Another month, another potential change to healthcare policy. Congressional lawmakers are inching closer to enacting sweeping tax reforms that could have a lasting impact on employers and individuals alike, including provisions that would eliminate the “individual mandate,” or the Affordable Care Act (ACA) requirement that Americans enroll in insurance.
While the majority of Americans are in favor of preserving “Obamacare,” as many as two-thirds oppose the individual mandate. Do you really need one to have the other, as some analysts have argued? Let’s dive into how repealing the mandate may—or may not—be such a big deal.
Repealing the Individual Mandate
The individual mandate was included as part of the ACA to address concerns that young or healthy Americans would otherwise defer coverage, and in turn drive up premiums for the high-risk individuals that need it most. In a recent analysis, the Congressional Budget Office (CBO) appeared to subscribe to that view, finding that 13 million fewer Americans would have health insurance a decade from now, forcing marketplace premiums up at least 10 percent.
While nearly everyone agrees that repealing the mandate would lower enrollment, the extent of that decline is disputed. An S&P Global Ratings analysis released in November contradicts the CBO’s estimates, finding that only 4 million fewer American would have coverage by 2027. It also argued that existing tax credits and subsidies, coupled with the peace-of-mind that coverage provides to even the healthy, would prevent the mass exodus some predict. A nonpartisan survey found that 92 percent of Americans would still pay for health insurance even if the mandate was repealed.
Why else might the individual mandate not be so critical? The tax penalty for noncompliance is fairly modest—only 2.5 percent of household adjusted gross income, or an average of $708 for the 7 million households who opt to pay the penalty instead of finding coverage. In comparison, the average American pays over $3,800 per year in healthcare premiums.
Employer Requirements Still in Effect
Businesses hoping that tax reform means a reprieve from their own ACA obligations will be disappointed. Separate from the individual mandate is the so-called employer mandate, which stipulates that businesses with 50 or more full-time employees offer health insurance or pay a stiff penalty up to $2,260 per employee. There are no active proposals to curb this requirement. To lawmakers looking to cut the deficit, the estimated $207 billion in revenue that employer mandate penalties could rake in over the next 10 years may be too enticing to give up.
To demonstrate compliance with the employer mandate, the IRS requires businesses to annually file Forms 1095-C and 1094-C, which simply outline the benefits they offered that year. Employers are required to provide workers with a copy of the 1095-C by January 31, and file both forms with the IRS by April 2. Businesses should work with their broker or benefits administration vendor to ensure compliance.
While legislative efforts to sink the ACA, colloquially known as “Obamacare,” have faltered several times this year, repealing the individual mandate could test the landmark healthcare law in new ways. The Namely team will continue monitoring the status of tax reform and events in Washington.
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