On July 2, 2013, the U.S. Treasury Department announced that implementation of the Pay or Play Rules of the Affordable Care Act ("ACA") will be delayed one year until January 1, 2015. Employers, however, should not delay their compliance planning.
A. The Pay or Play Rules Delayed. The ACA imposes penalties on large employers (defined as those with 50 or more full-time equivalent employees) that do not offer affordable health plan coverage to their full-time employees. These penalty provisions of the ACA are often referred to as the "Pay or Play Rules."
In general, the Pay or Play Rules provide that, for each month that a large employer does not offer health insurance to at least 95% percent of its full-time employees and at least one full-time employee receives a premium tax credit or subsidy for coverage purchased through an ACA health insurance exchange, the employer will be subject to a penalty equal to $166.671 times its number of full-time employees (not counting the first 30 full-time employees) (the "No Offer Penalty"). For each month that a large employer offers health insurance to full-time employees but that coverage is unaffordable or not minimum value coverage (as defined under regulations), the employer will be required to pay a penalty equal to $2502 times the number of full-time employees who purchase coverage on an ACA exchange and receive a premium tax credit or subsidy (the "Unaffordable Coverage Penalty"). In no event will the amount of the Unaffordable Coverage Penalty exceed the amount of the No Offer Penalty if the No Offer Penalty had applied.
In addition to the penalties referenced above, the Pay or Play Rules require large employers to report to the IRS various information needed to track compliance, such as: the number of employees enrolled in the employer's health plan, the months the employer offered coverage, the monthly premium for the lowest cost option, and certain identifying information regarding covered employees.
The implementation of both the penalties and the employer reporting obligations under the Pay or Play Rules has been delayed until January 1, 2015. However, to assist in preparing systems to implement the Pay or Play Rules, the IRS encourages employers to voluntarily comply with the reporting requirements for 2014.
B. Employers Must Continue to Plan for the Pay or Play Rules. It is important for employers to remember that implementation of the Pay or Play Rules has only been delayed. These rules have not been repealed. In addition, the likelihood that the Pay or Play Rules will be repealed is remote. The gridlock in Washington alone makes repeal highly unlikely. As the Treasury Department noted in its announcement, the implementation of the Pay or Play Rules has been delayed to allow employers time to adapt their health coverage and reporting systems to meet the requirements of the ACA. Given the complexity of the Pay or Play Rules, employers should continue to establish their compliance strategies with a sense of urgency.
C. The Compliance Schedule for Other ACA Requirements Remains Unaffected. The delay in the implementation of the Pay or Play Rules does notaffect any other provisions of the ACA. Therefore, employers must continue to comply with provisions of the ACA already in effect and continue to prepare for compliance with provisions of the ACA set to take effect in the near future, including, for example:
- W-2 Reporting of Aggregate Health Care Costs—Currently in Effect: Employers who were required to provide a Form W-2 to at least 250 employees in the prior calendar year must report the cost of employer-provided health care coverage on each employee's Form W-2.
- Medicare Part D Subsidy—Currently in Effect: The tax-deduction for employers who receive Medicare Part D retiree drug subsidy payments is eliminated.
- PCORI Fee—Currently in Effect: Employers sponsoring self-funded health plans must pay a fee based upon the lives covered under their plans. For many plans, the first PCORI fee payment is due July 31, 2013. For more information on the PCORI fee, please see von Briesen's Compensation & Benefits Law Update here.
- Employee Notice Requirement—Currently in Effect: Employers must provide a notice to current employees by October 1, 2013 regarding the availability of the ACA insurance exchanges, potentially available premium subsidies for coverage purchased on the exchange, and the potential loss of employer contributions toward the cost of coverage under the employer's plan if the employee purchases coverage on an exchange. A new employee hired on or after October 1, 2013 must be provided the notice within 14 days of his or her start date. (Note: COBRA notices should also be revised to address the availability of exchange coverage).
- Transitional Reinsurance Fee—Effective January 1, 2014: Employer-sponsored self-insured plans that provide major medical benefits are generally subject to a new ACA Transitional Reinsurance Fee. For more information on the Transitional Reinsurance fee and the due date for payment, please see von Briesen's Compensation & Benefits Law Update here.
- Small Business Health Options Program (SHOP)—Effective January 1, 2014: Beginning in 2014, small businesses will have access to health insurance exchanges to purchase health insurance. A small business for this purpose is generally an employer with up to 100 full-time equivalent employees. Prior to 2016, however, states have the option to limit the definition of a small business for purposes of SHOP to an employer with up to 50 full-time equivalent employees.
- 90-Day Maximum Waiting Period—Effective January 1, 2014: Effective for plan years beginning on or after January 1, 2014, an employer health plan cannot impose a waiting period of more than 90 days. The IRS has provided temporary guidance on how employers should apply the 90-day rule.
- Workplace Wellness Programs—Effective January 1, 2014: Provided certain conditions are satisfied, employers may implement health contingent wellness programs with rewards of up to 30% of the cost of coverage (50% if the wellness program is designed to prevent or reduce tobacco use). Unless dependents can reasonably participate in the wellness program, the "cost of coverage" refers to the cost of employee-only coverage.
While the Treasury Department's postponement of the implementation of the Pay or Play rules and the related reporting rules is good news for employers, employers must remember that these are the only ACA requirements that have been delayed. In addition, employers should take advantage of the delay in the implementation of the Pay or Play Rules to plan their compliance strategy now. These rules are not likely to go away and 2015 will be here before you know it.
1 Annualized this amount equals $2,000 2 Annualized this amount equals $3,000
von Briesen & Roper Legal Update is a periodic publication of von Briesen & Roper, s.c. It is intended for general information purposes for the community and highlights recent changes and developments in the legal area. This publication does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.