On December 22, 2017, President Trump signed the tax bill into law. In the context of a confusing past year of proposed healthcare bills and regulations, the most important take-aways from the tax bill for health plans may be what the tax bill did not include.
Here are three things payers should know about the new tax law:
1. IRS reporting for Individual Mandate is still in effect
Some of the media have reported that the Affordable Care Act’s (ACA) individual mandate was repealed in the tax bill, but that’s not entirely accurate. The requirement for all individuals to have minimum essential health coverage actually still remains. The bill simply reduces the penalty for individuals who don’t obtain insurance to $0.
This means that the employer reporting associated with the mandate, found in sections 6055 and 6056 of the code, is still in law, and it’s not clear when, how or if it might be rolled back. The IRS may put out guidance that the reporting is not necessary, but there’s a question about whether the agency has the authority to do that. In November, we wrote about a bipartisan bill introduced in the Senate that would eliminate the reporting, but that bill has yet to move.
Meanwhile, FYI on that same section 6055 and 6056 reporting for 2018: The IRS announced in late December that the deadlines have been extended, again, from January 31, 2018 to March 2, 2018.
2. “Zeroed out” Individual Mandate penalty does not take effect until tax year 2019
There are a range of predictions on what the effect “zeroing out” of the individual mandate penalty will be. The most dire analyses predict that enrollment will plummet, creating adverse selection as the young and healthy leave the exchanges which, in turn, would cause a ripple effect of skyrocketing premiums in both the individual and group market.
However, we won’t see the actual impact for a year or more, as the individual mandate “zero out” does not take effect until tax year 2019. A lot of things could happen in that year that would change the outcome. In the short term:
- The long-predicted “death spiral” of the individual market did not happen for 2018. CMS reports that enrollment for 2018 is 96% of what it was in 2017, despite the Trump administration cutting outreach dollars by 90% and shortening the enrollment period to about half of last year’s.
- In exchange for her vote on the tax bill, Republican Majority Leader Mitch McConnell promised Senator Susan Collins that he would allow a vote on two ACA market stabilization bills soon after the start of the new year. Between the two bills, funding would be temporarily put back for both ACA’s cost-sharing subsidies (CSRs) and the reinsurance program for high-cost patients. Collins believes that the two bills would prevent some of the predicted negative effects of the “zeroed out” individual mandate penalty.
3. All other ACA-related taxes still exist and are going forward
Despite all the activity around repealing the Affordable Care Act and reforming the tax code, all of the ACA’s taxes/penalties still remain, with the exception of the zeroed out individual mandate penalty.
Health Insurance Tax (HIT) or Health Insurance Provider Fee (ACA §9010): Insurers got a break from this tax in 2017, but, as of this writing, it’s back on the books for 2018, with reporting due in April.
Cadillac Tax: While this tax on high-cost plans was delayed from 2018 to 2020, the IRS has recently given notice that proposed regulations on the Cadillac tax can be expected soon.
For Q1 2018, keep your eye on continuing resolutions or other big bills where Congress could tuck in provisions that would affect these taxes.
Zelis is always listening – to our clients’ needs and to marketplace dynamics. We continue to monitor healthcare laws and bills so that we can help you understand specific requirements at the state level and the impact those requirements could have on your business.