The ACA’s individual mandate penalty is eliminated. Here’s what that means for your clients.

The new year often means new tax laws, and 2019 has a slew of them. If you’re a benefits agent, it’s important that you understand the new laws that affect the Affordable Care Act compliance. Specifically, let’s take a look at provisions in the 2017 Tax Cuts and Jobs Act, which eliminated the individual mandate penalty beginning this year.

What Is the Individual Mandate Penalty?

The Affordable Care Act includes many provisions that affect the way people buy, use, and sell health insurance. One of the linchpins was the individual mandate, which took effect in 2014. It required most people to carry ACA-compliant health insurance or pay a penalty.

So beginning in 2015, when people filed their 2014 income tax returns, they had to check boxes to certify that each member of their family had health coverage for the year. Taxpayers could also check the boxes to indicate that a family member met certain conditions which exempted them from the mandate. If someone in their family was not covered by a health insurance plan, then the tax filer would have to pay a fee. This fee was known as the Individual Mandate Penalty.

What Has Changed? Has the Individual Mandate Just Gone Away?

Not exactly. In late 2017, President Trump signed a tax reform bill called the Tax Cuts and Jobs Act. The new law made many changes to the federal tax code including a change to the individual mandate penalty.

The tax reform bill didn’t change any elements of the ACA. But it did reduce the individual mandate penalty down to zero beginning this year. Essentially, the ACA still says that individuals must obtain health insurance or pay a penalty, but the penalty is zero dollars. The effect is as though there was no individual mandate.

How Will This Affect Health Plan Enrollment?

So let’s talk turkey. If you’re a benefits broker, you might be wondering what this change will mean for your business. Well, we may not have the ability to see into the future, but we can promise you that there are several things that the new tax law definitely won’t change.

• Employer Shared Responsibility

The ACA’s employer responsibility rules require certain employers to offer affordable, ACA-compliant health coverage to all of their full-time employees and their dependents. If they don’t, they’ll have to pay a penalty to the IRS. That’s why this provision is often referred to as “play or pay” or “the employer mandate.”

This rule has not changed. All employers who qualify as applicable large employers (ALEs) are still bound by it.

So if you have clients who fit into this category, you probably won’t lose much business from them.

• ALE Information Reporting

The same ALEs who are subject to the employer mandate must also report health plan information to the IRS. Nothing has changed about this provision. Therefore, your clients may still need your help with compliance on this one.

• Other Provisions

There are a number of other tax provisions in the ACA that won’t change. Namely, the tax reform bill does not affect the Cadillac tax on high-cost group health coverage, the PCORI fees, and the health insurance providers’ fee.

What About Everyone Else?

OK, so ALEs still have to provide affordable coverage. Those employers will still have to report information to the IRS. And eventually, companies who offer expensive health plans will owe another tax.

But you have plenty of clients who are not ALEs. And you might have heard predictions that the repeal of the individual mandate penalty will mean that fewer healthy people purchase insurance. So what’s the bottom line for your business? That will depend a lot on your mix of clients.

The Congressional Budget Office predicted that 4 million people would drop their health insurance in 2019 as a result of the individual mandate repeal. By 2027, the CBO projects that number will rise to 13 million. Who will make up this group of 4 to 13 million people? Most likely they will be healthy people without employer-provided coverage. So if you sell marketplace health plans, your client roster might be affected. This is especially true if you serve mostly higher-income clientele who are ineligible for the premium tax credit.

But insurance carriers have had mixed reactions to the repeal. Chet Burrell, the CEO of CareFirst, told Modern Healthcare that his company has already lost more than $600 million on individual marketplace plans. He believes the repeal of the individual mandate will make selling insurance even more expensive. It will be “a little bit like insuring only burning houses,” said Burrell.  “When you insure a whole geographic region of houses, it’s one thing. When you ensure only those that are burning, it costs a bloody fortune.”

In that same Modern Healthcare article, Centene CEO Michael Neidorff said that he doesn’t believe the individual mandate penalty repeal will affect his company. They sell insurance mainly to low-income clients who receive subsidies to help pay their premiums. What’s more, the subsidies increase when premiums increase, so their customers won’t be affected if insurance companies’ costs go up.

“There’s a lot of people who, now that they’ve had insurance, will want to keep it,” Neidorff said. “Do I wish we still had the mandate? Overall, it was put in for a good reason. But it’s not going to stop me from continuing to be successful with these products.”

Looking Toward the Future

The ACA has undergone many challenges and changes. Its future is uncertain. What’s important, for now, is that insurance agents understand the newest changes and how they’ll affect your business today.

Do you have experiences with the individual mandate penalty repeal to share? Let us know in the comments!