On July 9, 2013, the IRS issued Notice 2013-45 postponing until 2015 the information reporting and penalty provisions of the Patient Protection and Affordable Care Act of 2010 ("PPACA", as amended) related to employers' shared responsibility for providing individuals with affordable health insurance coverage. In this client alert, we outline the scope of that relief along with other provisions of PPACA applicable to employers that are scheduled to take effect during the coming months.
Employer Shared Responsibility: Transition Relief for Applicable Large Employers
PPACA imposes penalties on "applicable large employers" (generally employers with 50 or more full-time employees during a given determination period) who either fail to offer their employees health coverage or who offer their employees health coverage that does not meet certain minimum value and affordability criteria. The IRS will administer and enforce this "employer shared responsibility" penalty regime based upon mandatory information reporting by applicable large employers combined with an IRS determination of whether any of the employer's employees received a premium tax credit or a cost-sharing reduction in connection with the purchase of health insurance coverage on one of the "health insurance marketplaces" (or "Exchanges"). The IRS will assess the penalty for each month that the applicable large employer fails to provide coverage that satisfies the employer shared responsibility criteria.
The information reporting and associated penalties were initially scheduled to take effect for the 2014 calendar year. Pursuant to IRS Notice 2013-45, they will not take effect until the 2015 calendar year. While many applicable large employers will welcome this transition relief, they should also understand the following limitations:
The IRS has stated that both the information reporting and the penalty regimes will be fully effective for 2015. Therefore, applicable large employers should not act on the assumption that additional transition relief will be provided at a later date.
Rather, applicable large employers may wish to take advantage of the transition relief to develop their systems for assembling and reporting the needed data and to review the forthcoming proposed information reporting regulations. The IRS is encouraging voluntary compliance in 2014 as one means of real-world testing of reporting systems. However, this is a decision for each employer to make and such compliance is purely voluntary.
The transition relief applies only to the information reporting and penalty regimes related to the employer shared responsibility provisions of PPACA. As discussed below, the implementation of other components of PPACA such as the Exchanges and the contraceptive coverage rules is not affected.
The Exchanges: Notice Requirement and Small Employer Options
The Exchanges are intended to offer individuals access to health insurance coverage that is affordable and provides certain minimum benefits ("Qualified Health Plans"). They are also intended to offer small employers (generally employers with 50 or fewer employees) a means of providing health insurance coverage to their employees. Both individuals and small employers who meet certain eligibility criteria may qualify for tax credits or other subsidies toward the cost of the coverage they purchase through an Exchange. A federally-facilitated Exchange will exist for residents of states that do not establish a state-operated Exchange.
All employers who are subject to the Fair Labor Standards Act (including most public and private sector enterprises) must provide employees with a written notice that includes both general information about the Exchanges and specific information about any health insurance coverage offered by the employer. The Department of Labor has issued separate model notices for employers that offer coverage and employers that do not. Current employees must receive the notice by October 1, 2013. Given the approaching deadline, employers should take timely action.
The initial open enrollment period for individuals to purchase coverage on the Exchanges will run from October 1, 2013 through March 31, 2014 for coverage under Qualified Health Plans beginning January 1, 2014. Small employers who wish to utilize the Exchanges to purchase employee coverage may do so at any time on or after October 1, 2013 for plan years beginning on or after January 1, 2014. Action items for such employers include determining (1) employer eligibility to purchase coverage on the applicable Exchange, (2) whether the employer is entitled to any tax credits, (3) whether existing insurance carriers intend to offer Exchange-based coverage and (4) the coverage options available on the Exchange. These dates have not been postponed by the transition relief for the employer shared responsibility provisions discussed above.
Contraceptive Coverage: Exemption for Religious Employers
PPACA instituted a number of "market reforms" including the requirement that non-grandfathered health plans cover without cost-sharing certain preventive care for women. Such preventive care generally includes FDA-approved contraceptive methods. However, joint final regulations published in July 2013 by the Departments of the Treasury, Labor, and Health and Human Services (the "Joint Final Regulations") provide two exceptions to this requirement for certain non-profit employers who object to paying for contraceptive services on religious grounds. No exceptions currently exist with regard to for-profit employers, unless the health plan they offer is grandfathered.
Under the Joint Final Regulations, non-profit employers such as churches, their integrated auxiliaries, and associations of conventions of churches are exempt from covering contraceptive services for their employees.
A non-profit employer that does not qualify for the exemption described above may nonetheless qualify for an accommodation on the basis of a self-certification that it is a religious organization with a religious objection to providing some or all of the required contraceptive services. The mechanics of the accommodation will differ depending on whether the health plan sponsored by the employer is fully-insured or self-insured, but in either case the required contraceptive services will be provided to employees without any financial or administrative involvement on the part of the employer. The accommodation is effective beginning January 1, 2014. Employers wishing to self-certify should contact their insurance carriers and/or third party administrators in advance of this deadline. Until then, a nonenforcement safe harbor exists for certain non-profit employers that have not provided some or all of the required contraceptive services for religious reasons at any point from February 10, 2012 onward.
Both for-profit and non-profit employers have challenged the required coverage of contraceptive services as a violation of their rights under the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act. The rulings to date in these cases leave important questions disputed or unresolved such as whether for-profit employers can assert religious rights. In addition, the rulings have not addressed the Joint Final Regulations which were only issued in July 2013. Employers with religious objections to covering contraceptive services should seek counsel to better understand their legal obligations and options.
Although limited transition relief has been made available until 2015, the implementation of PPACA continues. This includes provisions already in effect such as those discussed in our April 2010 client alert "PPACA and Beyond – Implications for Employers Today." Some provisions already in effect are scheduled to change such as the reversion of the Patient Centered Outcomes Research Trust Fund fee which is directly payable to the IRS by sponsors of certain self-insured health plans to $2 per covered life for plan years ending after September 30, 2013 and before October 1, 2014. Finally, the implementation of PPACA includes new obligations and options for employers in the coming months.