On February 12, 2014, the IRS published its long-awaited final regulations on the employer play-or-pay mandate under health care reform (here). Although the final regulations do not make significant wholesale changes to the proposed regulations, they do provide some important clarifying rules and transitional guidance that will help smooth the path to full implementation of the employer shared responsibility mandate.
Background. By way of brief background, the employer shared responsibility (pay-or-play) mandate under health care reform requires an "applicable large employer" (generally an employer with 50 or more full-time-equivalent employees) to offer affordable, minimum value health insurance coverage to its full-time employees (defined as employees working an average of 30 or more hours per week). Applicable large employers that fail to offer minimum essential coverage to at least 95% of their full-time employees generally face an annual penalty of $2,000 per full-time employee, if at least one of the employer's full-time employees obtains subsidized coverage through the public insurance exchange. Applicable large employers that offer minimum essential coverage to at least 95% of their full-time employees but do not ensure that the coverage is both affordable and provides minimum value generally face a penalty of $3,000 per full-time employee that obtains subsidized coverage through the public exchange. Key issues under these rules include determining who is an applicable large employer, who is a full-time employee, and whether coverage offered to an employee is affordable.
Details, Details. The specific provisions of the final regulations touch on many different areas to a degree of detail that is beyond what can be summarized in a single post. So I will be breaking down the guidance over a series of posts to allow for more detailed treatment. Future posts will specifically examine the following topics: transition rules, counting hours of service, using the look-back measurement method for identifying full-time employees, using the monthly measurement method for identifying full-time employees, using different measurement methods for different classes of employees (and dealing with transitions between measurement methods), and determining when coverage is affordable.
Transition Rules. The preamble to the final regulations provides a number of transition rules that apply over the period between now and the beginning of the 2016 plan year. Although the details of those rules will be addressed in a future post, the transition rules generally touch on the following seven areas:
- Fiscal year plans (generally allowing for a delay in compliance until the beginning of the 2015 plan year)
- Allowance of a shorter first measurement period for employers using the look-back measurement method in 2015
- Allowance of a shorter period for determining employer size during 2015
- Allowance of a grace period for offering coverage during January 2015
- Delay (until 2016) in the requirement to offer coverage for dependents
- Delay (until 2016) in the application of the employer shared responsibility requirements for employers with less than 100 full-time-equivalent employees
- Relaxation (during 2015) of the requirement to offer coverage to at least 95% of full-time employees (70% rule)
Big Picture. Other than the transition rules, the final regulations do not make many changes that will have a broad effect on employers subject to the employer shared responsibility requirements. Implementation will generally proceed as described in the proposed regulations and prior guidance. But employers subject to these requirements (or potentially subject to these requirements) will want to ensure they take this opportunity to familiarize themselves with the final rules in preparation for compliance during 2015 and beyond. Stay tuned for further details.