Businesses may owe millions of dollars as IRS begins enforcement of employer mandate

Even as the Republican tax overhaul stripped out the Affordable Care Act’s mandate that individuals buy health insurance or face tax penalties, the law’s employer mandate remains.

And the Internal Revenue Service, after a few years of not enforcing that rule, has begun to collect penalties from companies that fail to comply. The penalties only apply to firms with at least 50 employees that don’t offer affordable health insurance when an employee buys insurance on their own with a federal subsidy.


The rule went into effect in 2015, but the IRS only recently began notifying businesses that owe money. For 2015, the penalties were to start at $2,080 per employee and escalate each year. Depending on the size of the company, some could owe millions of dollars.

“This is seismic,” said Jennifer Berman, senior vice president of compliance at Kelly, one of the Baltimore-area’s largest employee benefit managers. “Until a few weeks ago we had not seen any action by the federal government to actually enforce the employer mandate — nothing.”


Some businesses may be expecting the letters, if they decided that paying the penalty would be more affordable than expanding health insurance.

But insurance advisers said they are concerned that many more businesses may receive the letters — and bills for thousands of dollars — in error. The paperwork companies must fill out to show they are in compliance is complicated. Those that tried to do it in-house, as opposed to hiring a specialist, may have made mistakes that could trigger an IRS penalty, said Zach Pace, an Annapolis benefits consultant.

“Everyone needs to be on full alert,” Pace said. “The biggest risk is for those who aren’t expecting to pay a penalty because they’re not on the lookout for this — and they’re going to want to dispute it.”

What’s more, the time-sensitive letters are hitting mailboxes at a time of year when holiday vacations may delay businesses’ response to the IRS, which requires companies to take action within 30 days.


“The worry is it hits someone’s desk, they’re out for 10 days and they hand it off a week later,” Pace said.

The fifth open enrollment in Obamacare comes to a close in Maryland, and while signs ups in the state match last year's tally, the Affordable Care Act remains under threat by a series of steps in Washington.

The employer mandate and the penalties the IRS is beginning to hand down are pressing concerns for businesses, said Mike O’Halloran, Maryland state director of the National Federation of Independent Businesses.

But few firms are willing to speak out about the issue.

“It’s three letters: I-R-S,” O’Halloran said. “That can really put the fear of God into a small business owner that’s trying to do the right thing and can still run afoul of the tax man.”

Companies that think they’ve been penalized in error need to respond quickly, Berman said.

Sparks-based Kelly partnered with MZQ Consulting, a benefits firm that specializes in ACA compliance, to ensure its clients were in compliance with the new rules. Berman is also CEO of MZQ Consulting in Pikesville.

But the firm has taken in several new clients that received letters they want to challenge, Berman said.

“It’s people who thought they’d done everything correctly, and then we go back and investigate, and their filings were not correct,” she said.

The penalties Berman has seen so far range from tens of thousands of dollars to $2.7 million.

She said she advised her new clients not to discuss the matter with media because they are in ongoing legal proceedings with the IRS.

The Maryland Retailers Association is concerned about how employers will continue to meet the requirements for health insurance coverage as premium prices continue to rise and new requirements are piled on, said Cailey Tolle, the organization’s president.

“The theme is this for businesses, and it’s every year, too: Another business policy passed that’s costly in some manner,” Tolle said. “There’s this layering effect.”

She pointed to minimum wage requirements and calls to increase paid sick leave as examples of additional costs saddling businesses.

Tolle said she wants to see the Trump administration ditch the employer mandate or pursue new insurance options that would help businesses get a better price on health plans.

One idea Trump has supported, association health plans, allows smaller businesses to come together to negotiate for an insurance plan.

The plans are controversial because they allow businesses to skirt rules about what benefits must be covered. Advocates say such plans are a way for employers to offer a valuable benefit they would otherwise be unable to afford.

Regardless of whether Congress pursues new insurance options, the employer mandate seems here to stay — at least for the foreseeable future, said Bradley Herring, an associate professor at Johns Hopkins Bloomberg School of Public Health.

Republican efforts earlier this year to repeal the Affordable Care Act would have done away with the employer mandate. After that legislation failed, Republicans have instead tried to chip away at what they consider the law’s most onerous provisions.

The tax overhaul signed into law Friday by Trump, for example, eliminates the individual mandate, which requires most people to buy health insurance or pay a tax penalty.

But many other aspects of the law remain.

“The experience we saw over the summer is that repeal, or even partial repeal, of the Affordable Care Act is just really, really unlikely,” Herring said. “I think there’s probably no reason to believe this won’t persist.”

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