August 22, 2017

A few weeks back I was curious as to what the adjusted section 4980H(a) and (b) penalty amounts related to the employer mandate would be in 2018. After all, we are getting late in 2017 and employers will soon need to make final decisions about their coverage options for the 2018 calendar year. After thoroughly reviewing the IRS website and other sources, I discovered there has been virtually nothing written about the section 4980H penalty amounts for 2018. Fortunately, after reviewing the Code and figuring out the premium adjustment percentage, it is easy to determine the penalty amounts for 2018. This article explains the Code provision and the math behind the 2018 penalty amounts.

The Code explains that the original $2,000 amount associated with the section 4980H(a) penalty and the original $3,000 amount associated with the section 4980H(b) penalty would be adjusted for calendar years beginning after 2014 (see IRC section 4980H(c)(5)). The Code tells us that the original dollar amount of each penalty is multiplied by the premium adjustment percentage which is defined in a separate section of the Affordable Care Act (see PPACA section 1302(c)(4)). Furthermore, the Code instructs that the product of those numbers is rounded down to the next lowest multiple of $10 (if the number is not a multiple of $10). The equation is quite rudimentary other than being able to track down the premium adjustment percentage.

On December 22, 2016 the Department of Health and Human Services (HHS) in conjunction with the Centers for Medicare & Medicaid Services (CMS) released the “Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2018; Amendments to Special Enrollment Periods and the Consumer Operated and Oriented Plan Program” final rule. Among other things, this document provided the 2018 premium adjustment percentage. For 2018, the premium adjustment percentage is 16.17303196. This is up 2.6 percent from the 2017 premium adjustment percentage of 13.25256291.

Since the premium adjustment percentage is already provided, all of the numbers necessary to calculate the 2018 section 4980H penalty amounts are known. The equations with the numbers filled in are:

1. $2,000 * 1.1617303196 = $2,323.46
2. $3,000 * 1.1617303196 = $3,485.19

The Code’s rounding rule instructs us to round to the next lowest multiple of $10 (if the number is not a multiple of $10). Therefore, the correct numbers to use when calculating the potential section 4980H penalties for 2018 are:

1. Section 4980H(a) penalty amount = $2,320
2. Section 4980H(b) penalty amount = $3,480

The IRS will likely release these numbers in a Notice or in a “Questions and Answers” in the weeks to come. However, the penalty amounts listed above should be used when calculating the potential penalties for violating the employer mandate in 2018. If you have any questions regarding this article or our streamlined reporting services, please don’t hesitate to contact us.

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About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC, provides Legal Counsel to Healthcare Compliance Inc. and is a Partner at Health Care Attorney’s P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.