January 25, 2017
By HELEN KARAKOUDAS, CHRS | Director, ACA Insights
There are 500 words in President Donald Trump’s executive order to roll back the Affordable Care Act. “Employers” isn’t one of them.
Is this an oversight? Or a considered omission?
Should we care?
Even if the presidential document titled Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal is more a symbolic nod to a campaign pledge than a length of text that’s legally binding, word choice still matters.
Word choice indicates awareness and priorities.
When you see eight groups listed for protection from a fiscal or regulatory burden and you don’t see mention of the group that, under the ACA, is required to document – in intensely detailed monthly breakdowns of payroll and benefits data – that they provide health insurance to 155 million Americans, you can’t help but think: Have our president’s health policy advisers not checked under the hood of ACA regulations?
Sec. 2: To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.
How could ‘employers’ be left out of the ACA executive order?
It’s not likely that, in text with cautious legal phrasing throughout, there could be an oversight of a missing word that wasn’t caught in the rush to draft a new president’s very first executive order. (But, just to be sure, we have an email out to the White House press office double-checking on this possibility.)
It is likely, given headline after headline about insurance marketplace issues and the outpouring of frustrations with the ACA individual mandate on Twitter, that frustrations with the nitty-gritty of employer responsibility were missed, underestimated, or otherwise deemed not relevant for this communication.
Because we can interpret “purchasers of health insurance” to mean employers that are fully insured and “health insurers” to mean employers that are self-insured, we’re examining the implications for all employers that had to comply with the ACA employer mandate.
Keep in mind, so far only one mainstream news outlet (Politico) has mentioned employers in a story about the ACA executive order. And this is all that was said:
“The requirement that employers provide coverage to their workers or face a penalty has never been enforced, so that wouldn’t really be a change in policy.”
At a high level, through a black-and-white lens on ACA compliance, and for a general audience, “never been enforced” is accurate – if “enforced” were qualified.
What’s hanging in the balance
For the business community on the front lines of ACA employer compliance, there’s more to the story about employers and ACA enforcement. It’s in the weeds and consumes a huge gray area – one wide open for the discretion of the federal agency tasked with ACA enforcement: the IRS.
In the coming months, perhaps years, there’s a lot of verbiage to plow through with respect to employer responsibility.
A big part of the undoing and redoing of regulations that implement a law which itself is to be undone and redone will circle back to the first round of 1095-C forms that employers large enough to have to comply with the ACA filled out for their full-time employees (and, if they were self-insured, for all their enrollees):
Tax Year 2015.
That’s where the most critical questions lie about employers and President Trump’s executive order to minimize the ACA burden.
Yes, penalties (or in ACA-speak, “employer shared responsibility payments”) have not been collected on these information returns that were due in the inaugural year of ACA reporting. But in a compliance world where the path to enforcement comprises incremental steps toward tax collection, this is the gray area that can’t be overlooked:
- Employer returns detailing offers of health coverage were, as required by tax law, filed for 2015.
- The data on them was, as required by tax law, crunched.
- Penalty assessments based on that data crunching are, as required by tax law, being sent out. (We know of notices for filing penalties being sent. We have an inquiry in with the IRS to verify the status of notices for coverage penalties.)
Bottom line: When the executive order came that federal agencies use their discretion to minimize the ACA burden, enforcement of ACA employer compliance was not at the finish line, but it was pretty far along:
- Employer tax penalties under Section 4980H of the Internal Revenue Code have been accruing – monthly – since January 1, 2015.
And that stretch toward collection of tax revenue is significant.
How to look at what’s hanging in the balance
This situation raises two questions:
- Given the tone set by the president in this order, how far can the IRS go – “to the maximum extent permitted by law” – to “waive, defer, grant exemptions from, or delay the implementation of” the employer shared responsibility provisions in Section 4980H of the Internal Revenue Code?
- What tax law issues does this executive order stir for a revenue-collection process amid implementation?
We reached out to Timothy Jost, a retired professor from Washington and Lee University School of Law who is a respected analyst of legal issues with health care reform. Had to smile with how the professor framed his answer. It’s a reminder that, in the ACA world, even amid change, some things don’t change.
While we’ve always observed that with how perplexing the rules were made to be, every answer begets at least two more questions, it was interesting to read how an ACA analyst parsed our questions:
“There are four questions that first need to be addressed,” Tim Jost wrote.
“1) As a matter of tax law, can a tax be repealed retroactively, and how does this work? (I don’t know. You need a tax expert to address this.)
“2) Does the ACA permit the employer responsibility tax to be waived? The Obama administration delayed the effective date for a year, but it seems to me that delaying a tax for a year is different from waiving it altogether. I don’t see how the ACA gives the administration discretion to waive the law, and the executive order only asks that steps be taken as permitted by law.
“3) Would this have to be done through notice-and-comment rulemaking? The executive order says the APA must be complied with.
“4) As a practical matter, it seems that stopping the collection of a tax in mid-process must be a complicated exercise for the IRS. How do these things work?”
Reality checks on the timeline for change
Starting from the last point and working upward, here’s what we know:
Overall, at the IRS
“The IRS is currently reviewing the executive order to determine its implications for tax administration,” we were told in an email Tuesday afternoon from the IRS press office.
It’s widely believed that the marching orders President Trump gave in his ACA executive order will not become action items at each of the federal agencies tasked with ACA administration until their leadership changes.
The five-year term of IRS Commissioner John Koskinen ends November 12, 2017. It’s possible he could step down sooner.
