Collections or Health Care Regulation – What Is the IRS to Do?

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The Internal Revenue Service (IRS) is struggling to provide the basic levels of responsiveness to taxpayers, but Congress continues to add to the IRS’s responsibilities in areas that appear far outside the agency’s main job of raising revenue. The Affordable Care Act (ACA) is a prime example of a non-revenue raising job. While the IRS’s involvement in the ACA has drawn attention to the fact that the IRS is one of the primary regulators of employer-provided health care, this is not new. Favorable tax treatment of employer-provided health care led to the employer-centric system we have today. The ACA greatly expands the administrative task on the IRS, which leads to the question of whether health care regulation is something in which the IRS should have a role. Nina Olson, the National Taxpayer Advocate, labeled the ACA administration as one of the “most serious problems encountered by taxpayers.” Even the Chief Justice appears skeptical of the IRS’s role, stating that the IRS “has no expertise in crafting health insurance policy.”

Along with The Department of Labor and The Department of Health and Human Services (HHS), the IRS is involved in administering the ACA’s individual mandate, employer mandate, premium tax credit, excise tax on high-cost employer plans, and substantive group health plan requirements. One of the best-known tax provisions in the ACA is the individual mandate that charges a fee for taxpayers who are uninsured and have no exemption status. The IRS has primary rulemaking authority over both the individual and employer mandates, but this is not exclusive as HHS, Treasury and Labor all have specific roles and authority for administration.


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The IRS has almost full control over the premium tax credit, but HHS has the authority to determine which part of the premium, if any, is attributable to staterequired benefits. In addition, the statute instructs the IRS and HHS to cooperate regarding necessary regulations on family size and household income. The excise tax on high-cost employer plans, known as the Cadillac Tax, falls entirely within the IRS’s rulemaking authority.

The most significant rulemaking task imposed on the IRS by the ACA is section 9815 which incorporates into the Code all the ACA’s group health plan requirements that were added to the Public Health Service Act. Plans that fail to comply with the group health plan requirements are subject to the $100 per participant per day excise tax. Before the ACA, IRS enforcement of group health plan regulations were accomplished through imposition of an excise tax on non-compliant plans. The ACA continues to build on this model, but it also moves IRS enforcement into new areas.

The ACA significantly expands the IRS’s role in health care regulation, and some critics have argued that placing such a task on an overworked agency is not a smart idea, but others have argued in favor of the IRS’s role for various reasons. Starting with the ACA’s payments to taxpayers, since the premium tax credit are calculated based on income, and the IRS has the most readily available information that can be used for this purpose. The scale of the premium tax credit also supports the argument that the IRS is better positioned than other agencies to handle administration, as many more individuals will be eligible for premium tax credit than for other social welfare programs. The IRS already has a procedure in place for collecting delinquent tax balances from the same population, something no other federal agency can claim. Finally, the IRS is required by constitutional limitations which were upheld by Congress to be involved in the administration of the individual mandate.


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The troubling aspect of the IRS’s involvement in ACA is the broad rulemaking power. There are other options to ease our concerns both about the IRS’s expertise in such matters and the task it imposes on an already struggling agency. HHS, Labor and IRS could re-establish their roles to make the IRS’s role more limited, or Congress could take rulemaking authority away from the IRS, instead requiring the IRS to follow the regulations issued by HHS and Labor since they have health policy experience.

We may not like the expansive role the IRS has come to play in health regulation but the problem arises not with any recent additions to the Code, but rather America’s tradition of having employers as the primary providers of health insurance and the provision of a tax benefit with such coverage. Since the ACA was an attempt to achieve universal coverage through the existing employer-based system, the statute requires significant reliance on the tax system to achieve those goals. In the end, there is a strong argument for most of the ACA’s tax provisions and the IRS’s administrative responsibilities. Angie Smith


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Angie Smith

Angie Smith started her own practice, Tax- Smith, after years in the tax industry. Nationally serving clients, TaxSmith has quickly become one of the fastest growing tax firms in the nation, focusing exclusively on tax law with resolution and tax preparation departments for both personal and business clientele. Angie graduated from the University of North Carolina and Florida Coastal School of Law. She is a member of the Florida Bar, Florida Middle District and Eleventh Circuit Court of Appeals. Being bold, creative and mindful in your everyday actions are lessons she learned from her parents and has help to shape who she is today.

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