The ACA Remains but Targeted Reforms Will Be Sought

HR must stay compliant with ACA obligations despite prospects for future bipartisan relief

By Stephen Miller, CEBS Jul 24, 2017
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updated on July 31, 2017

Update: Senate Fails to Pass ACA Replacement

In the early hours of July 28, Senate Republicans' last-ditch effort to pass a "skinny repeal" bill newly dubbed the Health Care Freedom Act—which would have eliminated penalties under the Affordable Care Act's (ACA's) individual mandate to enroll in ACA-compliant coverage and (through 2024) the employer mandate to provide coverage—went down to defeat by a vote of 49 to 51. The failure leaves in place the ACA's wide-ranging obligations for employers with 50 or more full-time employees or equivalents to provide ACA-compliant health coverage to employees who work at least 30 hours per week, and to track and report all employee hours to the IRS, along with other administrative requirements.

Going forward, the GOP is likely to seek, with possible bipartisan support, specific targeted reforms as discussed below.


With the Republicans' failure to pass a bill to repeal and replace the Affordable Care Act (ACA), employers should plan to remain compliant with all ACA employee health coverage and annual notification and information reporting obligations.

Even so, advocates for easing the ACA's financial and administrative burdens on employers are hopeful that at least a few of the reforms they've been seeking will resurface in the future, either in narrowly tailored stand-alone legislation or added to a bipartisan measure to stabilize the ACA's public exchanges. Relief from regulatory agencies could also make life under the ACA less burdensome for employers.

"The House is now on summer recess and will remain there through August. When it returns, looking for bipartisan consensus might be a good place to start moving forward on health reform," noted Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va., writing in a post on the Health Affairs Blog. "Partisanship does not seem to have succeeded."

"Looking ahead, lawmakers will likely pursue targeted modifications to the ACA, including some employer provisions," said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management (SHRM). "Stand-alone legislative proposals have been introduced in previous Congresses, and sponsors of those proposals are gearing up to reintroduce bills in the coming weeks."

These legislative measures, Birbal explained, are most likely to address the areas noted below.

'Cadillac Tax'

The "Cadillac tax" on high-cost employer-sponsored health plans is set to take effect in 2020. Bipartisan legislation has already been introduced in the current Congress to repeal the 40 percent excise tax "and will likely receive considerable attention," Birbal noted.

A big hurdle, however is "replacing the lost $90 billion in revenue that the Congressional Budget Office expects the Cadillac tax would bring in over a 10-year budget window," said Brian Gilmore, lead benefits counsel and vice president at San Mateo, Calif.-based ABD Insurance and Financial Services, a benefit brokerage firm. "The wrong way to address the lost revenue would be to cap the tax exclusion for employers' health care costs," he noted, expressing a concern that Birbal said SHRM and other employer groups share.

Employer Mandate

The ACA requires employers with 50 or more full-time employees or equivalents to provide ACA-compliant health care coverage. The employer mandate, also known as the shared-responsibility provisions or the pay-or-play rules, "creates a strong incentive for employers to stay below the 50 full-time employee threshold on average each calendar year," Gilmore said. The rules "also create a strong incentive for employers to satisfy their labor needs through part-time employees. Repealing the pay or play rules should therefore help address the current underemployment problem plaguing many workers still struggling to find full-time work."

One proposal backed by a coalition of centrist Democrats and Republicans who call themselves the "problem-solver caucus" would raise the threshold for the employer mandate from 50 employees to 500, and full-time work from 30 to 40 hours per week.

"The current employer mandate places a regulatory burden on smaller employers and acts as a disincentive for many small businesses to grow past 50 employees," according to a summary of the bipartisan plan posted by Rep. Kurt Schrader, D-Ore. "Additionally, the definition of 'full time' under the employer mandate should indicate that a full-time work week is 40 hours," the summary states.

Definition of a 'Full-Time' Employee

The ACA defines full-time employees entitled to receive health coverage from large employees, and who are counted within the ACA's 50 full-time employee threshold, as those who work a minimum of 30 hours per week. Assuming that the employer mandate remains in place, SHRM and other employer groups support proposals to change the definition of full-time employee to 40 hours per week (the standard pre-ACA definition). The current definition "imposes significant costs on employers, particularly in industries with a low-paid workforce," Gilmore said.

In addition, the monthly measurement and lookback measurement methods for determining employees' full-time status "have presented an unreasonable burden" on employers, he noted.

A SHRM-supported proposal to modify the ACA definition of "full-time" employee for purposes of health care coverage passed in the House of Representatives in 2015, Birbal said.

