Hundreds of companies face prospective fines for violating Obamacare’s employer mandate by the same Trump administration that has done virtually everything in its power to abolish the federal health care law.
The Internal Revenue Service notices recently began arriving in corporate mailboxes, in some cases demanding millions of dollars in fines — an awkward development as the White House touts its business-friendly tax package. The notices will likely spur another legal fight over the health law — this time featuring the administration defending a statute that President Donald Trump has repeatedly declared dead.
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“Litigation is in the works,” said Alden Bianchi, an attorney who represents several businesses facing potential penalties for failing to provide adequate insurance coverage to workers. “There is a challenge out there and it’s brewing and the players are serious.”
The enforcement actions cover potential violations in 2015, the first year the mandate was supposed to be applied, after the Obama administration suspended fines in 2014. The Obama administration never tried to collect fines for 2015 before it left office in early 2017. Thanks in part to the time lag in tax filings, the first penalty notices just started to roll out in November, enforcing an unpopular requirement heading into the midterm election. Trump’s IRS has similarly enforced the health law’s requirement that most individuals carry insurance.
The covered firms argue the process is critically flawed, in large part because they never received legally required warnings from Obamacare exchanges at that time. As a result, companies say the government didn’t follow the law and they shouldn’t face the fines.
The IRS didn’t respond to questions from POLITICO about the penalties. The administration hasn’t disclosed precisely how many companies face potential fines, which can amount to several thousand dollars per employee, depending on circumstances. Several sources have told POLITICO they estimate the number of companies is in the hundreds or perhaps the low thousands.
A White House spokesperson referred POLITICO to the IRS.
The initial assessments are not binding. Employers have an opportunity to appeal the decision and present evidence that the IRS erred.
A potential lawsuit would likely center around what the businesses see as a fundamental problem in the enforcement of the mandate, according to sources familiar with those discussions. Employers with more than 100 full-time employees that are subject to the coverage requirement get fined when one or more of their workers goes to an Obamacare exchange and qualifies for a tax credit to help them buy insurance. Beginning in 2016, the criteria changed and more employers with more than 50 full-time employees faced the fine.
Under the law, when an employee gets a subsidy, the health insurance exchange is supposed to trigger a notification to the employer, effectively putting the business on notice that it’s likely to face a fine, and to give it an opportunity to cover the employee. But business sources say the federal exchange and some state-run exchanges never sent out those notices — and still aren’t.
“This is a 2015 problem, but guess what? This is also a 2017 problem because no notifications have gone out for 2017,” said Chris Condeluci, an attorney who is working with some companies facing potential fines.
Employers also complain the forms they’re supposed to fill out telling the IRS whether they offer coverage have confusing language, leading some businesses to mistakenly state they don’t provide it when they do.
“You can’t ignore an IRS assessment,” said Edward Lenz, senior counsel for the American Staffing Association, which represents temporary employment agencies. “You do that at your peril.”
So far, many employers are staying mum, in the hopes of negotiating the penalties away or that the IRS chooses not to enforce them. But if they go public over a huge Obamacare fine so soon after Republicans passed their business-friendly tax bill, congressional Republicans would be hard pressed not to come up with a solution.
Rep. Mike Kelly (R-Pa.) is sponsoring legislation that would retroactively eliminate the penalties. Kelly says that some Democrats quietly support the idea. Indeed, soon after the administration in 2013 unilaterally delayed enforcement of the mandate for one year, until 2015, 35 Democrats joined House Republicans to pass a bill doing the same thing.
“They knew it was a mistake too but it was too late – they couldn’t change it,” Kelly told POLITICO.
House Ways and Means Chairman Kevin Brady (R-Texas) said there is “very strong interest” in delaying or repealing the mandate, including retroactively.
But such a move would cut off revenue from the fines, potentially forcing supporters to come up with alternatives. The Congressional Budget Office pegs the revenues at $146 billion over a decade.
“I’d like to see us make progress there because there are a couple issues,” Brady said. “One is the cost of the mandate going forward, but also I think the effort to look back two to three years [to repeal retroactively].”
For now, covered employers are left in legal limbo.
In December, an AtWork Group temporary-staffing franchise was hit with a $3.8 million assessment for violating the mandate. The Knoxville, Tenn.-based firm was stunned: Most of its employees aren’t full-time workers, and it found a low-cost plan for 2015 that HHS determined was sufficient to meet the law’s requirements.
“It would kill them,” said Jason Leverant, AtWork Group’s chief operating officer. “That’s a huge sum of money.”
AtWork’s franchisee has appealed the IRS’ initial determination, and hopes that the issue will disappear once the facts are clarified.
“There’s no way it should stick,” Leverant said.
Aaron Lorenzo contributed to this report.