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Republicans’ failed efforts to repeal the Affordable Care Act ended months of speculation about what role the Internal Revenue Service would play in an overhauled health care system.
The role remains the same: The agency will continue enforcing and administering tax provisions of the law and move forward on guidance projects it may have avoided advancing during the months of tumult in Congress, health care attorneys told Bloomberg BNA.
The House-passed bill (H.R. 1628) would have repealed ACA tax provisions, implemented a new system of tax credits, and zeroed out coverage requirement penalties. A pared-down version of the bill failed in the Senate July 28, which means there is now no formal effort, or clear path, to pass a health care bill when lawmakers return in September.
Here is the lay of the land for the IRS, now that the ACA repeal push has stalled.
The Cadillac tax is set to take effect in 2020, and practitioners said the IRS is likely to issue some guidance on it in the near future so employers can begin planning.
Both parties have roundly criticized the levy, a 40 percent excise tax on the value of group health plans over a certain dollar threshold. It was delayed until 2026 in the House-passed health bill and in a June Senate version, though it was retained in what ultimately came to the Senate floor.
Determining how employer health plans are valued and determining what coverage should be included in those calculations will be key for employers’ decision-making, said Laura R. Westfall, a senior associate in the employee benefits practice at King and Spalding in New York. The IRS and Treasury Department previously requested comments on the costs and application of the Cadillac tax in Notice 2015-16 and Notice 2015-52.
Cadillac tax guidance is forthcoming, though it’s not a “front-burner issue,” Philip Lindenmuth, health care counsel at the Internal Revenue Service’s Office of the Associate Chief Counsel, said in June.
While direction guidance could ease employer concerns, it won’t fix all uncertainty. “The question is whether it still might be delayed. It’s really a very unpopular provision,” said Laura Kalick, a tax consulting director in the health care practice at BDO USA LLP.
The IRS could also offer guidance on other health areas, resolving questions for employers. The agency declined to comment on its path forward.
The ACA put in place a complicated information reporting regime for employers, and simplifying those requirements in future guidance would be welcome, Westfall said.
“I think that is one of the big-ticket areas for employers because if we’ve seen anything over the past reporting cycle, the reporting obligations are complex and not just time-consuming, but a headache,” she said. The agency could also streamline the process for employers receiving notices from exchanges, she said.
The IRS is also due to move guidance on qualified small employer health reimbursement arrangements, included in the 21st Century Cures Act, said Nicole M. Elliott, an attorney at Holland and Knight LLP. The law allows employers with fewer than 50 full-time or full-time equivalent employees that don’t sponsor group health plans to fund health reimbursement arrangements to defray costs. Treasury Department officials have previously said they are actively working on guidance in the area.
More changes could also come with tax reform, because the ACA has myriad tax provisions that help fund it, Catherine E. Livingston, a partner at Jones Day LLP, said. House Ways and Means Committee Chairman Kevin Brady (R-Texas) has previously said he doesn’t want to address ACA taxes in a reform bill, but some expect him to soften his stance and other lawmakers have been open to the idea.
“If no legislation comes forward, then they will continue doing what they are already doing,” said Livingston, a former health care counsel in the IRS Office of Chief Counsel, of the agency. “I think they will continue to monitor with great care and attention.”
Officials in the White House and presidential appointees at the Treasury Department could also steer the IRS. Trump on Jan. 20 signed an executive order directing agencies to reduce the law’s burdens. Dana Trier, the newly appointed deputy assistant secretary for tax policy, is also expected to play a large role in coordinating guidance and implementing administrative priorities.
“Although matters of tax administration should be left to IRS and matters of tax policy to Treasury, such direction could include enforcement of the individual mandate and the employer mandate,” said Elliott, who was previously the lead IRS employee overseeing ACA implementation.
Under the ACA, individuals are required to maintain coverage, and employers with 50 or more full-time equivalent employees are required to provide it. The Trump administration will likely try to push back against those mandates, attorneys said, though the IRS has repeatedly said the requirements must be met as long as the law is in place.
The employer mandate and individual mandate penalties were zeroed out in the House-passed bill and Senate version. Earlier this month, House Democrats asked the Government Accountability Office to investigate how the Trump administration has undermined the ACA by signaling it won’t enforce the individual mandate.
The IRS in February indicated it would accept tax returns that don’t indicate whether an individual had health insurance, walking back a previous decision to begin requiring an indication of coverage on returns. The agency likely won’t stop accepting those so-called silent returns, attorneys said.
The IRS may still be reticent to invest too much time on health care regulations given Trump’s previous executive orders and the precarious political situation in Congress, Kalick said.
The Trump administration agreed to make cost-sharing reduction payments in August, which reimburse insurers for using the subsidies to reduce health costs for low-income individuals. But Trump has previously threatened to stop the payments—which would be a devastating blow to the ACA.
If the administration stops making the payments and the individual market collapses, employers in the long run would be pressured to offer coverage to part-time employees or others who can no longer get affordable coverage through the exchanges, Westfall said.
“If they’re not eligible for Medicaid or Medicare, where else are they going to get it?” she said. “I think we’ll see that type of pressure.”
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