affordable health insurance coverage (that is, the employee’s share of employee-only premium cannot exceed 9.5% of the employee’s income) to at least 95% of their full-time employees and their dependents; or (2) pay a potentially significant tax penalty.  In addition, even if these employers offer coverage, it may be difficult for the employer to offer affordable coverage to its lower-income employees.

Over the past several years, many ALE’s have assumed that the “Sledgehammer Penalty” – that is, the penalty for not offering coverage to at least 95% of their full-time employees and one of those employees obtains a premium tax credit – is $2,000 per year ($167 per month) per full-time employee (less 30 employees beginning in 2016).  Likewise, ALE’s have assumed that the “Tackhammer Penalty” – the penalty if an ALE offers coverage to at least 95% of its full-time employees but fails to offer coverage to at least one full-time employee who obtains a premium tax credit – is $3,000 per year ($250 per month) for each such employee.  However, ALE’s must be aware that beginning in 2015, those amounts have increased and likely will continue to increase annually.

Continue Reading Thinking of Rolling the Dice? Think Again: PPACA Employer Mandate Penalties Have Increased

657696_55005379In a 6-3 ruling issued June 25th, the U.S. Supreme Court rendered its opinion in the case of King v. Burwell (slip op. June 25, 2015).  In this case, the Court was asked to interpret language contained in the Patient Protection and Affordable Care Act of 2010 (“PPACA”) that authorizes individuals who purchase health insurance through a marketplace known as an “exchange” to receive tax credits a/k/a subsidies.  The actual language of the PPACA statute provides that individuals may receive a subsidy if they purchase and are enrolled in health insurance through an exchange “established by the State.”  Thirty-four states, including South Carolina, opted not to establish a State-based exchange and instead, individuals in these states can only purchase health insurance through an exchange established by the federal government.  The ultimate issue for the Court was whether individuals who purchased insurance through a Federal exchange qualified to receive these subsidies.

The Court sided with the federal government and ruled that any individual who purchases health insurance through an exchange, regardless of whether it is a State or Federal exchange, may qualify for the tax subsidy.

This ruling is an important confirmation for large employers that their “Shared Responsibility” obligations under PPACA will not be going away any time soon.  Under the framework of PPACA, the Employer Shared Responsibility penalties are only triggered if:  (i) employees who should have been offered health insurance coverage were not offered such coverage by the employer and instead purchased health insurance on an exchange, and (ii) such employees received subsidies.  For employers in the 34 states that did not establish state-based exchanges, a ruling against the federal government could have meant that the IRS enforcement scheme of the Shared Responsibility requirements against large employers would have been gutted.  However, the Court’s ruling today has largely left that enforcement scheme intact.

A copy of the Court’s opinion can be found at:  http://www.supremecourt.gov/opinions/14pdf/14-114_qol1.pdf