Historically, employers have had complete discretion in deciding whether to offer group health plan coverage to their employees. If they offered coverage, they had to comply with the requirements of the Employee Retirement Income Security Act (“ERISA”), the Internal Revenue Code (the “Code”), and other applicable laws. However, if they did not offer coverage, they were not subject to penalties. It was simply a business decision whether to offer coverage.

Starting in 2014, employers employing at least a certain number of employees (generally 50 full-time employees and full-time equivalents) will be subject to the employer shared responsibility provisions under Section 4980H of the Code, commonly referred to as the “large employer play or pay penalties.” Under these new rules, “large” employers will be subject to a penalty tax if they either: (1) fail to offer minimum essential coverage to all full-time employees (and their dependents); or (2) offer employer-sponsored coverage to all full-time employees but the coverage is either not “affordable” or does not provide “minimum value.” The penalty taxes are due only if at least one full-time employee is certified to the employer as having purchased health insurance through one of the new Health Benefit Exchanges (an “Exchange”) and the employee received a premium tax credit to help pay for the coverage or a cost-sharing reduction.  

Although the rules take effect for most employers January 1, 2014, what an employer’s workforce looks like in 2013, is determinative of whether the employer is subject to the penalties in 2014. Also, many employers may need to start counting hours in 2013 in order to take advantage of the safe harbors that permit full-time or part-time status to be locked in for some period rather than having to track status each month.  

Time is of the essence in understanding these new rules. This Health Care Alert provides a checklist intended to help employers:

  • Determine whether a company is a “large” employer for 2014 (Worksheet #1);
  • Calculate the potential penalties for 2014 (Worksheet #2);
  • Identify “full-time employees” for purposes of calculating the penalties (Worksheet #3); and
  • Design group health plans to avoid/minimize the penalties (Worksheet #4).

Appendix A provides a flow chart summary of the rules, and Appendix B provides additional information on counting hours of service and the safe harbors for determining full-time employee status.

Important Note: The purpose of this checklist is to provide general information about the large employer play or pay penalties under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the “Affordable Care Act” or “ACA”) that apply to employer-sponsored group health plans. The Affordable Care Act and related guidance go into much more detail and should always be consulted when considering its application to any particular plan. More detailed information about these rules may be found in the proposed regulations and the IRS series of questions and answers on employer shared responsibility provisions. This summary should not be relied on as legal advice or as a legal opinion on any specific facts or circumstances. You are urged to consult legal counsel concerning your situation and any specific legal questions you may have.

Circular 230 Disclaimer: To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication, is not intended, and cannot be used, for the purpose of (i) avoiding any federal tax penalty or (ii) promoting, marketing, or recommending any transaction or matter to another person.