by Timothy Jost
Health Affairs Blog
mplementing Health Reform. On January 8, 2016, President Obama to the surprise of no one vetoed HR 3762, the budget reconciliation act that sought to repeal the Affordable Care Act. In his veto message, the President laid out the potential consequences of repeal: 22 million more uninsured, 900,000 more people lacking necessary medical care, 1.2 million more struggling with medical debts, and a potential 10,000 deaths.
It was clear from the outset that the legislation would be vetoed. The Republicans in the Senate, however, got a chance to vote for repeal. They also got, for future reference, an opportunity to see what provisions of a potential repeal bill the Senate parliamentarian would approve as appropriate for a reconciliation bill. If the Republicans succeed in electing a president this knowledge may prove quite valuable. What the Republicans did not do was put forward a strategy for replacing the ACA had their repeal strategy succeeded.
The ACA And The Tax Code
As the new year begins and Americans begin to think about filing their taxes, a couple of reports have been released regarding the operation of the Affordable Care Act provisions of the tax code.
Premium And Advance Premium Tax Credits And The Shared Responsibility Requirement
On January 8, IRS Commissioner John Koskinen released an updated report to Congress on data from the tax filing season for 2014, the first year in which the individual responsibility fine was assessed and in which individuals received and were required to reconcile advance premium tax credits.
The January 8 report updates an earlier report issued in July. The new report is only current as of October, however, and the data in it are still preliminary. It states that the IRS expected 4.8 million taxpayers to file a return with a form 8962 and claim premium tax credits (PTC) or reconcile advance premium tax credits (APTC). As of October, about 3.5 million taxpayers had filed form 8962, reporting a total of $11.3 billion of the $15.5 billion in APTC the marketplaces had paid out for 2014.
Of the 3.5 million taxpayers, about 3 million claimed approximately $10.3 billion in PTC, an average of about $3,430 each. About 1.4 million, 41 percent, claimed a net PTC (meaning the PTC they were owed exceeded the APTC they had collected) with the average additional amount averaging $640. On the other hand, 1.8 million, or 51 percent, of form 8962 filers were overpaid by an average of $860. About 61 percent of these taxpayers were still owed a refund even after the overpayment was assessed; thus, the IRS did not have to separately pursue collection of the refunds. The repayment caps imposed by the ACA affected about 463,000 taxpayers, for a total of approximately $394 million.
About 8 percent of form 8962 filers received APC equal to the PTC they were paid and did not need to make any adjustments. Of the 4.6 million taxpayers whom the IRS estimated will need to reconcile APTC for 2014, approximately 3.1 million in fact had filed and reconciled by the end of October. About 147,000 had filed for an extension but had not filed a tax return. Approximately 316,000 taxpayers who had received APTC failed to file a tax return by the end of October, while approximately 976,000 filed a tax return but failed to file form 8962.
Taxpayers who fail to file taxes and reconcile APTC for 2014 will not be able to received APTC for 2016. The report notes, however, that some of those who had not filed taxes by October in fact were not required to do so because they were covered by another taxpayer’s return. The IRS has been following up with taxpayers who did not reconcile their APTC, and many have likely done so since October. Others are not expected to enroll and claim APTC for 2016 for a number of reasons, such as qualifying for Medicaid or marketplace coverage. Taxpayers who failed to file for 2014 may still do so and then apply for APTC for 2016.
The report also contains preliminary data on the individual shared responsibility requirement. For 2014, 74 percent of taxpayers (about 106 million) checked the box indicating they had qualifying coverage all year. Another approximately 9 million dependents (about 7 percent of tax returns) were not required to report coverage. Approximately 7.9 million taxpayers reported a total of $1.6 billion in individual shared responsibility payments, averaging about $210. The vast majority of taxpayers who reported a payment (82 percent) were owed a refund even after the payment. Thus, the IRS could collect the payment from the refund owed.
About 12.1 million claimed a health care coverage exemption. The most commonly claimed exemption codes were, in order, the code for individuals who had income below a certain threshold and who lived in states that did not expand Medicaid, the code used for U.S. citizens or residents who reside in another country, and the code used when coverage is unaffordable. Approximately 313,000 low-income taxpayers reported a payment when they should have claimed a coverage exemption. The IRS is reaching out to these individuals. It is also working with tax preparation software companies to improve accuracy for the 2015 filing season.
