IRS Closes Loophole On ACA’s Employer Mandate


Law360, New York (May 03, 2013, 12:01 PM ET) -- The Internal Revenue Service on Friday plugged a loophole that could have let companies skirt the health reform mandate that large employers provide affordable medical benefits, saying businesses that force employees to enroll in excessively expensive plans would be fined as if they hadn't offered coverage at all.

 In a notice of proposed rulemaking, the IRS took aim a potential vulnerability in the Affordable Care Act, which penalizes corporations that don’t offer reasonably priced health insurance, but only if at least one staff member declines coverage and subsequently gets a government subsidy to shop on a health insurance exchange.

 If all employees enrolled in pricey health plans — even against their will — they would theoretically be disqualified from receiving subsidies, and the company would be off the hook for offering shoddy coverage. To avoid that scenario, the IRS said that mandatory enrollment in too-costly plans would be viewed the same as not supplying any benefits, and the businesses would face fines for such conduct.

 James R. Napoli, senior counsel on the health reform task force at Proskauer Rose LLP, told Law360 the IRS’ move addressed a course of action many employers were contemplating in order to save cash.

“That was strategy that was actively being discussed by a number of employers, and obviously the federal government ... viewed that as a potential loophole that they’re trying to shut down through that guidance,” Napoli said.

 In addition to breaching the employer mandate, such conduct could also be seen by the IRS as interference with employee access to subsidies, the notice said.

 Napoli said that this suggested the IRS was taking an expansive view of the ACA’s whistleblower protections, which bar retaliation against workers who receive tax credits to subsidize their purchases on exchanges.

“The key here is that this is indicating, at least from the federal government’s perspective, that the employee doesn’t need to actually receive the credit in order for the [ACA] whistleblower protection to apply,” Napoli said.

 Under the ACA and associated regulations, if a corporation with at least 50 full-time employees doesn’t provide health benefits to at least 95 percent of full-time workers, and one or more full-time employees receives a subsidy to buy coverage on a health insurance exchange, the company will be forced to make a “shared responsibility payment.” That payment will amount to $2,000 per year for every full-time employee, not counting the first 30 employees.

 Resistance to the employer mandate has given rise to a number of creative attempts — viewed by some as underhanded — to avoid having to comply. Some businesses, for example, have trimmed employees' hours so that their full-time workforce falls below the ACA threshold. Other corporations have studied breaking up their businesses into smaller units, but rules are in place to connect the dots and prevent that tactic from being effective.

 In other instances, there have been reports of companies planning to drop insurance altogether and just pay the penalty, although it’s believed that such drastic measures will be relatively rare.

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