December 20, 2017

Republicans have now finalized their tax overhaul and it is expected to be signed by the President very soon. The good news for employers is that group health plans are largely unaffected by the tax changes.  However, as has been widely reported, the final bill effectively repeals the Affordable Care Act (“ACA”) tax on individuals who do not have health insurance (sometimes called the “individual mandate”) by reducing it to zero starting in 2019 (not retroactively back to 2014).  This change does not sunset, so it is intended to be permanent. The President, has claimed that this “essentially” repeals the ACA. However, most employer obligations remain unchanged.

What's not going away

Specifically, here are some of the items that are not going away as a part of the Tax Cuts and Jobs Act:

  • The ACA employer mandate (and the enforcement of that mandate)
  • ACA employer reporting
  • ACA health plan mandates (like preventive care requirements, cost sharing limits, and other similar items)
  • The so-called Cadillac Tax on the cost of health coverage

What does the repeal mean

So what effects does the individual mandate repeal have on employers?  It’s difficult to say, but there are a few potential implications:

  • By some predictions, the individual mandate repeal will cause premiums in the individual health insurance market to rise. If that’s the case, employees who may have pursued individual coverage instead of employer coverage may take a second look at employer coverage. Note, however, that any change in election under an employer plan has to be consistent with the plan documents and, in most cases, the cafeteria plan change in status rules, as we have noted previously.
  • Alternatively, with the mandate repealed, some employees who elected employer coverage may no longer feel they need to maintain it. Therefore, they may try to drop coverage they have elected. However, as with those who want to enroll, changes after the beginning of the plan year have to be consistent with the plan documents and, in most cases, the cafeteria plan change in status rules.
  • Employees who chose not to maintain employer coverage may, on average, be younger and healthier. The loss of these individuals in the risk pool could have an adverse impact on an employer’s health plan costs.

At this point, we do not expect a mass exodus from employer-sponsored coverage in part because the amount of the penalty was, in many cases, less than the premiums the individuals were paying anyway. However, employers may want to be prepared for employee questions about changing their elections so they can respond appropriately.

There's always next year

Even though tax reform left most of the employer-related ACA provisions, there are proposed bills that would temporarily repeal the employer mandate (for 2015 through 2018) and delay the Cadillac Tax for one year, among other items. Employers should keep an eye on Congress to see if these go anywhere in 2018. In an election year, repealing or delaying taxes could gain bipartisan support. HUB will continue to monitor these developments and keep you apprised of any changes.

Please contact your Hub Account Team with any questions.


The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.