More Delays to the Healthcare Reform Employer Mandate

By Cynthia Boyle Lande

On February 9, 2014, the IRS issued final regulations to the Affordable Care Act’s employer mandate (often referred to as “play or pay”). The employer mandate requires employers who have 50 or more full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees (“FTEs”) to offer to all full-time employees affordable health insurance that provides minimum value. Employers failing to satisfy these requirements may be required to pay a penalty, known as the Shared Responsibility Payment, if any employee receives a tax credit for purchasing insurance through the exchanges.

These requirements were initially scheduled to take effect in 2014. Last summer, the IRS delayed enforcement of the employer mandate until 2015. The final regulations published earlier this month contain transition relief which further delays the effectiveness of the employer mandate. This post provides an overview of the transition relief prescribed under the final regulations.

Medium Employer Transition Relief

Employers who employ between 50 and 99 FTEs during 2014 will not be required to make the Shared Responsibility Payment for 2015 even if they do not comply with the Employer Mandate so long as they meet the following requirements: 

• The employer does not adjust the size of its workforce or hours of service of its employees in 2014 for purposes of having fewer than 100 FTEs; and
• The employer does not eliminate or materially reduce the health insurance coverage in place as of February 9, 2014.

Non-Calendar Year Plans

The final regulations also provided three pieces of transition relief for plans which were in existence on a non-calendar year basis as of December 27, 2012 and have not changed plan year since then: (i) Pre-2015 Eligibility Transition Relief; (ii) Significant Percentage Transition Relief (based on all employees); and (iii) Significant Percentage Transition Relief (based on full-time employees only). The Pre-2015 Eligibility Transition Relief provides that an employer is not subject to the Shared Responsibility Payment so long as the employer offers coverage meeting the affordability and minimum value requirements no later than the first day of the 2015 plan year. For example, an employer with a 2015 plan year beginning on June 1, 2015 will not be subject to the Shared Responsibility Payment so long as the coverage it offers meets the affordability and minimum value requirements beginning June 1, 2015. This transition relief only applies, however, to employees who are eligible to receive coverage as of the first day of the 2015 plan year under the terms of the employer’s plan in effect on February 9, 2014.

The other two provisions provide transition relief even if the employer does not offer coverage to all employees. Whether the employer can benefit from these two provisions depends on whether the employer meets certain requirements regarding the portion of the employer’s employees eligible for coverage.

Modification of Other Requirements

For employers who are subject to the employer mandate in 2015, the final regulations modify coverage and cost requirements under the employer mandate in several ways. First, the regulations modify the percentage of employees that must be covered to avoid a Shared Responsibility Payment for failure to provide coverage. An employer typically will be deemed to offer coverage to all full-time employees if the employer offers coverage to at least 95% of full-time employees. The final regulations provide transition relief replacing 95% with 70% for purposes of this requirement for 2015.

Additionally, the regulations modify the calculation for determining the Shared Responsibility Payment for failure to offer coverage. For purposes of calculating the penalty if an employer fails to offer coverage to at least 70% of its full-time employees, the employer can exclude the first 80 employees when calculating the penalty of $2,000 per employee for 2015. For years after 2015, employers can only exclude the first 30 employees.

Next Steps for Employers

With these final regulations in place, many employers must begin making important decisions about compliance prior to the beginning of 2015. Failure to comply with these requirements can result in substantial penalties for employers. Employers should begin planning and developing a strategy for compliance now. If you have any questions about the information contained in this post or what steps you should take to comply with the Affordable Care Act, you should contact your BrownWinick employee benefits attorney.