Now that the Affordable Care Act is constitutional, it's time for accountants to start figuring out how it's going to affect them -- and their clients.

Many of the law's provisions are already in effect. The big ones -- the health care exchanges and the individual mandate, the tax on net investment income, the payroll tax increase, the medical device tax, the additional tax on early HSA withdrawals, and more -- won't be up and running until 2013 or later.

Since it is a tax, it makes sense for the IRS to be the agency that enforces it, according to Roger Harris, president of Padgett Business Services.

"It's not just a health bill, it's a tax bill," he observed. "No one should be surprised that it will be enforced by the IRS. Somebody's got to enforce it, and if you're going to have mandates and taxes and revenue to be collected, who else would do it?"

Some observers have noted that the possibility of tax reform may have suffered as a result of the ruling. The energy it would take to address the potential repeal of the ACA would preclude consideration of something as big as the various reform measures. Had the law been struck down, the attention of both houses of Congress could be focused on reform. If President Obama is re-elected, reform efforts will continue, since there would be no possibility of legislation passing to repeal the law. But if the Republicans take the presidency, much of their energy would go into repealing certain parts of the act.



The ACA's effect on hiring and the economy in general remains to be seen. In a Gallup survey released earlier this year, nearly half of small-business owners who aren't hiring cited fear about the potential cost of health care as a reason. Now that it has passed the hurdle of constitutionality, many more may come to the same conclusion.

"I thought they would find it unconstitutional," said Amy Gordon, a partner in the Employee Benefits Group of Chicago-based McDermott Will & Emery LLP. "It's interesting that they would conclude that it's not constitutional under the Commerce Clause or the Necessary and Proper Clause, but that it is a fair use of power under the Tax Clause. It looks as though they felt a duty to somehow find it constitutional, given the money that insurers have already spent in taking steps to comply."

However, the consequences are likely to be costly for employers, Gordon indicated. "In the past it was always an option on whether to provide health coverage. Now it's a mandate and with every mandate there are costs involved," she said. "It's burdensome for smaller employers who are anticipating the pay-or-play penalties that will go into effect in 2014. These apply to employers with more than 50 employees. I can envision smaller employers coming close to the 50-employee threshold and thinking twice about hiring more people, knowing that this will saddle them with an additional tax burden."

Under the pay-or-play penalties, a non-deductible excise tax will apply to employers with more than 50 employees that provide no health coverage to their employees." If an employer chooses to offer no coverage to employees, a penalty of $2,000 per full-time employee in excess of 30 employees will be assessed if one full-time employee obtains a tax credit or cost-sharing assistance from the government and buys coverage on the exchange. So if the employer has 100 full-time employees, it will pay 70 (100 minus 30) times $2,000, or $140,000," said Gordon.

Large employers who offer "unaffordable coverage" will pay a penalty equal to the lesser of $3,000 per full-time employee or $2,000 per full-time employee in excess of 30 employees. Coverage is unaffordable if it exceeds 9.5 percent of the individual's household income.

"Many employers are spending a lot more than the penalties," Gordon noted. "So my concern is that the pay-or-play penalty will be an incentive for employers to not participate in health coverage, and send their employees to the health care exchanges that the act envisions. And I'm not confident that the exchanges will be adequate to provide coverage to all the employees who get sent there."

Although the IRS will be the collector for the individual mandate penalty, it does not have the authority to lien or levy, observed Harris. "They can only get the penalty if you send it in or if they can offset a refund. It will be hard to collect from those who don't voluntarily pay."



Harris pointed out that the penalty is less than $700 ($95 for 2014; $325 for 2015; and $695 for 2016 and later years, indexed for inflation). "Is a $700 penalty going to motivate young people to buy insurance that costs many times that amount? It's got to get close to that number in order to motivate them."

Many residents of Massachusetts already pay the state's penalty, rather than purchasing insurance, even though the fine has been raised a number of times.

"If we have to raise the federal penalty to make it work, Congress will have to come back and hold a vote that will clearly be labeled a tax increase," Harris said. "That may be one of the little traps lying in wait."

As far as repeal is concerned, it will not be easy, said Harris. "It was a partisan bill when it was passed, and repeal would certainly be a partisan process," he observed. "And there are a lot of things in it that people favor. When the debate started, the universal complaint was not how good the care was, it was how much it cost. They should have solved the cost first, but they focused on coverage before they considered cost so we didn't know what the true number was."

Bill Smith, managing director with the CBIZ MHM National Tax Office, agreed that a reversal would be difficult. "Any repeal would be complicated because there are credits that have already been taken," he said. "For example, the credit for therapeutic discovery has already been allowed for 2009 and 2010. It's unlikely that any repeal would ask for those credits back."

Moreover, the appeal of some of the provisions would make it likely that some would be retained in any repeal effort, Smith suggested. "There's support for having children covered by their parents' policies through age 26, and for prior conditions not affecting eligibility," he said. "They've put so much into the health care legislation that I'm not sure how they would go about reforming the law, and what new tax provisions would be in the revisions," he said.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access