This is the seventh article in our series covering various tax and employee benefits-related changes contained in the Tax Cuts and Jobs Act signed by the President on December 22, 2017.
Once significant change made by the Act, summarized below, is the elimination of the Affordable Care Act’s individual mandate, effective 2019.
Long an unpopular feature of the ACA, the individual mandate requires most Americans (other than those who qualify for a hardship exemption) to purchase a minimum level of health coverage. Those who fail to do so are liable for a penalty of $695 for an adult or 2.5 percent of household income, whichever is greater.
The Act accomplished the elimination of the individual mandated by reducing the penalty amounts to $0 and zero percent, respectively.
Although often cited as an egregious example of government over-reach, the individual mandate does not impact the majority of Americans, specifically those who receive their health coverage through their employers or through public programs such as Medicare and Medicaid.
Impact of Elimination
The nonpartisan Congressional Budget Office (“CBO”) projects that the elimination of the individual mandate will spare taxpayers $43 billion in penalties that they would otherwise have paid through 2027. The CBO also projects that the elimination will result in 4 million people dropping health insurance coverage in 2019, with 13 million more becoming uninsured by 2027.
The elimination is expected to save the government $300 billion over the next ten years, in the form of fewer people receiving insurance subsidies or Medicaid, according to the CBO.
The CBO estimates that marketplace premiums will rise 10 percent without the individual mandate.
Employer Mandate and Other ACA Features Still in Place
The Act leaves many aspects of the ACA intact, including the individual marketplace, premium subsidies for those earning between 100% and 400% of the federal poverty rate, the ban on insurers charging more or denying coverage based on health factors, and Medicaid expansion.
Most significantly for employers, however, is the employer mandate and reporting requirements, which remain in force. Accordingly, applicable large employers will need to plan around the Code section 4980H(a) (“A”) penalty — which can apply if an employer does not offer minimum essential coverage to at least 95% of its full-time employees and at least one full-time employee buys subsidized marketplace coverage — and the Code section 4980H(b) (“B”) penalty — which can apply if an employer offers full-time employees coverage that is not affordable or does not meet minimum value requirements.
In 2018, A penalty is $2,320 (or $193.33 per month) multiplied by the total number of full-time employees (minus 30). The B penalty is $3,480 (or $290 per month) for each full-time employee who buys subsidized marketplace coverage (capped by the amount of the A penalty).