Will the GOP's ACA Replacement End the Employer Mandate and Required Reporting?

Even if the bill is enacted, don’t expect quick changes in employer responsibilities

By Stephen Miller, CEBS Mar 8, 2017
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Update: House Passes Republicans' ACA Replacement Bill

The U.S. House of Representatives passed the American Health Care Act on May 4, 2017. The Senate subsequenlty considered its version of repeal and replace legislation, the Better Care Reconciliation Act

For the latest developments, visit SHRM's Health Care Resources for Employers webpage.


​If the American Health Care Act (AHCA) were to be enacted in something like its current form—admittedly, a big if—would the mandate that larger employers provide health care coverage simply go away? And what about the related employee tracking and IRS information reporting requirements?

The newly proposed legislation, backed by the House GOP leadership and unveiled on March 6, would repeal key portions of the Affordable Care Act (ACA) through the budget reconciliation process, which requires only a simple majority vote to pass through the Senate. But many questions remain about what would actually happen if the House AHCA bill, or a substantially similar measure, were to be signed into law.

The Employer Mandate

The American Health Care Act, its backers say, would get rid of the penalties for the "shared responsibility" mandate that requires employers with 50 or more full-time (or part-time equivalent) employees to offer minimum essential coverage to full-time workers.

"This bill would reduce the [employer] penalty to zero for failure to provide minimum essential coverage," said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management. "The employer mandate will remain and would have to be repealed through future legislation. The effective date would apply beginning after Dec. 31, 2015, providing retroactive relief to those impacted by the penalty in 2016."

"By eliminating the excise tax penalty, the legislation effectively would render toothless the employer 'pay-or-play' mandate," said Garrett Fenton, an employee benefits attorney with Miller & Chevalier in Washington, D.C.

Others, however, aren't so sure.

"Although the ACA's employer penalties could be reduced to zero, the requirement to offer affordable [and at least] minimum-value coverage to full-time employees would remain the law of the land," said Mark Wilson, chief economist at the American Health Policy Institute in Washington, D.C. Under the Employee Retirement Income Security Act (ERISA), dropping coverage "could create a potential ERISA private right of action for an impermissible reduction in benefits if employers were to withdraw benefits because no penalty would be attached," he contended.

Employer Liability

Could cutting back benefits trigger participant lawsuits? "Employers can change their plans at any time; if coverage is substantially reduced they have to provide notice," said Kim Buckey, vice president for client services at Birmingham, Ala.-based DirectPath, an employee engagement and health care compliance firm.

"Employer-sponsored health plans typically reserve the employer's right to amend or terminate the plan at any time, and for any reason," agreed Fenton. "ERISA generally does not prohibit the employer from making such changes, except in limited scenarios where participants could be said to be 'vested' in their right to the health benefits."

Although the proposed legislation technically would leave the employer pay-or-play rules on the books, he added, "Under section 4980H of the Internal Revenue Code, those provisions do not authorize a private right of action against an employer that allegedly violates them. [The AHCA] would thus effectively end the employer mandate as we know it."

"The fact that the substantive rules related to the employer mandate remain in effect even though there are no penalties would not likely present latent liability issues" agreed Damian Myers, a benefits attorney with Proskauer in Washington, D.C. "The employer mandate was always meant to present employers with a choice—provide adequate insurance coverage to most full-time employees or pay a penalty. In the absence of penalties, it is simply an easier choice to make from a financial perspective, although there are, of course, employee relations and talent competition considerations involved."

While employees do not have a private right to seek enforcement of the employer mandate, nevertheless, "before an employer makes any changes to health plan eligibility or covered services, it should seek advice from legal counsel as the changes could give rise to other issues." Myers said.

[SHRM members-only toolkit: Communicating with Employees About Health Care Benefits Under the Affordable Care Act]

Employee Tracking and Reporting Requirements

"Eliminating the employer penalty for not making affordable insurance plans available would essentially end the employer mandate but would leave uncertainty as to the risk of ignoring administrative and human resources requirements," said Mark Phillips, labor and employment litigation partner in the Los Angeles office of Arent Fox. Predominant among those administrative requirements are the ACA's annual information reporting obligations.

"Unfortunately, further legislative and/or administration action is needed to end the employer reporting requirements" now in place, said James Gelfand, senior vice president of health policy at the ERISA Industry Committee in Washington, D.C., a group that represents large U.S. employers.

"The Form 1095 reporting and employee notice requirements would remain in effect under the legislation," Fenton concurred, "as would the ACA requirement for employers to report to total cost of employer-sponsored coverage on each employee's Form W-2. "In fact, the legislation would provide for some additional employer reporting requirements, on Form W-2, specifying each month in which the employee was eligible for group coverage."

Beginning in 2020, "Because the IRS would need to know who received offers of employment-based coverage, the GOP bill would install two new reporting obligations on employers," commented Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo., in an alert from the firm.

