Living with the Affordable Care Act’s Uncertain Future

By Timothy Kennedy

Given the Failure of Initial ACA Repeal Efforts and Ambiguity Surrounding Enforcement, Employers Subject to the Law Must, for Now, Continue Compliance Efforts or Risk Penalties

After the November 2016 election, with Republications in control of both Congress and the White House, prospects for the Patient Protection and Affordable Care Act (the “ACA”) and its employer health insurance mandate looked dim. The Trump administration issued an executive order on its first day stating that it would “seek the prompt repeal of [the ACA].” By late March, however, the timeline for ACA repeal remained uncertain. On March 24, 2017, Speaker of the U.S. House of Representatives Paul Ryan told reporters that “Obamacare [the ACA] is the law of the land.” Ryan later added, “we’re going to be living with Obamacare [the ACA] for the foreseeable future.”

Ryan’s statements came after Republican leadership had promoted iterations of a bill, the American Health Care Act (the “ACHA”), that would have repealed significant portions of the ACA. This initial repeal effort ceased when Congressional Republicans and the White House failed to obtain an adequate number of Republican votes to approve the measure in the House of Representatives. The stalled bill would have repealed the ACA’s individual and employer mandate penalties retroactive to January 1, 2016. This legislative action would have immediately granted affected employers more latitude in making decisions about offering coverage and setting employee premiums.

Repeal negotiations among Republicans have continued since Ryan’s announcement. Indeed, as this article went to press, Congress had adjourned for an Easter recess, but not before Republican members announced more tweaks to the legislation intended to solidify support among their majority for the repeal bill. Based on media reports, these negotiations have not focused on the repeal of the individual or employer mandates, elements of the proposals that seem to have significant support among the Republican majority, but instead on aspects like restrictions on pre-existing condition exclusions, lifetime benefit caps, individual tax credits, and Medicaid expansion.

As Congressional machinations continue, public support for preserving some form of the ACA has increased. A poll conducted by Gallup in early April showed approval for the ACA rising to 55 percent among a random sample of American adults, up from 42 percent of those surveyed in November 2016. According to Gallup’s report, about two-thirds of those surveyed in April favored keeping the law as is or with significant changes. This shift in public opinion, if sustained, makes repeal less certain.

The ACA Penalties Remaining on the Books Can Be Harsh, and Exchanges Have Collected Data Necessary to Impose Penalties

The ACA imposes potential penalties—described in the law as an “Employer Shared Responsibility Payment”—on “applicable large employers” that do not provide minimum essential medical coverage to full-time employees that is affordable and provides minimum value. “Applicable large employers” are generally employers that had an average of at least 50 full-time equivalent employees in the prior year. Each element of the compliance process can be daunting. For example, analyzing who is a full-time employee and analyzing whether coverage is affordable can be a particular challenge for businesses with variable hour, temporary, and seasonal workforces.

An employer that does not offer coverage that meets the minimum essential standards to at least 95 percent of full-time employees and their non-spouse dependents can face a penalty—sometimes called the “(a) penalty”—of $188.33 (adjusted annually for inflation) per full-time employee per month (less 30 full-time employees) if just one of those full-time employees purchases coverage through an exchange and receives a subsidy. Alternatively, if the employer offers minimum essential coverage to 95 percent or more of its full-time employees, but the coverage is not considered affordable or providing minimum value, the employer will be subject to a penalty—sometimes called the “(b) penalty”—of $282.50 (adjusted annually for inflation) per month for each full-time employee that receives subsidized coverage from an exchange for a month, with the total (b) penalty not to exceed the (a) penalty amount.

Starting in 2016, the Department of Health and Human Services began sending out notices to employers indicating that an employee had received subsidized exchange coverage. Although these notices were not penalty assessments—penalty assessments would come later from the Internal Revenue Service—the notices indicate that enforcement agencies are tracking this essential ACA penalty trigger. For the time being, employers should continue to appeal any of these notices that indicate that the employee provided inaccurate information in order to build a record against any potential future penalties.

The Effect of an ACA “Collapse” on the Employer Mandate Is Uncertain

In the wake of the initial repeal failure, both Ryan and Trump have characterized the ACA as “collapsing” on its own without legislative action. Indeed, Trump followed up on the initial failure of the repeal bill by tweeting that “[t]he Democrats will make a deal with me on healthcare as soon as ObamaCare [the ACA] folds—not long.” These comments appear to specifically address the state of the individual market health insurance exchanges established by the ACA. These exchanges allow individuals to use tax credits and subsidies to buy individual market medical insurance policies. Exchanges in some geographic markets have struggled to retain insurers. Allegations of imminent “collapse” generally seem to refer to the withdrawal of all insurers from the exchange in a geographic market. Without policies for sale on the exchanges, individuals cannot take advantage of the tax credits and subsidies.

These forecasts of ACA “collapse” do not provide employers immediate ACA compliance relief. Determining how the “collapse” of an ACA exchange would impact the ACA employer mandate is difficult. The employer mandate penalties are tied to the existence of insurance available through individual market exchanges—the penalties apply only if the employee obtains subsidized coverage on an exchange. Even in regions where all remaining insurers are leaning towards departing from the exchanges, however, employers cannot be certain of which, if any, exchanges will “collapse” and how specific exchange failures would impact their workforce’s ability to obtain subsidized coverage that triggers an employer mandate penalty. The widespread “collapse” of exchanges in a region conceivably could change the risk analysis for employers considering paying an ACA penalty rather than providing qualifying coverage, particularly an employer willing to pay a (b) penalty for providing minimum essential coverage that is not affordable or does not meet minimum value. An employer, however, would need to approach such an analysis carefully.

The First Day Executive Order Suggested Potential Relief, But Provided No Apparent Respite from ACA Employer Obligations

With legislative repeal currently stalled and the uncertainty surrounding exchange failures, employers will continue to look for administrative relief. The Trump administration’s “first day” executive order announcing the intention to repeal the ACA stated that pending repeal the executive branch would “take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the [ACA],” but provided no concrete compliance relief. The order directed agency heads with ACA enforcement responsibilities to “exercise all authority and discretion available to them” to grant relief from and delay implementation of ACA provisions that would burden states or “individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.” Employers are notably absent from this list of affected parties to be granted available relief. Although employers often are “purchasers of health insurance,” many self-insure, leaving those employers excluded from the directive.

Despite the executive order’s ambiguity, the agencies charged with enforcing employer ACA obligations may grant broader relief to employers, particularly if the administration gets more political appointees in place. The ACA implementing agencies have a history of granting relief, even under the Obama administration. Indeed, this November, more than two months before the inauguration, the IRS granted a 30-day extension on the issuance of ACA information returns to plan participants. For now, however, there is no clear indication of additional administrative relief resulting from the change in administrations.

As Long as the ACA Remains in Force, Applicable Large Employers and Growing Small Employers Must Be Mindful of the ACA

Applicable large employers already subject to the ACA can continue offering coverage and applying existing compliance processes while awaiting a repeal of the ACA employer mandate or significant agency relief from enforcement. Perhaps more frustrating, smaller businesses, with fewer than 50 full-time equivalent employees, may find themselves reaching the 50 full-time equivalent employee threshold due to growth or ownership changes and may be forced to consider expending resources on compliance with a law that could be repealed in short order.

Timothy Kennedy, Attorney FordHarrison tkennedy@fordharrison

Timothy Kennedy, Attorney