On July 2, 2013, the U.S. Treasury Department and the White House, both through informal blog posts, announced that enforcement of the employer responsibility provisions of the Affordable Care Act (ACA) would be delayed for one year, and no excise tax penalties would be imposed for 2014.
On July 9, 2013, this delay was formalized in IRS Notice 2013-45. The reason given for this delay was due to the inability of the IRS to provide timely guidance on the information reporting required under IRC §§ 6055 and 6056. Without this guidance it would be impossible to check or cross-reference information provided by applicants for insurance coverage through a state or federal Marketplace Exchange about the availability to them of other minimum essential coverage, which is a key factor in determining whether the applicant is eligible for a premium tax credit or cost sharing subsidy in connection with their Marketplace Exchange coverage.
Notice 2013-45 indicated, however, that guidance as to these reporting requirements will be issued this summer and encouraged employers to “voluntarily” comply with the information reporting requirements for 2014 in order to test their reporting systems and adapt their health plan coverages to the new requirements. In the view of the IRS, this enforcement delay should give employers and insurers time to do “test runs” to ensure they will be ready by 2015. The Notice emphasized, however, that the information reporting is entirely optional for 2014, and no penalties will be imposed for compliance failures in 2014. The guidance does not even require employers to make “good faith” efforts to comply. However, the Notice also emphasizes that this delay would have no effect on the effective date or application of any other ACA provisions or requirements.
What to Make of this Delay?
Most importantly, employers should not see this as an opportunity to ignore or abandon their ACA compliance efforts. The Supreme Court did not do away with the ACA, and Congress has failed 37 times to repeal the ACA, so it would be foolish to treat this delay as some kind of “get out of jail free” card, and hope that all of this will simply go away. It will not. Indeed, all of the following benefit plan obligations remain in place and have not been delayed:
- Pre-existing exclusions eliminated for all plans
- Adult children under age 26 must be covered for all plans
- Waiting periods can be no longer than 90 days for all plans
- Annual and lifetime dollar limits on essential health benefits no longer allowed in any plan
- Non-grandfathered plan must provide coverage for certain clinical trials
- Non-grandfathered fully insured, small group plans must provide essential health benefits
- Cost sharing limits imposed
- Reinsurance Program fees will be imposed
- Patient Centered Outcome Research Institute (PCORI) fees will be imposed
- Summary of Benefits and Coverages must be provided
- Notices of health insurance Marketplace Exchange coverage must be provided
- W-2 informational reporting of health care coverages and costs must be provided
The state and federal health insurance marketplaces are still scheduled to open for enrollment on October 1, 2013, and the individual mandate will still be effective as of January 1, 2014.
What Should Employers Do?
Employers should take advantage of this delay to ensure that they will be in a position to have the necessary information and systems in place so that, by January 1, 2015, compliance with the employer shared responsibility requirements will not pose any significant problems. The delay will allow more time for planning and testing and should be productively used for those purposes.
- There will be more time to test whether an employer is an “applicable large employer” subject to the play-or-pay provisions.
- Since this rule applies to common law employees, applicable large employers may want to use this time to review their employee classifications to ensure that employees and independent contractors are properly classified. This Notice, however, does not address any clear definitions of “seasonal employees.” Presumably, therefore, the employer’s good faith determinations as to who are its seasonal employees will be respected, at least until further guidance is issued. Guidance projected to be issued this summer, hopefully, might address this issue.
- Employers should review and perhaps upgrade their systems for tracking hours worked for non-exempt employees and use a system for determining hours worked for exempt employees, or alternatively, assess which safe harbor methodology to apply.
- If it is possible, applicable large employers might want to implement a system for determining the household income of its employees. That information might prove useful in determining how many employees seeking coverage through a state or federal Marketplace Exchange could potentially trigger excise tax penalties in 2015.
- Applicable large employers who wish to ascertain for 2015 whether variable hour and/or seasonal employees should be classified as “full-time” or “part-time,” and who operate their plans on a calendar year basis, will need to establish a measurement period in 2014 that will run from October 3, 2013 to October 2, 2014. Thus, even delayed compliance requires careful attention sooner than might be imagined. So employers should not delay their compliance preparations.
Caveat: Prior guidance had provided transitional rules for employers that sponsor non-calendar year plans. Within certain limits, these rules allowed those employers to move their compliance date from January 1, 2014 to the first day of the plan year beginning in 2014. Importantly, the Notice does not provide any special transition rules for 2015. Unless new transition rules are provided in the projected summer guidance, employers who sponsor non-calendar year plans will have to decide whether to implement needed changes as of the first day of their 2014 plan year or delay implementing them until January 1, 2015.
Some of the action steps that might be undertaken have been noted above. Given that the formal guidance thus far has simply focused on the nature and scope of the ACA provisions to which the delay applied, and did not seek to go beyond that, there remain many outstanding questions about the consequences of this delay.
Nevertheless, employers should take advantage of the extended time to ensure that their systems and methods for providing “minimum essential coverage” of the appropriate kind to the appropriate groups of employees necessary to avoid the penalties are well thought out and functional.