The Patient Protection and Affordable Care Act

Expat Briefing Editorial Team, 11 April, 2014

The Patient Protection and Affordable Care Act is feted by its exponents as the most significant achievement of the administration of President Barack Obama so far, yet the legislation, which has serious financial implications for thousands of businesses and millions of individuals, faces a very uncertain future.


The Patient Protection and Affordable Health Care Act (usually abbreviated to ACA) was signed by President Obama in March 2010. The legislation is intended to address a major shortfall in affordable health care coverage, especially for the poor and the middle classes, and drive down spiralling health care costs. The legislation attempts to achieve this through the use of employee and employer mandates, by providing subsidies, and with the creation of insurance exchanges, all of which are intended to increase coverage and affordability. The law also requires insurance companies to cover all applicants within new minimum standards and offer the same rates regardless of pre-existing conditions or gender.

The comprehensive reforms contained in the ACA are being rolled out over a number of years, with many of its most important provisions already in place. However, as if it wasn’t difficult enough for individuals and companies, especially small firms, to understand and meet their obligations under the new law, which runs to over 1,000 pages, the Administration has already made some key changes to it. Furthermore, the law has been challenged on numerous occasions by its opponents, both in Congress and in the courts, some of which target the legislation as a whole and others just certain elements of it.

Employer Mandate Delays

In February 2014, the Treasury Department and the Internal Revenue Service (IRS) issued final regulations implementing the ACA mandatory employer reporting requirements but, at the same time, announced their further delay.

Within the provisions of the ACA, most Americans will be required to maintain "minimum essential" health insurance coverage, and large employers will be encouraged to offer that health coverage. Those individuals and employers who do not comply with these mandates – the "employee mandate" and "employer mandate" – are to make "shared responsibility" payments, or tax penalties, to the IRS.

Beginning in 2014, large employers with 50 or more full-time workers that did not offer health coverage would have had to pay a penalty tax to the IRS of USD2,000 to USD3,000 per employee if any of their workers (exempting the first 30) had to obtain, instead, health insurance coverage through a health insurance exchange. For individuals, that payment will be equal to the greater of USD95 or one percent of their taxable income in 2014, USD325 or two percent in 2015, and USD695 or 2.5 percent from 2016 onwards.

In July last year, while claiming that it had listened to business concerns and would re-vamp and simplify the reporting process, the Treasury announced it had suspended large employer reporting requirements for 2014, and, as a consequence, employers would not be assessed for penalties before 2015. However, it confirmed that the individual mandate, and the assessment of its tax penalties, would still apply this year.

In the event, Treasury and the IRS have since had to announce that there will be a further delay in the application of the employer mandate, and have disclosed that final regulations will be issued shortly that aim to substantially streamline employer reporting requirements.

The new changes phase in the percentage of full-time workers to whom larger employers with 100 or more employees need to offer coverage from 70 percent in 2015 to 95 percent in 2016 and beyond. Employers in this category that do not meet these standards will make an employer responsibility payment for 2015. Employers with 50 to 99 employees will report on their workers and coverage in 2015, but have until 2016 before any employer responsibility payments could apply.

Assistant Secretary for Tax Policy Mark J. Mazur made the point that 96 percent of employers are unaffected by the changes because they are not subject to the employer responsibility provision. However, ACA opponents are suspicious of the reasons for the further delay in one of the law's key provisions, with the additional delay kicking the problems raised by businesses over the employer responsibility payment beyond the 2014 Congressional midterm elections, to be held in November. They also note that the individual mandate has again not been extended.

Last year, Rep. John Boehner (R – Ohio), the Speaker of the House of Representatives, concluded that delaying the employer mandate is "a clear acknowledgment that the law is unworkable," and that President Obama should recognize "the need to release American families from the mandates of this law as well."

Reacting to the latest delay, House Ways and Means Committee Chairman Dave Camp (R – Michigan) said that "this is just one more admission that the law is bad for hardworking taxpayers and American employers," while Republican National Committee Chairman Reince Priebus commented that, "after refusing to accept bipartisan changes to the law, the Administration is unilaterally making it up as they go along."

In March, the House voted to delay by one year the individual mandate. The decision was passed through the Individual Mandate Penalty Law Equals (SIMPLE) Fairness Act, with 27 Democrats joining the Republican majority. Lawmakers argued that the suspension is necessary in order to equalize the ACA treatment of individuals and businesses. It would delay the operation of the individual mandate until January 1, 2015. The Senate has yet to vote on the proposals, and it is unclear when, or even if, the House bill will be taken up with only a few months of the current Congressional session remaining.

Legislative Challenges

As Boehner’s and Camp’s comments suggest, the Republican side of Congress remains indefatigably opposed to the ACA and the legislation has existed under threat of repeal almost from the moment it was signed into law by the President.

Republicans oppose the ACA on the grounds that it will take away patient choice, effectively socialize health care in America, ramp up taxes on job creators and add billions of dollars to the government’s expenditures. Thus far however, the Republicans have lacked the majority needed in both arms of Congress to repeal the ACA wholesale.

One of the first acts by the new Republican majority in the House of Representatives following the 2010 midterm elections was to introduce a bill to repeal the ACA. Predictably however, the legislation died, and even if it had managed to get through the Democrat-controlled Senate, President Obama would almost certainly have wielded his veto. This state of affairs hasn’t prevented Republicans, sometimes joined by Democrats, from attacking the law from other angles.

