“Play or Pay” Mandate Postponed

The PPACA shared responsibility provision requires “large” employers to provide a “minimum value” of “affordable” health plan coverage to their full-time employees or face a potential penalty. These “play or pay” rules were scheduled to take effect January 1, 2014, but have been postponed until January 1, 2015. In addition, for employers with the equivalent of 50 to 99 full- time employees, the mandate has been postponed until January 1, 2016. According to IRS Notice 2013-45, however, employers are encouraged to maintain or expand health coverage in 2014.

The play-or-pay rules apply to employers with at least 50 full-time equivalent (“FTE”) employees. Full-time employees are those who work 30 hours or more per week. To determine the FTEs, the employer must total the monthly hours worked by all employees who worked less than 30 hours per week (excluding seasonal employees who work less than 120 days per year) and then divide that number by 120. The result is then added to the number of full-time employees to determine if the count totals at least 50 FTEs. The IRS provides safe harbor methods that employers may use to determine which employees are full-time employees.

“Affordable” is defined as costing an employee no more than 9.5% of his or her total household income. Because employers generally won’t know an employee’s household income, the IRS has three safe harbor methods to determine affordability. “Minimum value” means that a health plan covers at least 60% of the total allowed costs of benefits provided under the plan.

If a large employer fails to offer health insurance and has at least one full-time employee who receives a premium tax credit, the employer will be subject to a penalty of $2,000 per full-time employee after the first 30 full-time employees. If the employer offers health insurance, but it’s either unaffordable or inadequate (as defined by the PPACA) and the employer has at least one full-time employee who receives a premium tax credit, the employer will be subject to the lesser of this same penalty or a penalty of $3,000 per employee who receives the credit.

Keep in mind that more IRS guidance on the play-or-pay rules is expected.

2014 Requirements

PPACA has a number of provisions that take effect in 2014, including:

Health care exchanges  Health care insurance exchanges go into effect along with subsidization of insurance premiums for individuals in households with income up to 400% of the poverty line.

Waiting periods  Group health plans or group health insurance providers cannot apply waiting periods of more than 90 days.

Pre-existing conditions  Starting January 1, health insurance plans cannot discriminate against or charge higher rates to individuals with a pre-existing condition or because of gender.

Spending caps prohibited  Annual spending caps previously established by insurers are prohibited.

Annual deductible limits  Employer-sponsored plans can have no more than a $2,000 annual deductible for single coverage and a $4,000 annual deductible for family coverage.

Flexible Spending Accounts (FSAs)  The PPACA set the FSA contribution limit at $2,500 beginning with the 2013 tax year. Employers have until the end of 2014 to adopt retroactive amendments to reflect this requirement.

Sidebar: What Employers Need to Do to Prepare

Employers need to proactively prepare for the 2014 and 2015 deadlines under the Patient Protection and Affordable Care Act of 2010 (“PPACA”). Real-world testing of reporting systems and plan designs through voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015.

For example, if you are a “large” employer (see main article for definition) or your plan is self-funded, start tracking hours to identify full-time employees that you must cover under your plan. Beginning in 2015, you will be required to report certain health plan information to the IRS and to your employees.

Large employers need to determine whether their health plan will meet both minimum essential coverage (generally all “eligible” employer-sponsored plans meet this under the PPACA) and provide minimum value beginning in 2015. These employers also need to determine if their plan will meet the PPACA’s affordability guidelines.

 

Have questions?  Please contact your Buchbinder executive.

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