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It isn't often that we praise the Internal Revenue Service. But praise is in order for the IRS for its recently proposed regulations dealing with part of the health care reform law that is of the greatest importance to employers: financial penalties that will apply if employers do not offer coverage to employees.
The challenge for the IRS was huge for a basic reason: The Patient Protection and Affordable Care Act is anything but clear, leaving it to regulators to make interpretations of the law.
In this case, the IRS was up to the challenge. Its “shared responsibility” regulations are a model of fairness.
Take the penalty of $2,000 per full-time employee that will be imposed starting in 2014 on employers with at least 50 employees that do not offer coverage. But how is that penalty to be calculated? Does it mean, as some read the law, that if just one employee were not offered coverage that the employer would be liable for a $2,000 penalty for every employee?
Such an interpretation would have meant, for example, that if an inadvertent error resulted in just one employee not being offered coverage, a large employer — even though it was spending tens of millions of dollars on employees' health care benefits — would have had to pay millions of dollars in fines.
That would not have been fair and reasonable, a point the IRS obviously grasped in proposing that employers have to offer coverage only to 95% of full-time employees to avoid the $2,000-per-employee penalty.
That requirement strikes us as fair and reasonable, following the law's objective of encouraging employers to offer coverage without employers living in mortal fear of being hit with a draconian penalty for not offering coverage to one employee.
Other parts of the regulations also pass the fair and reasonable test. For example, employers that operate on a controlled group basis, in which corporate units run independently of one another, will not face the $2,000 penalty just because another controlled group member does not offer coverage.
There are other fair and reasonable points in the regulations. That said, however, the IRS still has more health care law regulations to write. For example, regulations still are needed on how employers are to communicate the availability of public health insurance exchanges and calculate an excise tax that applies on very expensive health care plans.
We hope the model of fairness and reasonableness that is the hallmark of these regulations is followed as regulators develop the next batch of health care reform law rules.