It’s a safe bet that most readers have heard something about the U.S. Appeals Court decision dubbed “Halbig.” In it, a D.C. Appeals Court found that the IRS overstepped its legal bounds when it granted ACA-related tax credits to residents living in states that did not create their own exchanges.
The decision casts doubt on one of the linchpins of the ACA: Tax credits to offset the cost of insurance coverage for lower income Americans. When the ACA was drafted, it specified that tax credits would be available to residents of states that had created a state-based exchange. The bill did not specify that the same tax credits would be available in “Federally Facilitated Marketplace” or FFM states, although ACA supporters say that was the intent.
When the IRS issued regulations clarifying tax credits would be available in FFM states, three business owners and a handful of individuals filed different cases challenging the IRS’ legal authority. The plaintiffs said they were harmed because the IRS was exposing them to penalties that would not apply if tax credits were not applicable, and the D.C. Appeals court in the Halbig case agreed. But other courts rejected this argument, including a Virginia Appeals Court decision issued just two hours after Halbig.
It will take several months for these cases to make their way through the court system, and the issue may very well end up in the Supreme Court. If Halbig stands, millions of Americans living in the 34 states with federally-managed exchanges would be barred from receiving tax credits, making private health insurance unaffordable for many. This would have a significant financial impact on consumers, insurers and health care providers, but it would also have a direct impact on employers.
For one thing, employers would not be subject to employer responsibility, aka “Pay or Play,” penalties that are triggered only when an employee receives a tax credit. Furthermore, if employer responsibility penalties don’t apply, then certain aspects of the employer reporting requirements become meaningless.
IRS Forms Released
And while we are the topic of employer reporting requirements, the IRS has released draft forms it intends employers to use for reporting data to the federal government regarding health coverage offered to employees. Most employers that sponsor self-insured plans will use a single combined form (1095-C) to report information required under both IRS Code Section 6055 and Section 6056.
The draft forms can be found on the IRS website, and the IRS will accept suggestions for improvements to the forms over the next few weeks. If you have suggestions you’d like to share, please visit the IRS comment page or let us know at firstname.lastname@example.org.