New Tax Code Eliminates Health Care Individual Mandate
The Tax Cuts and Jobs Act (TCJA) was signed into legislation by President Trump on Dec. 22, 2017. While this law encompasses many different aspects of tax code, a portion of the Affordable Health Care Act (ACA) of 2010 was impacted. Under the ACA, Americans were required to enroll in a health care plan or pay a penalty. The TCJA reduces the penalty to zero, taking effect in 2019, which has raised some questions about how it will ultimately affect employers and employees.
What might this mean?
Essentially, the individual mandate portion of the ACA was implemented to broaden the health care pool to help subsidize costs of the U.S. health care system. By requiring everyone, including young and healthy persons, to enroll in a plan, theoretically, it was designed to offset the costs for the sick and aging population. It also ensured continuity of health care enrollment.
While ACA’s coverage requirement remains in place, with the tax penalty now set to zero, the nonpartisan U.S. Congressional Budget Office says up to 17 million Americans could be uninsured by 2027. However, ACA’s individual insurance markets and federal subsidies to help Americans pay insurance premiums remain in place, so many people may continue to use the government exchanges to buy health care coverage.
Possible ripple effects of eliminating the individual mandate
At a time when health care costs continue to spiral out of control, removal of the individual mandate could become an issue for employers who sponsor employee health care insurance plans. Some concerns being voiced include:
- Employer-sponsored health care insurance plans might see increased premiums.
- Fewer enrollees may enroll in employer health care plans.
- Some consumers may be priced out of the market due to higher costs.
Over time, if too many people opt out of coverage, some say the system becomes unsustainable.
Direct and indirect effects of new tax code on employers
The TCJA does not change any of the current requirements for employers when it comes to health care insurance. Companies with 50 or more full-time employees are still mandated to offer coverage. They also still must continue with all administrative reporting requirements and fees associated with the ACA, including PCORI fees.
That being said, since the individual and employer mandates were originally designed to “support” one another, some are questioning whether the employer mandate will eventually be removed. As the law evolves, it could potentially result in lowered costs for all, too. Even if it isn’t removed, employers could be indirectly affected due to compliance requirements. Moving forward, while reporting requirements will likely change at some point, as of right now, they stand.
New tax laws can have a significant or marginal impact on employers. At this time, it is unknown what the long-term effects of the TCJA are, and how any not yet written legislation will impact the health care coverage climate for employers.