Annually, employers would indicate on the W-2 whether the employee was offered health insurance. In addition, the AHCA provides that credits can be claimed in advance (similar to the ACA), "so whenever an employee or family member were to seek advance tax credits to purchase individual market coverage, the employee would need to obtain from his or her employer—and if the employer were asked, it would have to provide the employee—a written statement reflecting whether the employer offered coverage to the individual seeking the tax credits," Fensholt said.

"Regulations would prescribe a method for these certifications. Ideally, they could be done electronically to minimize the burden on employers," he added.

"Until 2020, it appears existing ACA reporting might still be required to allow the IRS to determine whether anyone who received ACA tax credits to purchase individual market coverage was actually ineligible to receive the credits due to an employer's offer of coverage," Fensholt continued. Then, "While employer reporting under the ACA will not be repealed, it will be replaced [in 2020] by simplified reporting on the Form W-2."

However, he noted, "The Trump administration could make the reporting less burdensome, in light of the elimination of the employer mandate. For example, without an employer mandate, there would be no need to identify whether an employee was full-time under the cumbersome ACA lookback measurement method."

Still, should the AHCA become law, "It remains to be seen whether the IRS, at the regulatory or subregulatory level, will modify or provide any relief under the various ACA reporting and notice requirements," Fenton pointed out. "But as of now, all the current employer reporting and employee notice provisions would remain in effect under the proposed legislation."

But some relief may lie ahead. Under the GOP bill, "there is a three-year transition during which the ACA individual market credits remain, and during that time, the IRS will still want the employer information in order to reconcile payments to individuals," Gelfand remarked.

After the transition period ends, "the only information needed regarding the new tax credits will be whether or not someone has an offer of employer-sponsored insurance, which can be included in a box on the W-2," Gelfand explained. Once that happens, "the administration—perhaps with the help of legislation—can eliminate much of the shared responsibility reporting," he noted.

"It seems likely that since this information [on coverage provided to employees] will no longer be needed for the purposes of determining tax credit amounts, that the IRS should be able to wind down and end the reporting," Gelfand said. "But for the time being, even if the penalty for not offering coverage is reduced to $0, there is still a penalty for not reporting—so report we shall."

"Under reconciliation rules, Congress cannot entirely repeal the current reporting requirements," agreed Phillips. "But the current bill calls for simplified reporting of an offer of coverage on the W-2, with the idea that, when the bill's new reporting mechanism goes into effect, it will make the current ACA reporting requirements redundant and the Secretary of the Treasury will stop enforcing the current reporting requirements."

Among employee notifications, "There is no mention of SBCs [summaries of benefits and coverage] going away, so employers should plan on issuing those for the 2018 plan year as scheduled," generally during open enrollment, Buckey observed.

Other Plan Coverage Requirements

If employers continue providing coverage, would they still have to meet ACA criteria that can't be repealed under the reconciliation process, such as meeting the ACA's standards for minimum essential value and affordability?

The House bill keeps "virtually all of the ACA except for its insurance affordability provisions, individual and employer mandates, taxes and Medicaid reforms," commented Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va., in a Health Affairs blog post.

The AHCA maintains the requirement that when fully insured small group plans offer health care benefits to their employees, these plans cover essential health benefits as specified by the ACA, explained Buckey. "That said, the importance of essential health benefits would be diminished because under the AHCA the plan does not need to contain the essential health benefits package for an individual to qualify for the tax credit," she explained. "The plan just needs to be sold on a state individual insurance market. Under the ACA, an individual needed to enroll in a qualified health plan that met the essential health benefits requirements to be eligible for the subsidy.

In contrast to essential health benefits, the ACA's minimum essential value and affordability requirements for ACA-compliant plans were tied to the employer mandate; "if that goes away, it's entirely possible those requirements will go away as well," Buckey said.

"Certain ACA mandates that are tied to the employer 'pay-or-play' rules effectively would become toothless under the legislation, such as the requirement that coverage offered by large employers be deemed 'affordable' and provide 'minimum value,' " Fenton agreed.

"Many of the requirements, for example first-dollar coverage for preventive services, age 26 dependents on parents' plans, and no lifetime limits, cannot be eliminated under reconciliation, so they will still apply," said Gelfand. "But the actuarial value standards were merely incidental to what the ACA considered to be a 'qualified health plan' that provides minimum essential coverage. Since people will no longer be required to have, nor employers required to offer, government-approved coverage, employers and plans will once again have the flexibility to design benefits that best meet the needs of their covered populations."

Related SHRM Online Articles:

'Cadillac Tax' Remains in GOP Health Care Repeal, Replacement Bill, SHRM Online Benefits, March 2017

Congress Considers Bills to Reform More than the ACA, SHRM Online Benefits, March 2017

IRS to Accept Tax Returns Lacking Health Care Status; Employer Reporting Unchanged, SHRM Online Benefits, February 2017

SHRM Health Care Reform Resource Page

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