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Individual Mandate Repeal: Not Quite a Nothingburger for Large Organizations

Author

Vic Saliterman

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Author

Vic Saliterman

More by Vic

The passage of the Tax Cuts and Jobs Act represents the culmination of a tumultuous year in Congress. After several attempts to repeal various portions of the Affordable Care Act (ACA) failed earlier in the year, the Tax Cuts and Jobs Act does repeal the ACA's individual mandate, which requires most Americans to maintain health insurance or pay a penalty. While organizations should stay the course for now in light of the policy shift, the change is something employers should be aware of and informed about heading into the new year.

The individual mandate repeal is set to take effect starting in 2019, so individuals who are uninsured in 2018 will still face a penalty, assessed when they file their taxes in early 2019. This approach differs from the ACA repeal bills that were introduced earlier in 2017, all of which would have retroactively eliminated the mandate penalty.

Although many of the ACA repeal bills introduced in 2017 would have repealed both the individual and employer mandates, the Tax Cuts and Jobs Act eliminates only the individual mandate; the employer mandate and the ACA's employer reporting requirements are not changed. But there are still some key points that finance leaders will want to keep in mind.

Primary Implications

The Congressional Budget Office (CBO) estimates that repealing the mandate will result in 13 million fewer Americans with health insurance by 2027. Although the majority of this reduction in the number of people with insurance will occur in the individual market and Medicaid, the CBO estimates that two million fewer people will have coverage under employer-sponsored plans in 2027 as a result of the elimination of the mandate penalty. This should mean some short-term savings for employers since fewer employees are likely to obtain coverage, although it may be the healthiest employees who forgo coverage.

But because the employer mandate will remain in place, employers are unlikely to stop offering coverage, as doing so would open them up to potentially significant penalties. The employer-mandate penalty is triggered when a full-time employee is not offered affordable minimum-value coverage and instead obtains subsidized coverage in the exchange. If an applicable larger employer (ALE) doesn't offer coverage at all, the penalty is steep: When even one full-time employee obtains a subsidy in the exchange, the employer is penalized $2,320 (in 2018), multiplied by the total number of full-time employees (with the first 30 employees excluded from the calculation).

So while the CBO expects the elimination of the individual mandate penalty to result in 5 million fewer people obtaining nongroup coverage by 2027, an employer that doesn't offer coverage is running a significant risk that one or more full-time employees might seek subsidized coverage in the exchange. (Over time, subsidies will be available to a larger percentage of the individual market population as premiums rise and subsidies become increasingly necessary to keep net premiums affordable; the CBO estimates that the elimination of the mandate will result in an additional 10 percent increase in individual market premiums each year.)

Other Considerations

If an employer does offer coverage to at least 95 percent of full-time employees but it's either not affordable or doesn't provide minimum value, the employer's penalty is $3,480, multiplied by the number of full-time employees who obtain subsidized coverage in the exchange. This penalty could become less punitive without the individual mandate, as it's based on the number of employees who obtain subsidies in the exchange (as opposed to being based on the full workforce, even if just one employee obtains subsidies), and that population is expected to decrease without the mandate penalty. But most large organizations offer health benefits as a means of attracting and retaining the best employees, and transitioning to insurance that's not affordable or doesn't provide minimum value could be detrimental to those efforts.

Although the employer-sponsored insurance market is largely unaffected by the mandate repeal, finance leaders will want to keep an eye on the nongroup market in their area, which could be significantly impacted. According to CBO projections, the individual insurance market without a mandate will remain stable in "almost all areas of the country" over the coming years, but what happens to people in areas where it doesn't remain stable? If all of the individual market insurers leave a given area, or if premiums climb to an unsustainable level, there could be a noticeable impact for employees who aren't eligible for employer-sponsored insurance (part-time or seasonal workers, for example), as well as those who have family members impacted by the problem of what is considered affordable - for both an individual employee and a family - being based on the cost of individual-only coverage, not taking into consideration the often significantly higher cost of a family plan. Employees with no realistic option for obtaining coverage might seek other job opportunities or even move to a different state in search of better access to health coverage. Finance leaders may or may not be able to address this issue within their organization, but understanding the impact of mandate repeal on the individual insurance market — in terms of pricing and plan availability — will help them to better understand the realities that some of their employees will face.

For the majority of large businesses, the most challenging aspect of the ACA is the tracking and informational reporting, all of which will continue to be necessary even after individual Americans are no longer penalized for being uninsured - reporting is still necessary to enforce eligibility for premium tax credits (PTCs). In order to avoid potential penalties (employer mandate penalties as well as the penalties for failing to correctly file informational reporting), employers should stay the course in terms of the ACA compliance systems they've put in place over the past few years.

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