The Affordable Care Act, passed in 2010, comes with a few carrots and lots of sticks to push companies to provide health coverage, pay penalties if they don't, improve current plans, and pay new fees and taxes to fund research and other initiatives. And who, exactly, will be wielding those sticks?
The cast of regulators is slowly coming together as new rules are written, helping companies to focus their compliance efforts. At the same time, the massive amount of work involved for the government to implement the law is also becoming apparent. As with previous mammoth pieces of legislation—think Sarbanes-Oxley or Dodd-Frank Acts—nearly every regulator involved is struggling to keep up with the deadlines set out in the law.
While the law casts the Department of Health and Human Services in a lead role for implementing ACA, the Internal Revenue Service will play the part of the heavy, enforcing the “pay or play” mandate and other aspects of ACA. In that role, the IRS will require a report from companies filled with confidential information about employees and any health insurance the company may offer them—a report that was at the heart of the July delay for the employer mandate from Jan. 1, 2014, to Jan. 1, 2015. It will ultimately use that information to determine which employees qualify for subsidies from the exchanges and which employers must pay fines to compensate.
What's clear is that the IRS is well behind on writing those rules. “If you create an information reporting requirement, you also have to give people a reasonable opportunity to comply with it, which in this day and age means setting up computer systems to generate the reports,” says Catherine Livingston, a partner with Jones Day who was instrumental in helping the IRS implement the ACA until she left the agency last February. Given that the IRS had not even proposed rules (as of Sept. 9) and that the required information will likely be housed in disparate internal databases, “employers couldn't even absorb the rules in time, much less comply with them,” Livingston says. In order to allow for compliance starting in January 2015, she says, the rules should be finalized by next June so that employers can test their systems before reporting requirements and potential penalties kick in.
What's less clear is exactly why the IRS fell behind and how well it will recover. One possible culprit is the distraction from allegations that the IRS purposely targeted right-leaning non-profit groups with delays or roadblocks to their requests for non-profit status. Another possible contributor to the delay is the cuts to the agency forced by the sequestration government budget cuts. “Even if there's not a technical reason for that issue to delay ACA projects, it could simply be because if everyone has to run up to the Hill to talk about things, they're not at their desks,” says Patrick Hurd, an attorney with the law firm LeClair Ryan. And some Republicans are certainly hoping to exacerbate whatever delays already exist. Sen. Dean Heller (R-NV), for one, proposed a bill that would freeze spending on the IRS' ACA implementation, including the $440 million currently in the President's budget for such tasks.
“If you create an information reporting requirement, you also have to give people a reasonable opportunity to comply with it, which in this day and age means setting up computer systems to generate the reports.”
—Catherine Livingston,
Partner,
Jones Day
Another reason for the delay could be technical—a lack of readiness to receive the information on the IRS side. That's a problem that could well end up plaguing the state and federal insurance exchanges that will offer subsidized insurance to those who can't buy it from employers, as a Government Accountability Organization report recently pointed out.
Setting up the right IT architecture so that the exchange overseers, the Department of Health and Human Services and the Centers for Medicare and Medicaid Services, can access the information they need from other agencies and from insurers is a project that “is ongoing,” says John Dicken, director of healthcare for GAO, “and there is a lot that needs to be done in a pretty short amount of time.”
The Small Business Health Options Program, an exchange designed for small employers, is already partially delayed until 2015 as a result of such difficulties. (Employers will be able to pick one plan for all employees, but won't be able to offer them the choice of plans that was initially envisioned until 2015). Livingston says she can envision a scenario in which the exchanges hit their Oct. 1 deadline by opening with limited functionality, such as allowing individuals to apply without actually enrolling in a plan until later in the fall. However, on the IRS side, Livingston says she has “a lot of confidence that their systems are ready,” in part because the agency has asked for voluntary, non-binding filings next year.
THE HEALTHCARE REGULATORS
Below are the regulatory agencies that will have a hand in implementing and enforcing the Affordable Care Act and writing the rules to carry it out.
The Department of Health and Human Services: The United States government's principal agency for setting healthcare policy and providing essential human services, DHHS, oversees the Medicare and Medicaid programs and is the primary agency for implementing the Affordable Care Act. It will oversee the insurance exchanges that are part of the law. The cabinet-level agency is headed by Secretary Kathleen Sebelius.
