With the Affordable Care Act’s (ACA) “play-or-pay” rules taking effect on January 1, 2015, employers with 100 or more “full-time equivalents” have been preparing strategies for compliance. Over the past year, consultants in the field have touted different strategies to capitalize on apparent loopholes in the law and potentially achieve cost savings. However, the Department of Labor (DOL) and the Internal Revenue Service (IRS) recently issued federal guidance eliminating some of the workarounds. This guidance comes in the midst of uncertainty surrounding the law’s livelihood as the U.S. Supreme Court will—sometime in 2015—weigh in on the most recent challenge to the legislation.
The ACA’s employer mandate goes into effect on January 1, 2015. Under the mandate, covered employers may be subject to penalties if they do not offer affordable coverage with a minimum level of benefits to all full-time employees and their dependents. For some time it was thought that employers might be able to comply with the mandate and avoid the applicable penalties by offering employees low-cost “skinny plans” that—although technically in accordance with the final regulations governing “minimum value” requirements—offered only minimum preventive services and little or no hospitalization benefits or physician services.
On November 4, 2014, however, the IRS issued a notice that nipped this lower-cost compliance strategy in the bud. In the notice, the IRS indicated that it will soon be issuing proposed regulations providing that plans that do not offer hospitalization and/or physician service benefits do not constitute “minimum value” coverage under the ACA.
Another strategy that some employers hoped to implement was to eliminate group health coverage and simply reimburse full-time employees for all or part of the premiums incurred to purchase an insurance policy in the individual marketplace. But again, in November the DOL issued guidance that an employer cannot avoid the ACA requirements by implementing a reimbursement plan. Notably, such alternative arrangements must still comply with ACA provisions governing, among other things, free preventative care and no annual or lifetime limits.
On the judicial front, the ACA continues to face challenges. The U.S. Supreme Court granted certiorari to consider the question of whether tax credits or subsidies are available to consumers shopping on the ACA’s federal marketplaces. The ACA provides that subsidies are allowed for exchanges “established by the state” – however, the statute does not make clear whether the subsidies are similarly available to exchanges established by the federal government. In complying with the legislation, many states opted to defer to federal exchanges rather than establish their own. Depending on the Court’s decision, consumers in these states who purchased insurance on the federal exchange face the loss of their subsidies. Were the Court to find that subsidies are not available for consumers purchasing on the federal exchanges, it could present a crippling blow to the landmark law, from which it might not recover.