On July 9, 2013, Notice 2013-45 (the "Notice") was issued to provide transition relief during 2014 from the requirements of Sections 6055, 6056 and 4980H of the Internal Revenue Code ("Code"). Code Section 6055 requires annual information reporting by insurers, self-insured employers and certain other providers of minimum essential coverage. Code Section 6056 requires annual information reporting requirements by large employers (i.e., those with 50 or more full-time equivalent employees) relating to the health insurance that the employer offers (or does not offer) to its full-time employees. Code Section 4980H requires employers to provide a minimum level of health care coverage to full-time employees or risk a shared responsibility tax penalty (otherwise known as the pay-or-play penalty).
The Notice states that information reporting requirements under Sections 6055 and 6056 will be optional for 2014, and that for 2014, no penalties will be applied for failure to comply with these information reporting requirements. This one-year delay is intended to provide employers, insurers and other reporting entities additional time to develop their systems for reporting the needed data. During this transition year, the IRS is encouraging employers, insurers and other reporting entities to voluntarily comply with the information reporting requirements (once the rules have been issued). Voluntary compliance may help entities test their systems in preparation for when reporting becomes required in 2015. Proposed rules for the Section 6055 and 6056 information reporting requirements are "expected to be published this summer."
The Notice further provides that the IRS will not assess the pay-or-play penalty under Code Section 4980H for 2014. As a result of the information reporting delay discussed above, the IRS will not have the data necessary to identify which individuals do/do not have the required minimum coverage. Since the IRS will have no efficient mechanism for determining which employers may owe a penalty for a failure to offer affordable minimum essential coverage, no employer shared responsibility payments will be assessed for 2014. However, as with the information reporting requirements, the IRS encourages employers to maintain or expand health coverage in 2014, as real-world testing of reporting systems and plan designs will contribute to a smoother transition to full implementation in 2015.
The transition relief discussed above will not delay the requirement that individuals obtain health care coverage, beginning January 1, 2014, or pay a penalty for each month they do not have coverage (the individual "shared responsibility" mandate). Nor will the transition relief affect individuals' eligibility for the premium tax credit. To receive the premium tax credit, an individual must have household income within a specified range, not be eligible for other minimum essential coverage under an eligible employer-sponsored plan that is affordable and provides minimum value, and apply for the credit by completing an application form through the state or federal health insurance "exchanges."
In addition, the Notice also makes clear that the transition relief outlined above for 2014 will have "no effect" on the effective date or applicability of other Affordable Care Act ("ACA") provisions. Thus, employers will still need to comply with the following insurance reforms and mandated benefits that are otherwise effective for 2014:
- effective as of January 1, 2014, compliance with the new cost-sharing requirements and the prohibition on waiting periods greater than 90 days
- provide a notice to employees regarding their coverage options available through health insurance marketplaces by October 1, 2013;
- pay the various new ACA fees. For example, the first year's fee for the Patient Centered Outcomes Research Institute (PCORI) is still due July 31, 2013, and the first year's transitional reinsurance fee applicable to health insurance issuers and self-funded health plans will still be measured based on covered lives as of November 15, 2014; and
- report the cost of employer-sponsored health coverage on an employee's W-2 by January 31, 2014.
K&S INSIGHT: While the transition relief relieves the immediate pressure of year-end compliance, employers should not stop preparing for 2015 when full implementation will be required. For employers who have already made plan design decisions for 2014, they should consider whether, and to what extent, to voluntarily comply with the reporting requirements. As the IRS noted, voluntary compliance could help identify problems in the employer's administrative processes and will contribute to a smoother transition to full implementation in 2015. For employers who have not yet decided whether to "pay-or-play," the transition period gives them a little additional time to weigh their options.
But, employers need to recognize that the Notice 2013-45 transition relief does not postpone other administrative requirements related to the employer mandate. For example, if an employer intends to use a 12-month measurement period for purposes of determining whether variable hour employees are considered full-time employees, the employer will need to start tracking hours in just a few short months. Further, the Notice 2013-45 transition relief does not extend the transition rules for 2014 that were previously announced in the proposed regulations. These include the special rules with respect to non-calendar year plans, use of a shorter measurement period in connection with the variable hour employee safe harbor, employers contributing to multiemployer plans, determination of large-employer status based on a six consecutive month period instead of the entire 2013 year, and the extension of coverage to dependents. Without further guidance, it is not clear whether any of these transition rules will be extended during 2015.