Late last year, Congress passed the Tax Cuts and Jobs Act, which included a provision effectively repealing the requirement for most Americans to have health insurance. This “individual mandate” was originally imposed by the Affordable Care Act (“ACA”). Beginning in 2019, the tax penalty individuals face if they do not enroll in health coverage considered minimum essential coverage (“MEC”) will drop to zero.
For many Americans, the individual mandate was satisfied by the health coverage provided by employers. From an employer perspective, the repeal of the individual mandate penalty might first appear to have little effect. The ACA’s employer shared responsibility provisions (also known as the “pay-or-play penalties”) remain intact, and applicable large employers (“ALEs”) will likely continue to provide group health coverage to employees and their dependents even though the individual mandate is no longer in effect. And though the Congressional Budget Office projected that an additional 4 million individuals will go uninsured when the federal penalty disappears, most of these individuals were previously insured in the individual market, not the group market.
But the repeal of the federal penalty has spurred activity at the state level that will require employer attention. Many states are concerned that the resulting increase in uninsured individuals will further strain state safety nets, resulting in accelerated efforts to strengthen state insurance markets by imposing state-law individual mandates to reduce the rate of uninsured individuals.
This past May, both New Jersey and Vermont passed laws establishing their own state individual mandate. Together, they join Massachusetts, which had its law in effect since before the ACA. The laws differ in their design and scope:
- New Jersey – The New Jersey Health Insurance Market Preservation Act goes into effect on January 1, 2019. It closely tracks the former federal individual mandate. New Jersey taxpayers must have MEC during each month of the tax year to avoid an annual penalty of $695 for adults and $347.50 per child, or 2.5 percent of a taxpayer’s income, whichever is greater. The amount of the penalty is adjusted each year for inflation. The penalty is capped at the average premium for a bronze-level health plan in New Jersey. MEC is defined by reference to federal law, but state regulators have authority to recognize additional types of coverage as MEC. Regulators also have the ability to establish hardship or religious exceptions. By statute, the definition of MEC specifically excludes coverage provided by a multiple employer welfare arrangement (“MEWA”), unless the MEWA coverage also complies with specified state consumer protections.
- Vermont – H.696 was passed this year, but mechanics are yet to be determined. The law provided for the creation of a working group to develop recommendations regarding administration and enforcement of the individual mandate. The penalty and enforcement mechanisms are to be enacted during the 2019 legislative session and will take effect in 2020. It is expected the working group will (1) define additional forms of coverage that will and will not constitute MEC and (2) establish waivers and exceptions from the penalty. A report to the state’s congressional committees is due from the working group on November 1, 2018.
- Massachusetts – As a precursor to the ACA, Massachusetts passed its health care reform law in 2006, requiring residents to maintain minimum creditable coverage (“MCC”) starting in 2007. MCC is similar, but not identical, to MEC. The penalty for going without MCC only applies to adults and depends on the adult’s age and income category. For example, in 2017, the penalty for a 31-year-old individual with an income above 300% of federal poverty level was $1,152 per year. The penalty may be waived for hardship, including a situation where employer-provided coverage does not meet MCC requirements. Read more about Massachusetts’ current requirements here.
Similar efforts have been considered in other states, including Connecticut, Hawaii, and Maryland. We expect activity to continue into the 2019 and 2020 legislative sessions.
Effects on Employers
Though the focus is on individuals, state individual mandate requirements are still cause for concern among our clients. The most likely direct effects are expected to be reporting and disclosure requirements. For example, Massachusetts already compels employers to arrange for the provision of statements to individuals and related reports about employee health coverage to the state Department of Revenue. Soon, New Jersey will require employers offering a group health plan (“GHP”) to report census data to the state treasurer to assist with enforcement of the mandate. We question the extent to which reporting requirements imposed on self-funded plans are preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”).
States might also hope to leverage the access employers have to their employee populations and impose notice requirements on employers as one way to publicize the individual mandate. While no states currently have such a requirement, we expect some states might use employers as a channel for outreach efforts in the future, even if only on a voluntary basis.
We have identified other possible indirect effects:
- Will group health plan coverage satisfy state requirements? Employees will likely expect to rely on employer-sponsored GHPs to satisfy the individual mandates in the states in which they live. If the definition of MEC at an individual state level diverges from federal requirements applicable to the employer shared responsibility rules, employers could face problems with employee morale and negative publicity if they do not amend their GHPs to comply with the state-law definition of MEC, which might mean having to offer GHPs with better or different benefits. The potential for future changes in what constitutes MEC at the state level obligates employers to monitor changes in their states.
- Will additional dependents enroll in group health plans? Employers that offer coverage to a broad array of dependents may observe sustained dependent enrollment despite repeal of the federal mandate. In states with their own individual mandates, employees might choose to continue to cover their spouse, domestic partner, or adult child when they otherwise would not have done so. Since employer-provided coverage is still a significant source of health coverage for many working aged individuals, as states burden individuals with the obligation to seek coverage, the burden to provide health coverage is expected to continue on employer plans.
 The federal definition of minimum essential coverage is defined in 26 U.S.C. § 5000A(f)(1).