When the Affordable Care Act (ACA), commonly called Obamacare, was implemented in 2010, it significantly changed health insurance. Individuals who previously had limited access to health insurance began enrolling, leading to positive improvements in their lives.
But alongside its benefits, the ACA introduced the individual mandate, imposing a tax penalty for those who failed to obtain health insurance. However, this provision was later revoked by the government, resulting in a shift away from the IRS’s enforcement of Obamacare, as was the case during the early stages of its implementation.
Is the IRS still involved in ACA health insurance, and why are they involved anyway? More importantly, what does this mean for the future? In this article on the IRS and Obamacare, we answer all these questions and more.
Understanding The Affordable Care Act (ACA)
We need to briefly revisit the ACA history and timeline to understand how the IRS became involved with health insurance,
On March 23, 2010, President Obama signed The Affordable Care Act, which later became known as Obamacare. This marked the beginning of significant healthcare and health insurance changes.
Today, individuals can secure comprehensive medical coverage without worrying about being denied due to pre-existing medical conditions. They can access essential health benefits even on the most affordable health insurance plans.
Additionally, households with lower incomes can apply for subsidies to assist them in covering the cost of health insurance.
The Individual Mandate
The Affordable Care Act Mandate, which made health insurance mandatory, was well-intentioned. Its goal was to boost the number of people with health coverage and, in turn, enhance access to quality healthcare.
Unfortunately, the individual mandate was unpopular and created some negative attitudes toward the Act because it imposed penalties for those who didn’t comply.
Any individual who did not obtain qualifying health insurance coverage (unless eligible for an exemption) faced a financial penalty when filing their federal income tax return. Eventually, the government reduced this penalty to $0, relieving those previously affected.
While the individual mandate still exists, it no longer carries a tax penalty for non-compliance in most states.
The Employer Mandate
The ACA’s Employer Shared Responsibility Provision, commonly called the employer mandate, requires certain employers to offer affordable health insurance coverage to their full-time employees or potentially face penalties.
Under the employer mandate, applicable large employers (ALEs) must offer affordable and comprehensive health insurance coverage to their workforce. An ALE is defined as a US company employing 50 or more full-time workers. Failure to comply with this mandate results in two potential penalties.
- Firstly, failing to offer such coverage to 95% or more of their employees incurs a penalty. In 2024, employers will be assessed a penalty of $2,970 per ACA full-time employee, with an exemption for the first 30 employees.
- Secondly, providing coverage that is unaffordable triggers a penalty. In 2023, this penalty is $4,320 multiplied by the number of full-time employees who receive subsidized coverage through the marketplace. However, this penalty cannot exceed the penalty for neglecting to provide coverage altogether.
Because employers must report this information on their tax returns, failing to furnish complete or accurate data on time may result in additional penalties.
How The IRS Supports ACA Implementation
Every U.S. citizen and business must report their health insurance coverage status when submitting income tax returns to the IRS.
It’s important to note that individuals won’t face penalties for lacking coverage. However, employers are still subject to penalties for non-compliance with their mandates.
The reason why the IRS needs this information is straightforward. ACA reforms include IRS tax provisions affecting individuals, families, businesses, insurance companies, tax-exempt organizations, and government entities.
This is why the IRS plays a significant role in implementing the ACA.
Why The IRS Isn’t Strictly Enforcing The ACA For Individuals
In 2017, legislation removed the tax penalty for individuals who lacked health insurance, beginning in the 2019 tax year. It’s important to clarify that the government retained the mandate itself; only the penalty for failing to comply with it was eliminated. Consequently, you’re still obligated to report your health insurance coverage status.
However, this requirement serves a valuable purpose. Eligible individuals and families can receive subsidies to assist with their health insurance coverage expenses, often in the form of premium tax credits.
A premium tax credit is refundable, which means it can reduce the federal income tax you owe or even result in a refund if the credit exceeds your tax liability.
Payment Of Tax Credits
There are two ways you can pay this premium tax credit:
- Advance payments to the insurance company: If you opt for this method, the government sends the premium tax credit directly to your health insurance provider in advance. As a result, your monthly premiums are lowered, making it more affordable to maintain coverage throughout the year. Essentially, you’re getting the benefit of the credit upfront to reduce your out-of-pocket expenses.
- Claimed when filing your tax return: You can choose not to receive the credit in advance and instead claim it when you file your annual tax return with the IRS. In this case, you’ll pay the full monthly premiums to your insurance company throughout the year.