ACA Tax Issues Affect Businesses And Individuals
On January 6, 2016, the Taxpayer Advocate Service released its 2015 report to Congress. The TAS is an independent office within the IRS responsible for advocating the interests of taxpayers. The report identifies a number of ACA issues affecting businesses and individuals in its “most serious problems” section.
Businesses. The TAS report describes the ACA reporting requirements that apply to businesses: the employer shared responsibility requirements, the excise taxes that the IRS can impose on employers whose group health plans fail to meet ACA requirements, and the small business premium tax credit program. The report expresses concerns that the IRS has not provided businesses with sufficient guidance as to obligations imposed by the various ACA requirements. It observes that the IRS has released a number of question and answer documents providing guidance, but notes that Q&As do not have the impact of notice and comment rulemaking and cannot be relied on by businesses subjected to enforcement actions.
Particular concern is expressed with respect to the need for regulations regarding health reimbursement accounts and flexible spending accounts. (A rule on these issues has in fact recently been published.) Concern is also expressed about the calculation of full-time equivalent employees for the application of the employer mandate.
The report notes that insurers and other minimum essential coverage providers are expected to file 46 million 1095-B forms for 2015, while large employers are expected to file 77 million 1095-C forms. The TAS expresses concerns that the reporting system has not been adequately tested and that the IRS’s taxpayer identification number matching program has not been expanded to insurers and self-insured employers, raising the possibility of mismatches and erroneous penalty assessments.
The report further observes that the small business tax credit program has not been adequately promoted because the IRS has had to cut its public outreach staff. Finally, it calls for better training for the new IRS ACA Business Examination office and for a rapid response team to deal with ACA business issues.
Individuals. The TAS report also includes a section on ACA issues that affect individuals. This section presents a number of statistics with respect to the individual shared responsibility and premium tax credit reconciliation requirements which have now been updated in the Koskinen report. The TAS notes the difficulties caused by incorrect 1095-A forms sent out to some taxpayers by the marketplaces in 2014 and expresses concern about the adequacy of the over one million reminder letters sent by the IRS to individuals who received APTC for 2014 but failed to file their taxes or reconcile PTC and APTC.
The TAS notes that when the IRS receives a tax filing from a taxpayer who received APTC, the IRS’s ACA verification system compares the information reported by the taxpayer with that provided by the marketplaces. If the taxpayer fails to file a form 8962 or reports information that does not match the 1095-A, the IRS requests more information and holds up the taxpayer’s refund. The IRS may either audit the return or refer it for Automated Questionable Credit (AQC) review. In an AQC review, the IRS sends the taxpayer a letter proposing an adjustment and requests a form 1095-A or other documentation.
The Internal Revenue Code forbids the IRS from auditing the same return twice. The TAS states forcefully its opinion that submitting a taxpayer to the AQC review while leaving open the possibility that the return could later be audited violates this law. It recommends that taxpayers be given the same appeal rights for an AQC review that they have for a formal audit.
The report expresses concern that taxpayers who receive large lump sum payments (such as Social Security disability awards) may have to pay back APTC they have received with interest and penalties. It notes that when taxpayers have enrolled in qualified health plans through the marketplace but not received APTC, the 1095-A they receive from the marketplace may not indicate the premium of the second-lowest cost silver plan in the marketplace and thus make it difficult for the taxpayer to claim PTC. The individual “most serious problems” section concludes with ten recommendations for improvements, most of which involve improved outreach and education.
Court Rejects EEOC Challenge To Workplace Wellness Program
On December 31, 2015, Judge Barbara Crabb of the United States District Court for the Western District of Wisconsin granted summary judgment to Flambeau Inc. in a case brought by the Equal Employment Opportunity Commission. The EEOC claimed Flambeau had violated a provision of the Americans with Disabilities Act that generally prohibits employers from requiring their employees to submit to medical examinations by making them complete a health risk assessment and biometric screening test as a condition of receiving health insurance.
The court ruled that the governing provision of the ADA was not the prohibition against required medical examinations but a “safe harbor” provision, which states that the ADA does not restrict “the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks.” The court held that the information gained through the assessment and screening test played an important role in helping the company to administer its health benefits program more effectively.
The court followed a 2012 Eleventh Circuit case that reached a similar result. The court rejected the EEOC’s argument that its recently proposed rules governing employer wellness programs counselled a different result. It observed that the rules were not yet final and did not address the safe harbor issue. Wellness programs remain controversial, particularly as they affect the ability of employers to demand health information from their employees, but this case is a clear win for the employers.
tags: aca repeal, aca tax provisions, worlplace wellness programs