May 15, 2019
The fourth year of Affordable Care Act (ACA) reporting is behind us which means it is time to begin thinking about future reporting years. Many employers are still making basic mistakes which we plan to highlight in articles that will be published shortly. In this article we discuss the growing consequences of making such mistakes as we tracked down the premium adjustment percentage (PAP) which allowed us to calculate the section 4980H(a) and 4980H(b) penalties for 2020. This article explains the Code provision and the math behind the 2020 penalty amounts.
The Code explains that the original $2,000 amount associated with the section 4980H(a) penalty and the original $3,000 amount associated with the section 4980H(b) penalty would be adjusted for calendar years beginning after 2014 (see IRC section 4980H(c)(5)). The Code tells us that the original dollar amount of each penalty is multiplied by the PAP which is defined in a separate section of the ACA (see PPACA section 1302(c)(4)). Furthermore, the Code instructs that the product of those numbers is rounded down to the next lowest multiple of $10 (if the number is not a multiple of $10). The equation is simple once the PAP is known.
On April 25, 2019 the Department of Health and Human Services (HHS), in conjunction with the Centers for Medicare & Medicaid Services (CMS), released the final rule for the Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2020. Among other things, this document provided the 2020 PAP. For 2020, the PAP is 28.95211380. This is up 3.02 percent from the 2019 PAP. The 3.02 percent increase is less significant compared to the PAP increase from 2018 to 2019 which saw the PAP increase 7.7 percent.
Since the premium adjustment percentage is already provided, all the numbers necessary to calculate the 2020 section 4980H penalty amounts are known. The equations with the numbers filled in are:
$2,000 * 1.2895211380 = $2,579.04
$3,000 * 1.2895211380 = $3,868.56
The Code’s rounding rule instructs us to round to the next lowest multiple of $10 (if the number is not a multiple of $10). Therefore, the correct numbers to use when calculating the potential section 4980H penalties for 2020 are:
Section 4980H(a) penalty amount = $2,570
Section 4980H(b) penalty amount = $3,860
When HHS, in conjunction with CMS, issued the proposed rules on January 24, 2019, the Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2020 the PAP was set at 29.69721275. However, HHS and CMS reviewed updated data released by the National Health Expenditures Account in February 2019 which led to the slight decrease in the PAP. While the 0.7450989 PAP decrease from the proposed rule to the final rule may not seem like much, it decreased the potential section 4980H(a) penalty by $20 and the potential 4980H(b) penalty by $30. This will be a material change for anyone who is assessed a section 4980H penalty in 2020.
As many employers have discovered, the IRS is serious about its enforcement of the section 4980H penalties. The section 4980H penalties continue to increase each year and the IRS will likely continue to be more stringent in its review of Letter 226J reviews. Therefore, avoiding the section 4980H penalties and, importantly, accurately reporting on the Forms 1094-C and 1095-C is the best strategy. We take great pride in none of our clients receiving a Letter 226J to date and would welcome the opportunity to share how Accord Systems can make tracking and reporting a simple process. Please contact us if you would like to learn more about our services.
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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