Defining "full-time" as an employee working 30 hours a week "is inconsistent with standard employment practices in the U.S. today and other federal laws," according to a SHRM position paper. "Some employers have opted to eliminate health care coverage for part-time employees, while others have re-engineered staffing models to reduce employee hours below the 30-hour threshold that triggers the coverage requirements."

Definition of Seasonal Employee

The ACA requires that large employers cover their full-time employees, but the final regulations provide that seasonal employees do not qualify as full-time employees under certain circumstances, even if they work 30 hours or more per week.

For instance, whether or not large employers must offer coverage to full-time but seasonal employees is based on two factors: how long these employees work for the employer, and which measurement period the employer chooses to use.

Navigating this exception is complex, Birbal noted, and employers would welcome a simplified approach if the employer mandate isn't repealed altogether.

[SHRM members-only HR Q&A: Do applicable large employers (ALEs) have to provide coverage to full-time seasonal employees if they do not wish to pay a penalty?]

Annual Information Reporting

Employers have sought to ease the employee tracking and IRS reporting requirements for employers offering health coverage to their employees. To prepare and file Form 1095-C, for instance, involves tracking the hours worked by variable-hour employees each month.

Employers will be looking for ACA legislation to simplify their reporting obligations, Birbal said.

Regulatory Reform

In addition to congressional action, regulatory guidance is anticipated from the departments of Labor, Treasury, and Health and Human Services, as well as from the Internal Revenue Service—the agencies responsible for ACA oversight, Birbal said.

"Recall that President Trump issued an executive order in January directing federal agencies to minimize the ACA's regulatory burden where possible," she noted. "These regulatory burdens may include easing employer reporting requirements and the employer pay-or-play penalties."

While any reduction in the ACA's administrative burdens through rule-making would be welcome, major changes may require new legislation, which will need bipartisan support to pass, Birbal pointed out.

"Since day one of the Trump Administration, the team at HHS has taken numerous steps to provide relief to Americans who are reeling from the status quo, and this effort will continue," Health and Human Services Secretary Tom Price said after the July 28 defeat of the Senate's "skinny repeal" bill, the Washington Examiner reported.

For Now, Business as Usual

It bears repeating that unless and until the law or federal rules are altered, "for employer group health plans, it's business as usual," noted Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo., and Rory Kane Akers, an ERISA compliance attorney at the firm. "The ACA, its employer mandate, the year-end reporting, and all the rules regarding the benefits a health care plan must offer and who they must offer them to, remain in full force and effect," they said.

"Even though an executive order was issued earlier this year directing the federal government agencies to minimize the burdens [of the ACA], the IRS has confirmed in two letters from the Office of Chief Counsel that the law has not been changed," commented Greta Cowart, a benefits attorney in the Dallas office of Winstead, referencing IRS letters number 2017-0010 (April 14, 2017) and 2017-0017 (June 20, 2017), the latter stating plainly that:

"The Executive Order does not change the law; the legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain required to follow the law, including the requirement to have minimum essential coverage for each month, qualify for a coverage exemption for the month, or make a shared responsibility payment."

The IRS clarified, Cowart added, that "an applicable large employer is still subject to the employer shared responsibility payment if it fails to offer coverage to a sufficient percentage of its full-time employees in 2017 or if it has a full-time employee who obtains coverage on the insurance marketplaces and receives assistance or a tax credit and the employer's coverage is not affordable or did not provide minimum value." 

Employers subject to the ACA's reporting requirements "should prepare to comply and report for 2017 on Forms 1095-C and 1094-C," she advised.

Items on Employers' Health Care Agenda

"Both parties have to step back, take a breath, and decide how best to proceed," said James Klein, president of the Washington, D.C.-based American Benefits Council.

In a July 31 memo to the council's members, Klein highlighted ideas that could now get congressional consideration including:

  • Allowing employers to give workers pretax dollars to purchase coverage in the individual market, which Klein called a significant step toward "defined contribution" health coverage.

  • Permitting premium tax subsidies to be used for purchase of coverage outside of the state and federally facilitated exchanges— especially if the individuals live in areas where no plans are available in the exchange.

  • Creating a more effective risk mitigation program for the individual market and allowing anyone—not just under-age-30 "young invincibles"—to buy less expensive catastrophic coverage.

Additionally, bills were passed by the House this spring relating to association health plans (the Small Business Health Fairness Act) and stop-loss coverage (the Self-Insurance Protection Act). These "could now get a serious look by Republicans in the Senate," Klein said.


Related SHRM Articles:

Even Absent a Mandate, Workplace Health Benefits Are Here to StaySHRM Online Benefits, July 2017

HSA Provisions in Failed GOP Bills Could Return in Future Legislation. Should They?, SHRM Online Benefits, July 2017

Health Care Reform Resources for Employers

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