In a December 14, 2016 interview with TaxAnalysts.org, Koskinen said: “I have not considered resigning. I've made it clear … I serve at the pleasure of the president. And the president-elect will make whatever decisions he thinks are best going forward.”
In particular, with IRS regulations
“APA” (in Tim Jost’s third point) stands for the Administrative Procedure Act, a law dating to 1946 that outlines a system of checks and balances for rules that are drafted by people who aren’t elected lawmakers – whether the person seeking to make the rule is on staff at a federal agency, or the president. The APA provides a protocol for the regulations that enforce the laws that Congress makes.
The “notice-and-comment rulemaking” referred to comes from this part of the executive order:
Sec. 5. To the extent that carrying out the directives in this order would require revision of regulations issued through notice-and-comment rulemaking, the heads of agencies shall comply with the Administrative Procedure Act and other applicable statutes in considering or promulgating such regulatory revisions.
Remember how in the early days of ACA compliance webinars, presenters would keep saying “under proposed ACA regulations”? And then, after February 2014, you’d hear “according to the final ACA regulations”? That was because of the APA.
By law – namely the APA – a federal agency, like the IRS, has to draft what it’s looking to see in new rules, allow a period for public comments by stakeholders in those rules, follow up with public hearings, process the feedback, and then – only then – issue the final, or official, rules.
For the regulations that ACA enforcement added to the Internal Revenue Code – Section 4980H, often called the play-or-pay rules – 552 public comments are documented on the Federal Register. The process took two years.
What a reference to the APA means in the ACA executive order is that to undo any rules that regulators under the Obama administration had in place, the White House can’t legally take a “because I said so” tactic.
According to this protocol, changes at the regulatory level should take at least a year.
But they might not. Here’s why.
The APA and Obama precedent
“We’re in the realm of executive action, which is where we now have all that Obama did, setting up precedents for Trump. With Obama, not everything for the ACA went through the APA,” Josh Blackman, a constitutional law professor who is an outspoken critic of former President Barack Obama’s exercise of executive powers, said in a phone interview Monday with ACA Insights.
Blackman is the author of two books, one in 2013 and the other in 2016, that analyze how the Obama administration went about implementing provisions of the Affordable Care Act.
“If we take everything Obama did by executive action as a given – and I don’t think what Obama did was legal – Trump then has ample authority to go in the opposite direction,” Blackman said, noting that if lawsuits are brought against Trump charging he overstepped the bounds of executive action in an ACA matter, the court could weigh in what was allowed under his predecessor.
Among the court challenges to the Obama administration’s ACA executive actions were three cases that claimed the Treasury Department's delay of the beginning of the penalty-assessment period for employers – from January 1, 2014 to January 1, 2015 – was unconstitutional. The first suit was brought by a physicians’ group; the second by an orthodontics practice; the third by the U.S. House of Representatives. The first two cases centered on the opportunity cost of money already paid for compliance measures. The third claimed injury from the projected loss of tax revenue. All three cases were dismissed, with the court saying in each case that there was no standing to sue.
The result of these court challenges does not mean the Obama administration’s delay of the ACA employer mandate’s effective date was upheld.
Since the constitutionality of this executive action was never fully tested in the courts back then, the hair-splitting considerations that divided legal analysts in 2013 and 2014 still stand now:
By having delayed the effective date of the employers' ACA reporting requirements (which lead to verification of employer compliance with the coverage requirements),
- did the Treasury Department and the IRS, on Obama’s watch, go too far – and affect something only Congress could act on: the heart of the law?
- or did they stay within bounds and, by addressing technical snags with enforcement processes, affect what they’re allowed to affect: effective implementation of a law?
Retroactively, what can Trump do about ACA employer penalties?
If more than a delay in collecting employer ACA penalties were to be on the table, what, then, would look-backs at Obama administration actions mean for the extent of Trump's presidential muscle?
At this point, employer ACA penalties for Tax Year 2015 are in question. After March 31, 2017, data crunching will start on employer penalty assessments for Tax Year 2016, the first year for which pitfalls for missteps in employer ACA compliance are steeper.
Since Obama was able to waive collection of ACA employer penalties for a year, could Trump waive – or is Trump looking to waive – collection of employers’ ACA compliance penalties, period?
“I have not read anything saying this can be done retroactively,” Blackman said. “The Trump mantra has been not to upset the status quo right away. … The better question is: Is anyone actually lobbying for this? My general sense is that most of the Trump administration is disjointed … so unless someone is pushing the issue, it very likely is not on their radar.”
If urgency for such action were put on the front burner for the Trump administration, how exactly can relief happen from penalties that quickly can escalate from the tens of thousands to the hundreds of thousands?
For this article, we contacted 10 tax authorities, most of whom would not go on the record. The consensus of off-the-record reactions was that this matter is too new, too foggy, too political, and exceedingly complex.
We invite any tax attorney, tax accountant, or tax law professor who can shed light on this latest ACA complexity to comment here.
The one on-the-record comment we have is from Robert E. McKenzie, a tax attorney with the Chicago office of Arnstein & Lehr.
McKenzie was at an American Bar Association meeting on January 20, 2017, the day that President Trump signed the ACA executive order. In a reply to our email requesting expert analysis, he wrote:
“I was at the ABA tax conference with 900 tax lawyers and no one seemed to know the impact of the executive order.”
This article was first published on LinkedIn Pulse.