November 20, 2018
Two recent events have signaled that the employer mandate will continue to be stringently enforced in the years ahead. First, Democrats obtained control of the House in the 2018 midterm elections. While Republicans retained control of the Senate, the split Congress will make it challenging if not entirely impossible to repeal the employer mandate portion of the Affordable Care Act (ACA). Perhaps more importantly, the IRS has begun to send out Letters 226J to employers it believes owe a penalty under section 4980H of the Code (the code provision that enforces the employer mandate portion of the ACA). The remainder of this article provides an overview of the signals that all point to continued stringent enforcement of the employer mandate.
When Republicans controlled all three branches of government they were unable to repeal the employer mandate. After conceding the House in the 2018 midterms, it would take a dramatic showing of partisanship, which has not been seen on hot button partisan issues in recent years to repeal the employer mandate. Additionally, the nuanced procedures that make reconciliation possible are unlikely to unfold with a split Congress beginning in 2019. Therefore, 60 votes would likely be required in the Senate for a repeal of the employer mandate. These facts suggest the earliest a repeal of the employer mandate would come after the 2020 election. Even then the odds of Republicans controlling all three branches of government and agreeing to repeal the employer mandate portion of the ACA, seem far-fetched. Any employer still thinking legislative action will solve its past, present, or future employer mandate issues risks making an expensive mistake.
An even stronger signal that the employer mandate is here to stay is the IRS has begun the process of issuing Letters 226J for the 2016 calendar year for employers the IRS believes owe a penalty under sections 4980H(a) and/or 4980H(b). The 2016 Letter 226J presents a more challenging appeals landscape as many of the transition relief provisions that existed in 2015 no longer exist. For example, an employer will have to offer at least 95 percent of its full-time employees (and their dependents) the requisite coverage in order to avoid the section 4980H(a) penalty for the 2016 plan year and future plan years compared to only 70 percent in 2015. Additionally, an employer will only be able to reduce 30 full-time employees for the 2016 plan year and future plan years compared to the 80 full-time employee reduction an employer was able to receive in 2015 when calculating the section 4980H(a) penalty.
Furthermore, the Letters 226J I have seen in private practice to date have been much more complicated compared to the Letters 226J I successfully appealed in 2015. The Letter 226J appeals I have seen to date have all included at least one month enforcing the section 4980H(b) penalty along with different months enforcing the larger and more problematic section 4980H(a). Adding to the complications is the list of names on the Form 14765 also appear to be more extensive which is not a surprise given the section 4980H(b) penalty is being enforced in addition to the section 4980H(a) penalty. All these factors will make any appeal more time consuming.
Unfortunately, a continued trend from the 2015 Letters 226J continues to linger in 2016. Multiple Letters 226J I have reviewed for the 2016 calendar year have proposed penalties for months in which the employer entered codes that should have protected the employer from the employer mandate penalty (such as entering code 1C on line 14 and code 2F on line 16). In all the instances I have seen these mistakes by the IRS, I discovered codes entered on the employer’s Forms 1095-C that were impossible such as code 1H on line 14 and code 2F on line 16. Code 2F can never be combined with code 1H, so it is possible that the corrupt data submitted to the IRS caused the IRS to place more scrutiny on the employer's Forms 1095-C. The IRS errors indicate that the accuracy of the codes submitted to the IRS matters when the IRS is proposing penalties through the Letter 226J. Accord understood the importance of the accuracy of the Forms 1094-C and 1095-C since its inception and created automated tools to verify every code submitted on lines 14 and 16 of the Forms 1095-C. This has assisted each Accord client to date to avoid the dreaded Letter 226J.
The election, the continued issuance of the Letter 5699 (for Applicable Large Employer members who simply never filed the Forms 1094-C and 1095-C), and the arrival of the Letters 226J for the 2016 calendar year all signal continued enforcement of the employer mandate penalty. If an employer has received a Letter 226J for the 2016 calendar year, a prompt, thorough response to the IRS is imperative. Almost all employers would benefit from hiring an attorney who is an expert with the Forms 1094-C and 1095-C and Letter 226J appeals process. Please contact me if you would like to discuss the particular details of your Letter 226J. Additionally, if an employer received a Letter 226J as a result of a vendor’s mistake, particularly a mistake leading to a section 4980H(a) penalty, the employer should consider switching providers moving forward. Accuracy, expertise, and attention to detail are imperative for any vendor completing the Forms 1094-C and 1095-C on your behalf. Please contact Accord Systems, if you have any questions regarding past, present, or future filings of the Forms 1094-C and 1095-C.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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