As healthcare reform sputters along in Congress, companies still face filing deadlines under the Affordable Care Act, and the Internal Revenue Service is signaling no plans to let up on enforcement.
“Reporting and compliance marches on,” says Joanna Kim-Brunetti, vice president of regulatory affairs at First Capitol Consulting. “Regardless of whatever is going to happen legislatively, even if ACA provisions are repealed, it’s highly unlikely to be immediately effective.”
An early 2016 survey on ACA compliance suggested even then that roughly half of companies were not entirely confident in their ability to comply with the reporting requirements under ACA, also known as Obamacare, which was signed into law in 2010. As of mid 2017, there’s no hard data to suggest to what extent companies have or have not complied with their reporting obligations.
Some experts sense many companies are assessing their risks and deciding to forego compliance, betting the law will change.
“I’ve certainly heard that batted around,” says Kim-Brunetti. “It’s shocking to me, but I do think it’s a sizable percentage.” Larger, more sophisticated companies are keeping up, she says, but she believes a “sizable number of employers” are simply ignoring ACA filing requirements in the hopes the law will soon go away. “If they haven’t gotten a notice, they think they’re fine.”
That’s not necessarily a smart gamble, in the view of Ashley Gillihan, counsel at Alston & Bird’s employee benefits and executive compensation group. “We just don’t know whether reform will go through or not,” he says. “Obviously there are hurdles. Employers would be ill advised to take a wait-and-see approach. Reporting will continue in large part.”
In response to Trump administration calls for regulatory relaxation, the IRS recently issued a notice identifying eight tax regulations that would be candidates for streamlining or repeal. The eight issues involve controversial related-party debt rules enacted late last year, along with tax-exempt bonds for political subdivisions; property transfers for certain investment companies and real-estate investment trusts; estate and gift taxes; partnership rules; property transfers to foreign corporations; and others.
Nowhere on the list does the IRS suggest relaxation of filing requirements under ACA, notes Kim-Brunetti. In fact, the IRS is developing a tool to automate the tracking and penalties associated with the employer mandate, she says. While its implementation has been delayed, the IRS has indicated its intention to use to tool to catch up on 2015 violations that have not yet been called out.
With a three-year statute of limitations on information returns that employers are required to file under ACA, the IRS still has plenty of time to sniff out instances of noncompliance and assess penalties. The service gave some indications in late 2016 it was working on checking compliance manually as it developed the tool, sending letters to a number of taxpayers who looked like they should have been subject to the ACA filing requirement but did not furnish the required schedules.
If the automation tool comes online anytime soon, that will make the process even faster and easier. And because ACA-related payments and penalties generate revenue for federal coffers, it’s not likely to fall off the IRS radar, even if Congress were to repeal the entire law, says Kim-Brunetti.
In fact, repeal itself is not even a safe bet, says Gillihan. “The bill under consideration now is a reconciliation bill, not a full repeal-and-replace bill. There’s a whole section of ACA that frankly won’t be touched at all by this bill.” He’s referring to the health insurance reforms added by ACA—like many of the provisions that require employers to offer at least a minimal level of affordable coverage to employees. “This will not go away if reform passes.”
COMPLIANCE WITH ACA
Employers’ confidence in their ability to comply with ACA provisions has increased to 70 percent—a 4 percent gain since 2014. The number of respondents signaling that they are very confident they can comply with future ACA provisions increased by a similar amount (4 percent), but still remains under the 50 percent mark.
Source: 2016 Affordable Care Act survey
Very much on the table for debate, however, is the “employer shared responsibility rule,” says Gillihan. This is a provision that penalizes employers who do not offer adequate, affordable coverage to full-time employees as defined under the law. If that penalty goes away, employers may have more flexibility to design their plans. But that doesn’t preclude the IRS from enforcing cases of non-compliance while the law is or was in effect.
On the horizon, companies still have some filing deadlines to meet associated with 2017, says Kim-Brunetti. In early 2018, they’ll be required to furnish their 1094-C and 1095-C schedules, which will give the IRS information on what the employer has provided in the way of health coverage to its employees in 2017. The exact dates vary depending on whether a company is filing electronically or on paper. The IRS recently released a new version of its 1094-C and 1095-C schedules, providing yet another indication that the IRS still expects compliance, says Kim-Brunetti.
For companies that missed the early 2017 deadlines for providing information on 2016 coverage offerings, the Internal Revenue Code makes a provision to mitigate any filing failures by Aug. 1 for reduced penalties. After Aug. 1, the full penalties provided under ACA will be in effect.
Penalties for filing late and for intentionally not filing vary, depending on the number of returns involved. Maximum penalties for returns filed 30 days late are approximately $530,000. If the return pushes the Aug. 1 last-chance date, the maximums are in excess of $1.5 million. Filings after the Aug. 1 last chance deadline can be assessed penalties of more than $3 million, and in the case of “intentional disregard” there is no statutory limit to the penalty amount.
The current efforts to reform the ACA could become entangled with the tax reform to the extent debate stalls and Congress gets eager to get something done, says Gillihan. The controversial “Cadillac” tax in Obamacare, for example, which imposes an excise tax on plans that are considered generous, could end up becoming part of a tax reform bill if it must be sacrificed in a healthcare bill.
Other tax provisions of the ACA similarly could become cans kicked down the road if necessary to arrive at a deal on healthcare. “For some of these provisions, there’s at least two different paths to reaching the goal,” says Gillihan.
In the meantime, companies would be wise to comply and to plan on compliance going forward until a deal is final and effective dates are clear. “From a planning standpoint, I wouldn’t assume anything at this point,” says Gillihan.