Unpacking the Inflation Reduction Act and Its Potential Impact to Employer ACA Risk

Let’s Unpack the Inflation Reduction Act and Its Potential Impact to Employer ACA Risk 

The ACA continues to make headlines in the news with the recent regulatory and legislative changes.  These changes help more individuals access affordable healthcare. They also increase the complexity and penalty risk for employers. 

You’ve likely heard of the Inflation Reduction Act, just signed into law on August 16, 2022. The law extends the expanded subsidies initially available through the American Rescue Plan, for those who purchase plans through the marketplace (instead of enrolling in employer coverage). The American Rescue Plan provided a stimulus package that increased marketplace access for millions of Americans by expanding consumer eligibility for premium tax credits to help pay for health insurance premiums. The Inflation Reduction Act continues the extension of subsidies for the next three years. 

Let’s break this down:

Here’s why the extension of expanded subsidies through the Inflation Reduction Act continues to elevate complexity and employer risk of incurring IRS penalties for ACA non-compliance: 

1. Under the ACA, Applicable Large Employers (ALEs) must offer affordable health coverage that meets minimum value requirements to eligible employees, or face potential penalties from the IRS. 
2. Employers are deemed at risk of incurring a fine (known as Penalty B) when they 
   • fail, for whatever reason, to offer affordable coverage to an eligible employee and 
   • that employee is qualified to receive a premium tax credit (also called a subsidy) when purchasing insurance through a public healthcare exchange.  
3. Before the American Rescue Plan, only individuals who made less than 400% of the federal poverty level (FPL) were eligible to receive a subsidy. The American Rescue Plan expanded eligibility by eliminating the 400% FPL income cap for tax years 2021 and 2022. 
4. With the threshold removed, more individuals qualify for subsidies, resulting in greater risk to employers in failing to offer affordable coverage and potentially more work in responding to IRS requests. 
5. The recently passed Inflation Reduction Act extends this change for the next three years.

When a full-time employee receives a marketplace subsidy, the IRS will send the employer a 226-J Letter with a notice of proposed Penalty B fines for each employee identified. If an employer did not offer an eligible employee affordable healthcare coverage, it could result in tens- or hundreds of thousands of dollars in fines. 

It can be time and cost-intensive to respond to a 226-J Letter even for employers that are in full compliance. In addition to the components in the Inflation Reduction Act, the IRS recently announced the largest decrease to date to the 2023 ACA Affordability Percentage. Read about why this change is good news for employees, but will add further ACA challenges for employers in our blog post, Employers Possibly At Risk for Penalties as IRS Decreases ACA Affordability Percentage for 2023.

We know that it’s challenging for most HR teams to stay on top of ACA employer regulatory and legislative changes. Be sure to turn to a trusted health reform technology partner, like Equifax Workforce Solutions, that helps provide expertise on how to help you manage the ever changing landscape. Learn more about how our ACA services can help organizations like yours.

Get tips on helping your c-suite understand the complexities and potential risk around ACA issues. While HR professionals are well aware of the ramifications of failing to comply, many C-suite executives are not. If this is true in your company, we’ve got strategies to help you have this important conversation with your C-suite. Download these tips today. 

The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.