Play or Pay Rules—Compliance Delayed Until 2015

by Davis Wright Tremaine LLP

On July 2, 2013, the Obama administration announced through the U.S. Department of the Treasury that the penalties for employers under the “Play or Pay Rules” will not go into effect until 2015. In short, employers now have an additional year to prepare to either provide health care coverage to employees or pay penalties under the Affordable Care Act (“ACA”). The Treasury announced it will be issuing formal guidance over the next week describing this transition.

For many employers for whom the Play or Pay Rules are the centerpiece of health care reform, this relief came just in time. Though the Treasury urged employers to maintain or expand health coverage during what they referred to as the “2014 transition period,” there will be no risk of penalties to an employer under the ACA in the 2014 Plan Year for failure to offer minimum essential coverage that is affordable to an adequate number of employees and their dependents.

Citing the complexity of the reporting requirements under the ACA and the need for more time to implement them effectively, the administration announced it will provide an additional year before the ACA mandatory employer and insurer reporting requirements go into effect. In the meantime, the administration said that it plans to use the 2014 transition period to consider ways to simplify the new reporting requirements.

Without required employer reporting to the IRS regarding which employees are covered, when they are covered, and what coverage is provided by their health plans, the administration said it was impractical for the IRS to determine which employers would owe the shared responsibility payments for 2014. 

This relief means that employers have an additional year before they have to do the following:

  1. Determine whether they employ at least 50 full-time equivalent employees and are subject to the Play or Pay rules.
  2. Classify employees who work at least 30 hours a week/130 hours a month as full-time for health plan benefit purposes.
  3. Adopt measurement/stability periods to track hours for variable hour, part-time, and seasonal employees.\
  4. Offer minimum essential coverage to 95% of their employees who work at least 30 hours a week and their dependents or risk paying a penalty.
  5. Determine whether their health plan will meet the affordability standards of the ACA.
  6. Adopt reporting systems so that they can comply with the requirements of the law.

Despite the relief to employers provided by yesterday’s announcement, the remaining requirements of the Affordable Care Act, including the individual mandate, still go into effect Jan. 1, 2014, unless the Treasury issues further guidance. Individuals are supposed to be able to purchase coverage on state exchanges during open enrollment starting in October 2013. Individual subsidies will presumably still be available, even though they are tied to whether the individual was offered affordable employer-paid coverage. In light of the reported delay in many states to set-up insurance exchanges where individuals can purchase health care coverage and the fact that many employees are not eligible for coverage under their employers’ health plans, it remains to be seen if the Obama administration will provide any relief regarding the individual mandate and the implementation of state exchanges.

The following requirements of the Affordable Care Act for employers are still in effect for 2014:

  1. Exchange Notices – Employers are required to provide notices by Oct. 1, 2013, to employees that describe coverage that is available on the state exchange. See Technical Release 2013-02 for model notices or the Department of Labor’s Affordable Care Act page.
  2. Patient-Centered Outcomes Research Institute fees – Employers are required to pay the PCORI fee by July 31, 2013, for calendar year plans and to report it on the Form 720.
  3. Summary of Benefits Coverage – Employers must provide all employees with a Summary of Benefits Coverage that describes a number of elements of the health plan to employees at enrollment. The Departments issued a revised SBC template to be used for coverage beginning on or after January 1, 2014, together with FAQs that address issues related to the new template.
  4. 90 day waiting period – Employers are required to enroll employees in their employer-sponsored health plan within 90 days of the employee becoming eligible to participate in the plan.
  5. W-2 Reporting – Employers who issued at least 250 W-2s in 2012 are required to report the value of employer-provided health insurance coverage on W-2s issued for 2013.
  6. Transitional Reinsurance Fee – Employers who sponsor self-funded health plans are required to pay a transitional reinsurance fee for 2014, 2015, and 2016.
  7. Compliance with final regulations relating to wellness plans for plan years beginning on or after Jan. 1, 2014.

What can we expect in the future?
Employers now have an additional year to determine how their businesses and operations may need to change to comply with the Play or Pay requirements of the ACA. The administration has stated that it understands the ACA requirements for employers are complex and that employers need time and guidance to effectively comply. Although the Departments of Labor, Health and Human Services and Treasury have released a steady flow of proposed and final regulations over the last six (6) months regarding the Play or Pay Rules of the ACA, there remain many unanswered questions. Employers now have more time – and can anticipate more guidance.


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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