Following a House of Representatives Ways and Means Committee hearing on whether the IRS is able to fulfil its responsibilities under the ACA, the Republican-led House passed a bill to take away those responsibilities in their entirety in August 2013. The ACA contains 47 tax or tax-related provisions, some of which are already in effect. However, following doubts about the IRS’s ability to administer these provisions effectively, the "Keep the IRS Off Your Health Care Act" would prohibit the IRS from implementing or enforcing any part its responsibilities within the ACA, thereby preventing US taxpayers "from having to answer to the IRS when it comes to their personal health care decisions."

Last November, Pat Tiberi (R – Ohio), Chairman of the Subcommittee on Select Revenue Measures, and Daniel Lipinksi (D – Illinois) introduced a bipartisan bill into the House of Representatives that would repeal the United States health care law's reinsurance fee, often known as the "belly button tax." Introduced this year, the tax is intended to cover the federal reinsurance program, which provides payments to insurance companies to help offset the universal application of the ACA. The USD63 levy covers every health insurance recipient, and is expected to affect 190m Americans. 

"This covers every health insurance recipient, not just the policy holder. It's a fee faced by every one that provides health insurance and they will most certainly pass on the cost to their employees and customers when they can," said Tiberi. "It's simply outrageous that employers will be forced to pay the tax while they will get nothing in return from the program."

"The majority of Americans with medical insurance purchase healthcare plans through their employers. The transitional reinsurance fee, the so-called 'belly-button tax,' would only discourage employers from continuing to offer this vital benefit to their workers," Lipinski added. "Our bipartisan bill will protect workers from having their healthcare costs increased and prevent penalizing employers from having to pay millions of dollars in burdensome fees."

And at the end of January, three Senators, Orrin Hatch (R – Utah), Tom Coburn (R – Oklahoma) and Richard Burr (R – North Carolina), released a legislative outline of how the Republican Party would abolish and replace the ACA, including tax credits to help individuals pay for the required health insurance. The Patient Choice, Affordability, Responsibility and Empowerment (CARE) Act would eliminate the 47 tax or tax-related provisions the ACA has now, or will mandate in the future, and instead provide a targeted tax credit to certain individuals which could solely be used for the purpose of helping to buy health care.

While the status quo in Congress exists, none of these legislative initiatives stands much of a chance of being enacted. Things may change, however.

Legal Challenges

Opponents of the ACA have also tried to overturn the legislation through the courts. But these efforts have so far been unsuccessful.

Contrary to the expectations of many, on June 28 the Supreme Court adjudged that the shared responsibility payment, while being called a “penalty” in the ACA, is still a valid exercise of Congress's powers of taxation. Many had assumed that it would be declared unconstitutional by being classified as a penalty – rather than a tax “imposed for the purpose of raising revenue for general spending,” or a fee “imposed for the purpose of recovering the cost of providing a particular service.” It was a narrow defeat for the challengers however, as the Supreme Court panel voted 5-4 to effectively uphold the ACA.

In January 2014, the United States District Court for the District of Columbia rejected a challenge to the premium tax credit provision within the ACA. The tax credits are designed to defray the cost of purchasing health insurance, based on household income. The Congressional Budget Office (CBO) has estimated that 18m Americans, who currently do not have health insurance or who purchase insurance themselves, could be eligible for the tax credits that will be generally available to individuals and families with incomes between 100 percent and 400 percent of the federal poverty level. In May 2012, the IRS issued a final rule implementing the tax credit. That rule interpreted the ACA as authorizing the IRS to grant tax credits to individuals who purchase insurance on either a state-run health insurance exchange or a federally-facilitated exchange. This interpretation was challenged in the lawsuit, but the court accepted the Government's argument, and granted it summary judgment, by deciding that, "in sum, the Court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated exchanges." The plaintiffs have lodged an appeal against the ruling.

Administrative Overload?

Besides the political opposition to the ACA, serious doubts exist as to the IRS’s capacity to administer the dozens of tax provisions in the legislation at a time when its resources are failing to keep pace with its ever-expanding remit.

In the light of a recent report by the TIGTA, the Treasury watchdog, that the IRS has made no improvements to tax credit fraud and error rates, particularly in the case of the Earned Income Tax Credit (EITC), Hatch and Senate Homeland Security and Governmental Affairs Committee Ranking Member Tom Coburn (R – Oklahoma) wrote to IRS Principal Deputy Commissioner Daniel Werfel in November seeking answers on how the agency will manage the ACA's premium tax credits.

"The [TIGTA] audit raises serious concerns about the IRS's unwillingness or inability to successfully prevent billions of taxpayer dollars being wasted on erroneous tax credit claims," the letter states. "We are particularly worried about these findings, given the IRS's role generally as the primary agency administering a range of credits and specifically in overseeing and implementing the premium tax credits under the ACA."

"Similar to the EITC, the ACA offers refundable tax credits for certain eligible individuals," it adds. "However, we believe that a range of provisions in federal law, regulations, and administrative practices actually leave the health care overhaul even more seriously susceptible to fraud or abuse than the EITC program already is."


Like it or not, the ACA is here, and there doesn’t seem to be a great deal that its opponents can do to uproot it at the moment. Whether it is here to stay is another matter, and its future repeal cannot be ruled out if Republicans regain control of Congress, although it would probably take a Republican President to actually sign such a law. Either way, the confusion and uncertainty surrounding health insurance obligations, costs and taxes, and what might replace the ACA if it succumbs in whole or in part, is not going to go away.

Tags: audit | business | Tax | individuals | employees | United States | standards | regulation | penalties | legislation | court | law | Internal Revenue Service (IRS) | insurance | health care | tax credits | fees | tax |


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