On February 10, 2014, the U.S. Department of the Treasury and the Internal Revenue Service (the “IRS”) issued Final Regulations that further delay the implementation of the employer shared-responsibility mandate provisions (the “Play or Pay Mandate”) under the Patient Protection and Affordable Care Act (“ACA”) for certain employers. The Play or Pay Mandate requires large employers (i.e., those employers that have 50 or more full-time employees, including full-time equivalent employees, during the prior year) to offer these employees (and their dependents) health insurance coverage that is affordable and provides minimum value. Failure to do so may subject an employer to a penalty if one of its full-time employees purchases health insurance through the Health Insurance Marketplace and receives a federal subsidy.
Specifically, the Final Regulations provide that until January 1, 2016, the Play or Pay Mandate will only apply to employers with 100 or more full-time employees (i.e., penalties will be delayed for employers with 50 to 99 full-time or full-time equivalent employees). This means that mid-size businesses will not have to comply with the Play or Pay Mandate during 2015 provided that the employer certifies that it meets certain conditions. For example, during the period beginning on February 9, 2014 and ending on December 31, 2014, an employer may not reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the relief.
In addition, the Final Regulations provide that employers will only need to offer health insurance coverage to 70 percent of their full-time and/or full-time equivalent employees during 2015 rather than the 95 percent health insurance coverage originally required. The 95 percent health insurance coverage requirement will begin applying in 2016. Q&A 37 of the IRS’s Frequently Asked Questions (“FAQs”) that were released on February 11, 2014 clarifies that, other than the reduction from 95 to 70 percent for 2015, an employer with 100 or more employees during 2014 will still be liable for a Play or Pay penalty if the employer offers health insurance coverage to at least 70 percent of its full-time employees, but at least one full-time employee receives a federal subsidy to help pay for coverage through the Health Insurance Marketplace. This could occur because the employer did not offer coverage to that employee or because the coverage was either unaffordable or did not provide minimum value.
There are also changes to the requirement to cover dependents in the Final Regulations. The Proposed Regulations provided that any employer that takes steps during its 2014 plan year toward satisfying the Play or Pay Mandate with regard to its full-time employees’ dependents would not be liable for any Play or Pay penalty solely on account of its failure to offer coverage to dependents for that plan year. The Final Regulations extend this relief to employers with plan years beginning in 2015, but only if the employers did not offer dependent coverage during their 2013 and 2014 plan years. In other words, relief is not available to employers that offered dependent coverage during their 2013 and/or 2014 plan years and later ceased offering such coverage.