Dou­ble-dip­ping on ex­changes could be costly

Modern Healthcare - - NEWS - By Joe Carl­son

The In­ter­nal Rev­enue Ser­vice is threat­en­ing mas­sive fines against com­pa­nies that of­fer em­ploy­ees tax­ad­van­taged money to help them buy fed­er­ally sub­si­dized health plans on the Oba­macare in­sur­ance ex­changes.

Com­pa­nies en­gaged in dou­ble-dip­ping face penal­ties of up to $36,500 per worker, ac­cord­ing to new IRS guide­lines. The penalty is so high that it could dis­cour­age com­pa­nies from de­lib­er­ately shift­ing their work­ers into sub­si­dized cov­er­age through the ex­changes, which some ob­servers say was the agency’s in­tent. Em­ploy­ees also could have to pay back the sub­sidy.

The guide­lines fol­low dis­cus­sion of whether em­ploy­ers will stop of­fer­ing job­based health ben­e­fits and shift work­ers onto the ex­changes by of­fer­ing to pay part of their pre­mi­ums. That could hike the federal cost of pre­mium sub­si­dies, though the penal­ties im­posed on em­ploy­ers un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act for not of­fer­ing af­ford­able cov­er­age could off­set costs.

Em­ploy­ers re­ceive tax de­duc­tions for the amount they pay for em­ploy­ees’ health­care pre­mi­ums, whether or not they di­rectly pro­vide cov­er­age. Those pay­ments do not count to­ward em­ploy­ees’ tax­able in­come. But em­ploy­ees may not re­al­ize that a com­pany’s of­fer to pay part of their pre­mium for in­di­vid­ual cov­er­age on the ex­changes is treated for tax pur­poses the same as if the em­ployer had di­rectly pro­vided group cov­er­age, said Cather­ine Liv­ingston, a part­ner at Jones Day and the IRS’ for­mer lead at­tor­ney on health­care re­form.

The re­sult is that people might in­ac­cu­rately claim on an ap­pli­ca­tion for an ex­change health plan that their em­ployer does not of­fer cov­er­age and re­ceive sub­si­dized cov­er­age on the ex­change. “They will be­lieve in good faith that they are an­swer­ing ques­tions on the ap­pli­ca­tion hon­estly, and it is only go­ing to come to light when they file their tax re­turn,” Liv­ingston said.

That mis­take could trig­ger the big penalty against the com­pany, un­less the em­ployer can con­vince the IRS through an ap­peal that the sub­sidy was made in er­ror. Then the IRS could re­quire the em­ployee to pay back the sub­sidy.

Cor­po­rate tax con­sul­tants have been hunt­ing for ways to com­bine the tax breaks for em­ployer ben­e­fit plans with the pre­mium tax cred­its avail­able to lower- and mod­er­ate-in­come in­di­vid­u­als for buy­ing ex­change cov­er­age, said Joel Ario, a man­ag­ing di­rec­tor at Manatt Health So­lu­tions and a for­mer HHS of­fi­cial who led de­vel­op­ment of state in­sur­ance ex­changes. “That’s what the IRS is try­ing to pre­vent,” he said.

Ario said that if com­pa­nies want to help em­ploy­ees buy cov­er­age on the ex­changes, they can raise their salary. But such in­creases are sub­ject to em­ployer and em­ployee pay­roll taxes, which makes that ap­proach less at­trac­tive.

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