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Sexual Harassment The ACA’s Individual Mandate

One of the hidden surprises of the tax reform legislation Starting in 2019, the new tax bill eliminates the tax pen-
is a small but important provision about sexual harass- alty imposed under President Obama’s Affordable Care Act
ment lawsuits against businesses, likely driven by the swirl- (ACA), which mandated that everyone obtain health insur-
ing controversy over the #MeToo Movement. The new tax ance (whether through their employer, a spouse, their par-
law now prohibits businesses from deducting payments ents’ plan, from the exchanges, or Medicaid), or pay a
related to sexual harassment or abuse set- penalty. In 2018, the penalty for an adult
tlements that are subject to non-disclosure not having health insurance is $695. Known
agreements (NDAs), which were used by $2.3 trillion as the “individual mandate,” the purpose
Fox News, the Weinstein Company, and The cost the new tax bill of the provision was to incentivize as many
others. Furthermore, businesses will also be will add to the national people as possible to obtain insurance, espe-
prohibited from deducting attorneys’ fees debt by 2027 cially those who are currently healthy, in
and costs related to defending these law- order to broaden the insurance risk pool for
suits if an NDA is used. The policy goal is to discourage the providers and to keep overall insurance premiums low.
use “hush money” to silence victims of sexual harassment Notwithstanding the smart rationale behind the indi-
and abuse. vidual mandate, many found it paternalistic, and strongly
Of course, this new tax provision does not prohibit felt that the federal government should not dictate how indi-
businesses from entering into NDAs for sexual harass- viduals spend their money. While President Trump and
ment cases. In fact, many businesses will likely continue Republicans in Congress failed to overturn the full ACA,
to insist on NDAs and incorporate confidentiality clauses their tax legislation provides them the opportunity to elimi-
in such harassment settlements, but they will lose the tax nate the individual mandate.
write-off when they do. Notably, this rule does not apply The Congressional Budget Office estimates that with
to Congress or to churches, since sexual harassment set- the elimination of the individual mandate, 13 million
tlements by Congressmen are covered by the federal gov- Americans will lose health insurance in the next decade. The
ernment, and churches are non-profit organizations—both elimination of the mandate is estimated to generate $340
which are not subject to paying taxes. billion in savings from health care subsidies from the federal
government. However, the elimination of the mandate likely
Subsidized Parking/Transit will significantly increase health insurance premiums for

Under the previous tax code, businesses could deduct $255 everyone, because many healthy people—especially younger
per month per employee for reimbursing employee com- people—will avoid obtaining health insurance until they
muting expenses, including public transit, parking, and become sick and need coverage, adding enormous costs to
biking. This was a great way for businesses to subsidize medical providers and insurers, who will spread those costs
public transit (and help decrease traffic congestion, pol- to everyone else. In short, the corporate tax cuts are great
lution, fossil fuels, etc.). Unfortunately, the new tax bill for businesses, but some of those savings will be eaten up by
eliminates this deduction for businesses. Without this higher health insurance premiums for employers.
deduction moving forward, public transit advocates are
worried businesses will no longer subsidize these pro-en- Conclusion
vironment programs. Nevertheless, many will continue to Bear in mind, even though this legislation is the first major
offer this benefit, for purposes of staying competitive and tax code overhaul in 32 years, there are certainly going to
offering responsible perks to their employees. be refinements through additional legislation, and import-
However, costs related to mass transit and parking ant guidance to come from the Internal Revenue Service
will continue to be tax exempt to employees, who can pay expanding on how these new tax provisions will be regu-
their own mass transit or workplace parking costs using lated. And expect even more tweaks to the Tax Cuts and
pre-tax income, through an employer-sponsored salary Jobs Act after 2018, especially if Democrats make significant
deduction program. It is unclear how many ski areas offer gains in Congress.
such benefits to their employees, but if it encourages pub- But perhaps the biggest winners of all out of this tax
lic transit, biking, or other low-pollution transportation bill: accountants and tax specialists, because this long over-
options, this would be a win-win for both our employees due tax reform provides them with renewed job security for
and for the environment. years to come.

26 | NSAA JOURNAL | SPRING 2018