On July 2, 2013, the U.S. Department of the Treasury announced in its Treasury Notes blog that the Employer Mandate tax payment provisions and reporting requirements under the Affordable Care Act (ACA) are being delayed from 2014 to 2015. This announcement prompts an important question: what will happen to the requirement that individuals must have, or must purchase, coverage or pay a tax penalty - the requirement known as the Individual Mandate? And will this change lead to delays, or create other problems, when starting up the new public health insurance exchanges (Exchanges)? Based on the announcement, there is no indication that any changes will be made to the Individual Mandate or to the Exchanges, or that either of them will be delayed. But, stay tuned: at least some adjustments will need to be made for the other ACA provisions to operate as originally planned.
WHAT THE TREASURY REALLY ANNOUNCED
In the Treasury Department blog titled "Continuing to Implement the ACA in a Careful, Thoughtful Manner," Mark J. Mazur, Assistant Secretary for Tax Policy, acknowledged that the complex Employer Mandate reporting requirements were proving difficult for employers to implement by 2014, and required simplification. In addition, Mr. Mazur noted that the lack of the Employer Mandate reporting requirements would make it "impractical" for employers to determine the Employer Mandate "pay or play" penalty taxes effective in 2014. Thus, the Treasury Department has decided to delay until 2015 the Employer Mandate reporting requirements and its enforcement through taxes.
The signatory goal of the ACA, that comprehensive health care coverage be provided (or at least, be made available) to all, is based on the interplay of the three key features: the Employer Mandate, the Individual Mandate and the Exchanges. Since the ACA was signed into law on March 23, 2010, several provisions have allowed for transition periods or delayed enforcement. After yesterday's announcement, the Individual Mandate and the Exchanges, which are completely intertwined with the Employer Mandate, still stand with an effective date of January 1, 2014. There has been no mention of transitional relief or delay with respect to these provisions as of press time.
THE INDIVIDUAL MANDATE
The Individual Mandate, which requires all individuals to have health care coverage or pay a penalty, is structured around the presumption that more employers will offer affordable and comprehensive health care coverage due to the Employer Mandate. With the delay of the Employer Mandate, the likelihood that an employer will provide affordable and comprehensive employer coverage has been reduced, especially in those business sectors where affordable and comprehensive coverage historically has not been offered to the entire workforce, such as the hospitality, restaurant and retail sectors. The Individual Mandate, which withstood a constitutional challenge in the Supreme Court in 2012, could still stand without the Employer Mandate. However, employees will be put in the position of having to find their own coverage, possibly through the Exchanges, or face penalties.
THE HEALTH INSURANCE EXCHANGES
The Exchanges, which are scheduled to begin enrolling individuals on October 1, 2013, will provide a new marketplace where individuals will be able to purchase health insurance. Many of these individuals will be eligible to purchase subsidized coverage through the Exchanges so long as their employers do not offer them affordable and comprehensive health care coverage. Without the Employer Mandate and without the threat of having to pay potentially substantial tax penalties for not offering affordable and comprehensive coverage, it is likely that many more individuals will qualify for significant federal subsidies if they purchase comprehensive coverage through the Exchanges. Who will pay for this remains an open question. What is known is this: with the delay of the Employer Mandate, there will be more individuals eligible for subsidies in 2014, but no offsetting revenues from the payments of Employer Mandate penalties.
WHAT HAPPENS NEXT?
In the July 2 announcement of the Employer Mandate delays, transitional guidance has been promised within a week, and proposed rules are supposed to follow this summer. No mention has been made of any guidance regarding the Individual Mandate, the Exchanges, or any of the other provisions that together, are designed to fulfill the ACA's objective of making health care coverage available to all. To remove one of the three driving forces without addressing the other two, the Treasury Department leaves employers with more questions than answers at this point.
As always, we will continue to follow this issue closely and will provide timely updates as additional guidance is issued. In the meantime, it appears that the immediate result of the announced delays will be that employers will not be penalized for not offering health care coverage to all their full-time employees and their dependents starting in 2014, and will not be required to comply with the onerous reporting requirements that were scheduled to take effect next year. However, employers and employees alike will have to deal with the rest of the ACA, which will continue to impose direct and indirect costs on everyone.