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Keeping Employers and Clients Informed: The US Tax Reform

Keeping Employers and Clients Informed: The US Tax Reform

Let’s clear up some misconceptions regarding changes to US tax laws, or more specifically, things that stay the same. In the era of misinformation, detail is key to being prepared. And companies must be ready to steer their clients and members in the right direction.

The Affordable Care Act aims to incentivize every person in the United States to acquire a certain level of insurance coverage and provide financial assistance to families and individuals who can’t afford to buy insurance via a “subsidy” to purchase a policy. The enforcement of the law is driven by two key mandates. Firstly, the individual shared responsibility payment or “individual mandate,” which obligates individuals to carry a minimum level of health coverage. Secondly, the employer shared responsibility provision or “group mandate,” which states that employers must provide health insurance to their employees. The adhesion to the law is administered by the IRS via a tax penalty incurred if one cannot show proof of compliant coverage upon filing taxes in the USA. 

The IRS is charged with the enforcement of these penalties (group and individual). The mandated coverage must be compliant with rules called Minimum Essential Coverage (MEC). In December of 2017, President Trump signed the Tax Cut and Jobs Act, containing a provision to eliminate the penalty associated with lack of compliant coverage for individuals, also known as the “individual mandate tax penalty.”  This provision, however, does not go into effect until January 1st, 2019.  

How is it possible that the law has not been repealed, yet the individual mandate will be gone in 2019?  Since the penalty was enacted as a tax, President Trump successfully repealed it through tax reforms included in the newest tax bill. This leaves huge holes and issues for employers who are still subject to group mandates and penalties.

Currently, many states will continue their exchanges and are evaluating proper ways to create their own state laws to enforce state penalties that mirror the repealed ACA mandate. Individuals should be aware of this potential risk and plan accordingly.  It is important to note that the federal government still recognizes that states should oversee the enforcement of the ACA insurance mandates, independently.  The current administration will continue to shift the enforcement responsibilities to the states. As most of the states do not want the ACA repealed, be prepared for new legislation.  

The IRS and CMS, the governmental agencies which administer ACA, are also looking at ways to compensate for the lost revenue that the penalty contributed towards the “subsidies.” It is expected that some type of “replacement” will take place, as funding is needed for these “subsidies.”  

The individual mandate’s penalty relief does not in any way affect group coverage mandates.  These remain the same after three failed attempts by the Trump administration to repeal ACA.  The Republicans in Congress have indicated that no further changes to the ACA law will be made in 2018.  This is due to the administration’s goal of creating jobs and economic growth, and the emphasis on legislation which forces employers to provide their workforce with health insurance.  The high penalties for employers who do not meet the Minimum Essential Coverage are still in effect.   

The ACA employer mandate was scheduled to be enforced with tax year 2018 and the IRS has advised that it intends to ensure this compliance.  The new tax reform changes to the individual mandate penalty do not repeal the employer tax penalties in effect for 2018, titled Non-Compliant Group Plans.   ACA still calls for employers with 50+ full-time employees and/or full-time equivalents to continue offering medical coverage that is "affordable" and provides minimums essential coverage to at least 95% of their full-time employees and their children up to age 26, or face penalties. ACA has also created a mechanism to stimulate small employers to provide insurance.  The Trump administration endorses these measures. Employers that do not provide insurance to their employees are penalized regardless of size.

A Non-Compliant Group Plan status applies to employers choosing to reimburse their employees for the cost of purchasing individual health insurance rather than providing group insurance. Employees that buy individual insurance privately, in the exchanges or non-approved international insurances, and obtain reimbursement for the premium from the employer are in violation of Section 4890 of the Internal Revenue Code under the ACA law. The IRS clearly describes these arrangements as Non-Compliant Group Plans, subject to the mandates and market reforms. These mandates include the prohibition of annual limits for essential health benefits and a requirement to provide certain preventive care without cost-sharing.  Notice 2013-54 of the IRS clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. 

Consequently, any employer that participates in such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee ($36,500 per year, per employee) under Section 4980D of the Internal Revenue Code, applicable to groups of any size.  Employers with 50+ employees can be subject to several penalties by not providing insurance and/or by participating in Non-Compliant Group Plans, choosing to reimburse employees rather than provide group insurance plan. In 2018, the IRS will be increasing audits and reviews to enforce the employer mandate.  It is important to take all aspects of the law in mind when making your health insurance decisions.

It is wrong and premature to assume that the federal government repeal of the individual mandate is the death of “Obamacare.” As individual states mobilize to create their own mandates, we are reminded that they have always had the final authority over such decisions.  Furthermore, many ACA mandates already exist in most states for both the individual and group markets. The Republican and Democratic support of the law should alert us that more changes could happen in 2018.


Even if the tax reform bill was approved that does not mean Obamacare has been repealed. In 2018, the law is still in effect and American and expatriates living and paying tax in the U.S still need to have a compliant health coverage. Repealing Obamacare won't affect most people because they mainly have health coverage through work or the Medicare and Medicaid program. Most employers will still be required to offer plans that comply with the law. However, things will change in 2019, according to the tax reform the IRS will no longer penalize Americans for not purchasing a federally approved health insurance plan.

Written By Armando A. Diaz, Writer, WellAway Limited.

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