Tax vs. Penalty, Round Two: Interpreting the ACA’s Assessable Payment as a Tax for Federal Award Cost Allowances

Abstract

The Patient Protection and Affordable Care Act (ACA)—a significant health care reform enacted in 2010—imposes an “assessable payment” on certain employers that fail to offer affordable health insurance to their employees. Unfortunately, this assessable payment label presents a problem for nonprofits and other nonfederal entities receiving federal awards. Per uniform guidance from the Office of Management and Budget, federal awards may be used to pay taxes, but not fines or penalties. This Note argues that the ACA’s assessable payment should be interpreted as a tax. This conclusion is based on both: (1) the U.S. Supreme Court’s analysis in its 2012 decision in National Federation of Independent Business v. Sebelius in which it held that the ACA’s individual mandate’s “shared responsibility payment” could, for constitutional purposes, be interpreted as a tax; and (2) an analysis of an assessable payment’s characteristics and likely effect on employer behavior. Interpreting the assessable payment as a tax recognizes its inherent functionality as such and ensures that Congress does not escape political accountability for imposing taxes by using ambiguous terminology to describe an exaction.