Another delay in the Affordable Care Act’s Employer Mandate - A Reprieve For Many Employers

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The Obama administration announced last week that some mid-sized businesses would have an additional year to comply with the employer mandate or “pay or play” provisions of the Affordable Care Act. The employer mandate requires businesses with at least fifty (50) employees to either offer health plans that meet minimum coverage and affordability standards or pay a penalty known as the “employer responsibility payment.”

The employer mandate was originally to take effect beginning January, 2014. In July 2013, the IRS issued Notice 2013-45 which postponed the mandate until 2015 for all employers. In final regulations issued February 12, the IRS again extended the delay for smaller “large employers.”  The transition rules in the new regulations in effect create three separate timetables for employers. 

Employers with an average of 50 to 99 full time (including full time equivalent employees). These employers are not subject to the pay or play mandate until January 1, 2016, provided the employer:

  1. does not reduce the number of its employees between February 9, 2014 and December 31, 2014 in order to qualify for the extended delay, i.e. to fall within the 50-99 employee range;
  2. satisfies certain coverage maintenance requirements for the period beginning on February 9, 2014 and ending on the last day of the first plan year beginning on or after January 1, 2015;
  3. certifies that it has satisfied the above requirements on a form to be provided by the IRS.

As long as an employer satisfies these requirements, the employer will not face a penalty for any calendar month during 2015 (for calendar year plans) or any calendar month during 2015 (for calendar year plans) or any calendar month during the portion of the 2015 plan year that falls in 2016 (for non-calendar year plans).

Employers with an average of 100 or more full time (including full time equivalent employees). These employers are subject to the pay or play mandate beginning in 2015; however the transition rules ease the application of the “no coverage penalty” for 2015. Originally, an employer would be subject to the “no coverage penalty” if it failed to provide coverage to at least 95% of its full-time employees and their dependents. The no coverage penalty is equal to $2,000 per year (adjusted for inflation after 2014) for each of the employer’s full time employees (less the first 30 full time employees).

The just issued transition rule changes these rules for employers with 100 or more full time employees but only for 2015.  Under the transition rule, the employer will not face a “no coverage penalty” if the employer offers coverage to at least 70% of its employees and their dependents.  If the employer is subject to the “no coverage penalty” because it covers less than 70% of its full time employees, the penalty will be equal to $2,000  per year for each full time employee (less the first 80 full-time employees).  In 2016, these employers will be subject to penalties if they cover fewer than 95% of their full time employees.

Employers with 50 or fewer employeesThe transition rules do not effect these employers because they were never subject to the pay or play mandate under the Affordable Care Act. The vast majority of businesses have fewer than 50 employees.

Topics:  Affordable Care Act, Employer Mandates, IRS, Pay or Play, Shared Responsibility Rule, Transition Relief

Published In: Health Updates, Labor & Employment Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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