It remains unclear whether Trump and the Republican-majority Congress will repeal and replace the ACA. Shortly after loudly pledging that he will repeal and replace the ACA, just three days after he was elected and after meeting with President Obama and hearing his views on the ACA and just two days after a record breaking 100,000 applications for coverage on the Healthcare Exchange, Trump immediately walked back on his pledge to announce that he is also considering simply to amend the ACA.
Trump further announced that he wanted to “keep the good parts” of the ACA, including the prohibition against denying coverage for preexisting conditions and the requirement for coverage of dependents under 26 on their parents’ insurance. Another political flashpoint that may have contributed to Trump’s walk-back is the loss of coverage to 22 million insured through the ACA should it be repealed without a replacement.
However, it is not so easy to keep the “good parts” while dumping the “bad parts.” The preexisting conditions prohibition is particularly problematic if the ACA individual and employer mandates are repealed. These mandates are what make the prohibition economically workable. Trump is in for a rude awakening that, as a practical matter, you can’t have one without the other.
Keeping the preexisting condition prohibition while dumping the mandates would result in a death spiral; the sick will get coverage while the healthy tend not to bother, which results in insurers increasing the premiums, which, in turn, further drive out the healthy off coverage and leave only the sickest with coverage. Soon enough, the result will be sky high premiums that no one can afford.
The only other realistic option to keep the preexisting condition prohibition while eliminating the mandates would be to go to a single payor system, i.e., a government run system like Medicare. This is would be an even worse solution that the ACA mandates to the Republican majority Congress.
In view of the uncertainty of what Trump will do and the complications of pursuing a repeal and replace, even if Trump decides to do so, the legislative process will not be a quick one. While certain federal budget related portions of the ACA can be repealed by the “reconciliation” process (which only requires a simple majority), a full repeal and replace of the ACA cannot.
A successful repeal and replace of the ACA requires a Congressional vote for that repeal, all the while avoiding a filibuster (which the Democrats are likely to invoke to hold onto the ACA given the absence of a supermajority by Republications), and, of course, Trump’s sign off. Moreover, consider that the ACA came into existence in early 2010, taking four years to just to implement the ACA mandates, and, now, more than six years later, still other portions of the ACA have still not been implemented.
Indeed, even ignoring the filibuster problem, Republican Representative Kevin McCarthy conceded that while the House would start working “right away” on repealing and replacing the ACA, that process would require a transition period to allow changes to be phased over time, laying out at least a two year timeline. Indeed, Republican Senator Orrin Hatch warned that the process could take up to three years to “work through the problems.” Accordingly, it would seem likely that it would take at least a few years from now to see any such repeal and replace become effectuated.
Meanwhile, the IRS remains mandated under the ACA to enforce its provisions, which includes the collection of ACA mandates and associated reporting penalties. Until such enforcement provisions are effectively repealed, the IRS cannot shirk its duty to collect such penalties.
Indeed, the IRS remains highly motivated to collect such penalties as they are a source of critical revenues, which are desperately needed, particularly in view of the already existing enormous federal deficit, which is a purported anathema to Republicans. Consider that the government has already paid out premium tax credits (PTCs) to individuals throughout 2015 and 2016. This source of funds for these PTCs comes from Internal Revenue Code Section 4980H related penalties to be collected for 2015 and 2016 reporting.
Currently, penalties for noncompliance with Section 4980H reporting alone to each employer can be up to more than $6 million for combined filing and employee statement distribution failures. This cost to an employer dwarfs the comparatively miniscule cost for compliance. Moreover, employer penalties would be even higher for willful failures, which the employer bears the burden to disprove by showing reasonable diligence. The IRS will need the funds generated from these penalties to reconcile the funds already paid out for the PTCs. Accordingly, the IRS has high motivation to keep the status quo and enforce the Section 4980H penalties.
Accordingly, until the effective date of any repeal, based on Congressional action and Trump’s sign off, employers must continue to comply with its ACA reporting requirements.
Below are free resources to help with the upcoming ACA reporting deadlines.
- Essential Guide to the ACA
- ACA Instant Assessment Tool
- ACA Compliance & Reporting Steps
- Potential Penalties of the ACA for 2016
Photography credit: Gage Skidmore