President Trump Ends ACA Subsidies

On the evening of October 12, 2017, President Trump announced that subsidies for low-income Americans in relation to the Patient Protection and Affordable Care Act (ACA) would be stopped. The Department of Health and Human Services (HHS) has confirmed that payments will be stopped immediately. It is anticipated at least some state attorneys general will file lawsuits to block the ending of the subsidy payments, with California Attorney General Xavier Becerra stating he is prepared to file a lawsuit to protect the subsidies.

Background

Under the ACA, individuals with household modified adjusted gross incomes (AGIs) of at least 100 percent and not exceeding 400 percent of the federal poverty level (FPL) were able to purchase subsidized coverage in the individual health insurance exchanges if:

• They (including any eligible dependents of the employee) are not enrolled in employer or government group coverage, and
• They do not have access to employer-based coverage that
  • pays at least 60 percent of covered medical costs and
  • is priced to the individual at 9.5 percent (9.56 percent in 2015, 9.66 percent in 2016) or less of the individual’s household income (indexed to 9.56 percent for 2015, to 9.66 percent for 2016, 9.69 percent in 2017, and 9.56 percent in 2018)

Impact on Applicable Large Employers

Under the ACA individuals are required to have health insurance while applicable large employers (ALEs) are required to offer health benefits to their full-time employees. Reporting on health coverage that is offered is required by employers with 50 or more full-time (or full-time equivalent) employees, insurers, or sponsors of self-funded health plans.

Under the ACA, an ALE must offer minimum essential coverage to 95 percent of its full-time employees (and dependents) or pay a $2,000 per year (indexed to $2,260 for 2017), indexed, penalty on all of its full-time employees, if even one employee receives a premium tax credit (which some people call the premium subsidy). If no employee receives a premium tax credit/subsidy, no penalty will apply. Arguably, if no employee is eligible for subsidies because they are stopped, beginning in October 2017, there are no penalties for ALEs who fail to offer affordable, minimum value coverage to at least 95 percent of their full-time employees.

Risk adverse ALEs will continue to meet their obligations under the ACA’s employer mandate until the Internal Revenue Service formally announces that they may stop doing so. Because it appears at this point that litigation will begin in relation to the subsidy removal, it is unlikely the IRS will provide formal guidance until the conclusion of the litigation. It is also important to note that reporting obligations under the ACA are still in place, and separate penalties are in place for ALEs who fail to file the required reporting forms. These penalties are not waived or removed as a result of the subsidies being stopped.

The penalty for failure to file a correct information return is $260 for each return for which the failure occurs, with the total penalty for a calendar year not to exceed $3,218,500. The penalty for failure to provide a correct payee statement is $260 for each statement for which the failure occurs, with the total penalty for a calendar year not to exceed $3,218,500. Special rules apply that increase the per-statement and total penalties if there is an intentional disregard of the requirement to file the returns and furnish the required statements.

10/13/2017

Our access to ACA Advisor resources can help you clear up ACA questions and better craft your company’s benefit strategy for the future. This information is general and is provided for educational purposes only. It reflects UBA’s understanding of the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.