There is a big PR problem brewing, one receiving very little attention in the media or industry publications. One that I think will resonate among those who typically support the politicians who supported the Affordable Care Act.
The issue stems from the delay in the 1094/1095 reporting under section 6055 and 6056 of the IRS code specifically created under the Affordable Care Act. For those who don't live in this world as I do, this is the carrier and employer required reporting that lets the government know if an offer of coverage was made to a particular employee, if it met certain coverage requirements, and if it was "affordable" according to one of several calculations set forth by the bill. If an "applicable large employer" does not report or does not meet the minimum requirements, there are serious fines at play. The first requirement to do this, barring any further delays, is by March 31st to report on all of 2015 (this was originally supposed to be done for 2014, but was delayed because of the burden on employers).
Why is this important? Well, the big lure of the Obamacare-established exchanges are the subsidies available to help reduce the out-of-pocket costs. The subsidy amount is based on the household income in relation to the federal poverty level. However, it is also predicated on your job not offering coverage that provides a certain base level of coverage and meets the aforementioned affordability test. With the absence of the employer reporting, however, the government has thus far relied strictly on the self-reported nature of the coverage level and affordability of any employer sponsored plan available to individuals in the exchange.
Recommended For You
Even if the employer plan meets the affordability test, most people would still call their plans through their employer "unaffordable." And the confusion is further compounded by something the industry refers to as the "family glitch." Let's say I am offered coverage at my job, and my employer pays 80 percent of the premium for me, but they pay nothing towards the cost of carrying my dependents — an all-too-common scenario. It is expected that most employers will use the W2 safe harbor provision, which says that as long as what would come out of my check, for me alone (and for coverage that at least meets minimum value) is under 9.5 percent of my W2, it meets the test. If my employer pays nothing towards my family, however, it could easily cost me $1,000 or more per month out of my pay to cover my family. Clearly not affordable to most Americans. But because the test was met in my case, the entire household (assuming I file jointly with my spouse) becomes ineligible for a subsidy.
So, you have what my own anecdotal evidence shows could equate to hundreds of thousands of people, who either honestly believed their coverage was not affordable, didn't think their employers plan met the coverage requirements, or outright lied because there appeared to be no one checking and therefore received what could amount to significant subsidies (these are technically an advanced tax credit, an important distinction, more on that later) to reduce their premiums.
Now let's look at the legal nature of the subsidy. It is technically an advanced tax credit, meaning it is a dollar for dollar reduction in your tax liability which gets paid to the carrier in advance, on your behalf. If it is determined you were not eligible for that tax credit, it becomes a liability in a prior tax year, and is widely believed that the IRS will have the right to garnish wages, freeze assets and place liens on property. Some have confused this with the lenient enforcement announced for the penalty for not carrying insurance that was publicized as only a reduction in a tax refund. This is NOT that.
How much are we talking here? Well I have seen subsides as big as $1,500 per month, although the average is around $2,890 per year per person, according to the Kaiser Family Foundation. So if a family of four owes the entire year back, at the average subsidy, we are talking over $10,000 per year, plus likely penalties and interest from the IRS (since this was an advanced tax credit they would have the full right to do that).
So what is the average working person going to do if they get a $1,000 demand from the IRS? Or $10,000? Or more? And if the IRS exerts the same force they do on normal tax debts, frozen bank accounts, liens, and garnished wages could come pretty quickly.
All in all, this reporting that we are preparing now for employers will likely have significant financial impact on many American workers who should not have received the subsidy to begin with, but many, in all likelihood, didn't fully understand that.
Timing will be largely dependent on how quickly the government aggregates the data they are currently collecting from numerous sources. Failure to enforce this rule will set the ground work for a system overburdened with fraud and waste.
So get ready for what I believe will be a vocal, angry and desperate group of people with compelling stories facing a very difficult financial situation.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