However, when you file your taxes, the IRS will calculate the premium tax credit you’re eligible for based on your income and other factors. If you qualify, you’ll receive this credit as a refund or a reduction in the taxes you owe, effectively reimbursing you for a portion of the premiums you paid during the year.
While the IRS may not strictly enforce the individual mandate of the Affordable Care Act (ACA), it still plays a critical role in administering the premium tax credit. The information you provide about your health insurance coverage status and income when filing your tax return is used by the IRS to determine your eligibility for this credit.
Therefore, accurate and complete reporting remains essential for individuals who may qualify for subsidies under the ACA, as it directly affects the financial assistance they receive for their health insurance premiums.
Different Ways To Comply With The ACA
There are different ways to comply with the ACA.
- Adhere to all the stipulations in the Employer Shared Responsibility Provision. Provide a minimum of 95% of your employees with health insurance coverage for themselves and their dependents. Provide them with enough options that meet ACA regulations and are affordable.
- Track your employees’ health coverage and keep accurate records. Include accurate information about your employees’ health coverage status to the IRS on each tax return. File these returns on time, and double-check all information therein before submitting.
- Get yourself covered with ACA-compliant major medical insurance. Individual and family plans are available in every state. You can do this on the ACA Marketplace, state-run health insurance exchanges, or through a certified broker like Enhance Health.
- You’ll have to do this during the Open Enrollment Period, from November 1 to January 15 in most states. You may receive a special enrollment exemption if you cannot do so due to a life event.
Life events that may qualify are a death in the family, hospitalization, childbirth, or a natural disaster.
- Report your insurance coverage status to the IRS on your income tax returns. If you are unable to afford health insurance without assistance, apply for a subsidy.
- If you have coverage, state what type of coverage this is. Ensure that all information you provide is up-to-date and accurate. If you have employer-sponsored health insurance, your employer will report this on your behalf.
Issues Around IRS Involvement
With the IRS involved in ACA implementation from the foundation, it raises several issues.
- Unfortunately, the only way the ACA can be genuinely effective is with IRS involvement. Employees would not receive the health coverage they need without the penalties prescribed for non-complying businesses. Many Americans rely on employer-sponsored coverage for themselves and their dependents.
- As for the cost of such involvement, allocating of tax credits for compliance and the additional admin involved necessitates extra funding for the IRS. New IT infrastructure, additional staff, and other expenses must be accounted for.
- While you have to report your coverage status, you are not required to give details about your health status. The IRS does not delve into your health records with your insurer. They only need to know whether or not you’re insured and if you are eligible for a subsidy.
The Future Of The ACA: Possible Changes
Since the ACA was signed into law in 2010, it has undergone further changes. These were, for the most part, beneficial to the public. But could there be future changes that won’t be as well received? How will this affect IRS involvement?
It’s no secret that the Republicans are, as a whole, not in favor of the ACA. Almost every Republican fiscal plan over the last few years has suggested amendments to or repeal the Affordable Care Act. The Trump Administration eliminated the individual mandate penalty.
Many Americans would see that as a good thing. However, it meant that many people continued without health insurance coverage. A penalty is, after all, a very effective means to an end – making people get insured.
Could the ACA be repealed in the future? Will the IRS still be tasked with enforcing it? Only time will tell, but if it is, it could have far-reaching implications for businesses and the average American.
How Healthcare May Change With Less IRS Oversight
The IRS oversees how tax-exempt hospitals provide community benefits and enforces ACA requirements. This task is not easy, as it requires additional staff and reliance on accurate reporting of healthcare facilities.
As can be seen since doing away with the individual mandate, a lack of accountability for non-compliance can negatively affect the compliance rates.
Without such oversight, healthcare providers might not adhere to regulations as strictly as they do now. Low-income or uninsured patients will not be guaranteed the level of care that IRS-enforce ACA adherence provides.
Non-compliance, if discovered, could also affect the healthcare providers’ tax-exempt status. This will incur penalties, which means higher costs for the providers and less funds to allocate to patient care.
However you look at it, the IRS’s involvement in Obamacare can’t be diminished without severe repercussions for the healthcare system.
The IRS will not enforce Obamacare with individual penalties. However, they still oversee ACA adherence and require this information on your tax return. But if you are a business owner with more than 50 employees, you will have to report your compliance and face penalties if you don’t.
To comply with ACA regulations and ensure better healthcare, get yourself covered. We can help you find the right insurance for your needs and budget and assist with everything from choosing a plan to signing up. Contact us for more information about our ACA health insurance plans.