The Centers for Medicare and Medicaid Services: A federal agency that sits within the DHHS, the CMS administers Medicare and works with state governments to administer Medicaid and regulates and enforces HIPAA rules. The CMS has several responsibilities under the ACA, including writing the rules for the Sunshine Act and writing the rules and enforcing new standards and operating plans for health insurers.
The Internal Revenue Service: The primary responsibility of the IRS is to enforce the “pay or play” provisions of the ACA. The IRS is writing rules for reporting responsibilities and will administer the penalties for companies that don't provide adequate coverage to employees.
Employee Benefits Security Administration: This agency under the Department of Labor that enforces the Employee Retirement Income Security Act will play a role in regulating the required communications employers must make to employees as part of ACA, including the notice of health benefit options.
—Alix Stuart
An Enforcement Disconnect
Exactly how the IRS will use those information reports to levy penalties is not yet well-understood. According to the ACA, the IRS will only assess penalties if an employee qualifies for a subsidy in the form of an advance tax credit from the exchanges. HHS, on the other side of the “pay or play” enforcement equation, will have a difficult task in verifying that individuals who apply to the exchanges actually qualify for subsidies. The agency can't draw on the reports that employers provide to the IRS, says Livingston, because those reports will be historical, not forward-looking as the exchange applications are, and because some of the information is confidential. Nor can HHS rely on employers to help it corroborate an employee's claim that they lack affordable healthcare through work. While the agency can ask, “there are no legal requirements on employers to provide information to the exchanges,” according to HHS' voluminous final rules about how individual eligibility will be determined, notes Livingston. And right now, there are few other sources of data for HHS to draw on.
That means that the IRS will be the ultimate arbiter of whether an employee was justified in receiving the credit and whether an employer should pay up, based on cross-referencing the employer report against the employee tax return. That judgment call will likely come long after forms have been filed, attorneys say, and will still be subject to appeal by employers.
Employers may want to set a policy of never responding to inquiries from the exchanges about employee eligibility—“you'd either be calling the dogs on your employees, or you'd become enmeshed in verifying all manner of data,” says Hurd—and keep their eyes fixed on the IRS, the only agency with any real authority over them regarding the employer mandate.
ABOUT THIS SERIES
Compliance Week's exclusive four-part series on healthcare explores how corporate compliance will intersect with healthcare reform. It examines both the pragmatic and the philosophical sides of healthcare reform for businesses—both public and private—outside the healthcare sector.
Part 1: Fuzzy Math: Calculating the Compliance Costs, Oct. 1Part 2: Healthcare Reform: Prepare for a Reporting Onslaught, Oct. 8Part 3: How Healthcare Reform Is Affecting Coverage Options, Oct. 16Part 4: Meet the Enforcers of Health Reform Regulations, Oct. 22
Certainly, large companies, particularly self-insured ones, will continue to deal with other federal agencies that regulate insurance offerings and general work conditions. In fact, the most pressing task for employers right now is to produce a notice for all employees that explains the health benefits they offer (or don't offer) and how they compare to what is available through the exchanges. Though the deadline for distributing those was also delayed (from March 1, 2013, to Oct. 1, 2013), the Department of Labor's Employee Benefits Security Administration (EBSA) has already published templates to help simplify the task, well ahead of that deadline, says Hurd. “The Labor Dept. is in a pretty good place because they've already done this with other types of health benefits,” he says, noting that EBSA head Phyllis Borzi has a long history of involvement in employee benefit matters as both a lawyer in private practice counseling clients on ERISA and other benefits issues, and as a member of President Clinton's Health Reform Task Force. Still, he notes, “we are learning that the details in delivering the notices to employees are quite complex, especially for multi-employer health plans with collective bargaining agreements.”
There seems to be no shortage of roles for regulators—or consultants, for that matter—when it comes to the ACA implementation. However, if nothing else, the process may shatter the image of lazy government workers. “These are very hard-working civil servants, and I have come to respect many of them in recent years,” says Buck Consultant managing director Tami Simons of the regulators working on ACA. “There's just only so much you can do in 24 hours.”
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