Signed in December 2017, the Tax Cuts and Jobs Act eliminates PPACA’s federal individual mandate penalty for not having health insurance starting in 2019.
Many employers shrug at this news since the elimination of the federal individual mandate …
- did nothing to change the employer’s obligations to offer coverage,
- did nothing to change the play or pay tax penalty, and
- did nothing to curb the regulatory burden of complying with PPACA and its reporting requirements.
Many states are now proposing regulations to replicate the individual mandate to shore up their individual markets.
Granted, some employees enrolled in their employer’s insurance plan to simply avoid the tax penalty. The absence of such penalty is likely to cause a decrease in the total number of employees enrolled on an employer offered insurance plan.
A recent Kaiser Family Foundation Survey indicates that the vast majority of people who buy their insurance through exchanges are satisfied with their purchase and will continue with these plans. This may also be true of new enrollees under employer plans.
Regardless, various states are concerned that state individual markets may decline in enrollment because presumably healthy people may be cancelling coverage – leaving only the sick to purchase insurance. This can cause prices to increase, causing more people to terminate coverage, and ultimately causing the collapse of the market.
To offset this threat, there are currently 9 states (MD, DC, NJ, CT, HI, VT, RI, MN, WA) considering State individual mandate legislation to replace the loss of the federal individual mandate. State mandates will apply to people who live in a state regardless of the location of their employer plan.
To better understand the potential impact of all these state-specific individual mandates, we can look at the state of Massachusetts.
Massachusetts has long had this type of state individual mandate tax penalty. People who live in Massachusetts need to show that they have a required level of medical coverage to avoid a tax penalty. Employers outside Massachusetts, who have employees in Massachusetts, need to provide employees with a special tax document and complete an annual filing with the Massachusetts Department of Revenue. Therefore, some employers offer special plans that comply with Massachusetts requirements, while others modify their national benefit offering to keep in scope with Massachusetts.
The repeal of the federal individual mandate tax penalty and the threat to market instability has prompted responses by states to ensure the stability of their insurance markets.
A quick increase of state regulations (like that currently in Massachusetts) may cause employers with employees residing in these states additional regulatory burdens in reporting and plan design as each state passes their own set of rules.
Companies that offer ERISA plans to employees have historically been able to avoid many of the various state regulations for employees residing in their state. However, companies may need to respond if they employ people living in a state that imposes a tax penalty for failing to maintain a minimum level of coverage.
Navigating these new state-based regulations will require a clear understanding of the rules with a practical approach to implementation. HCW will continue to track these developments and advise employers on necessary actions and considerations – just subscribe to our newsletter to stay up to date on matters like this or contact your HCW consultant to learn more.