Since the Affordable Care Act’s (ACA) inception, employers continue to ask the question: When will the ACA end? Many times, the line of inquiry is rooted in a specific area of concentration, such as the annual 1094-C/1095-C reporting requirement.
The want for the ACA to end is understandable. Complying with the ACA’s reporting requirements alone is time consuming and expensive. The non-compliance penalty risks are so significant that, if realized, they would put some companies out of business and considerably compromise others. Unfortunately, there is no answer to when the ACA will end, but rather, just more questions.
The reality is the employer mandate is “guilty by association” to the components of the ACA that expanded coverage availability through the individual market. While the federal mandate for individuals to maintain coverage is no more, the federal government continues to subsidize the cost of coverage for qualifying individuals when that coverage is procured through the individual market. As currently constituted, the individual market would likely prove to be unsustainable without these subsidies. A shuttered marketplace would drive up the uninsured population and take coverage away from many Americans that are leveraging the protections afforded under the ACA.
Since the ACA’s inception, the federal government has been clear regarding its willingness to provide subsidies, so long as individuals do not have access to good coverage elsewhere. That access, when enabled through employment, is governed by the ACA’s employer shared responsibility (“pay or play”) provision.
For employers subject to the employer mandate, it has never been pragmatic to consider the “will it or won’t it” proposition in black-and-white terms. Candidly, not taking specific action to comply with ACA mandates on the basis that they will eventually go away has been viewed as irresponsible from the very start. Even though the U.S. Supreme Court, for their next term (beginning in October), has recently agreed to hear the ACA case coming out of the Fifth Circuit Court of Appeals, it remains uncertain whether the constitutionality of the law would be struck down. Keep in mind, the Court has upheld the ACA as being constitutional twice already. In addition, it would likely be some time in 2021 before a decision would be published leaving employers to continue following the law for a while yet. As a result, the go-forward way of thinking about the ACA in terms of “will it or won’t it” centers around risk: Will ACA non-compliance become more risky or less risky?
Below are two factors that favor ACA non-compliance becoming a riskier proposition.
ESRPs and related penalties
As featured earlier in this series, the proposed assessments for employer shared responsibility payments (ESRPs) are jaw dropping in most instances. The IRS has commented that it intends to become increasingly particular when it comes to the reasonable cause response arguments it will accept for abatement. The best response arguments presented to the IRS in the future will be those introduced by employers who can scientifically support their actions and abilities to comply with offer of coverage and affordability requirements on a month-to-month basis. A mastery of 1094-C/1095-C reporting will protect against the number of situations whereby the IRS comes calling upon employers to explain themselves.
Emerging state mandates
While the federal individual coverage mandate was reduced to zero effective Jan. 1, 2019, in its place are a growing number of state individual mandates supported by employer information return filing requirements:
Five additional states – Connecticut, Hawaii, Maryland, Minnesota and Washington – are actively considering similar individual coverage mandates. In Massachusetts, the individual mandate went into effect in 2006 and served to blaze the trail for the ACA’s subsequently derailed mandate.
Not only do these state mandates situate reporting requirements and non-compliance penalties for the long term, they serve to increase the complexity of such for employers operating in multiple states. While most of the early adopters of these state provisions are mirroring federal reporting mechanics, each has the ability to implement its own requirements.
In addition, most multi-state employers will be cautious when it comes to spreading their data across state lines due to concerns over information security. These employers will want to ensure their reporting systems and processes are capable of both transmitting full sets of data to the IRS for federal compliance purposes and isolating state-specific data sets for transmittal via each state’s established mechanism.
These combined factors make compelling cases for injecting ACA compliance into the enterprise risk conversation. Our experience tells us that its complications are not being proportionately matched to the measures many organizations are taking to establish a compliant position. Said more simply and succinctly, some employers struggle when it comes to ACA compliance strategies and tactics. With no sign of ending difficulties and leading indicators currently pointing to increased negative risk potential in this area, it is time to stop asking “when” and start thinking “how.”
For more information on this topic, or to learn how Baker Tilly Vantagen specialists can help, contact our team.
About the ACA in Action series and Baker Tilly Vantagen
ACA in Action is a series of informative articles that provide practical perspectives on current matters of Affordable Care Act (ACA) compliance. Offering these perspectives are certified ACA professionals from Baker Tilly Vantagen who are well-versed in how evolving ACA concepts are uniquely affecting everyday operations within impacted organizations.
Baker Tilly Vantagen is the employee benefits administration and human resources consulting arm of Baker Tilly. We have been providing ACA compliance support since 2010, and preparing, issuing and transmitting Forms 1094/1095 on behalf of employers since 2015.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.