Affordable Care Act Final Regulations

Posted by Alice Helle Cynthia Lande in June 2014 on 6/18/2014

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On February 10, 2014, the IRS issued final regulations to the Affordable Care Act's employer mandate (often referred to as "play or pay"). The employer mandate requires employers who have 50 or more full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees ("FTEs") to offer to all full-time employees affordable health insurance that provides minimum value. Employers failing to satisfy these requirements may be required to pay a penalty, known as the Shared Responsibility Payment, if any employee receives a tax credit for purchasing insurance through the exchanges.

These requirements were initially scheduled to take effect in 2014. Last summer, the IRS delayed enforcement of the employer mandate until 2015. The final regulations published in February of this year contain transition relief which further delays the effectiveness of the employer mandate. This article provides an overview of the transition relief and other guidance provided by the final regulations.

Transition Relief

The final regulations provide the following with transition relief:

Medium Employer Transition Relief: Employers who employ between 50 and 99 FTEs during 2014 are excused from complying with the employer mandate for their 2015 plan year if they do not adjust the size of the workforce or hours of service for purposes of coming under the 100 FTE cap and they do not eliminate or materially reduce the health coverage that they offered to employees as of February 9, 2014.

Non-Calendar Year Plans: The final regulations also provide transition relief for non-calendar year plans providing coverage meeting the affordability and minimum value requirements no later than the first day of the 2015 plan year.

Modifications of Other Requirements: For employers who are subject to the employer mandate in 2015, the final regulations modify coverage and cost requirements under the employer mandate in several ways. First, for the 2015 plan year, the regulations treat an employer as offering coverage to all full-time employees if the employer offers coverage to at least 70% of its full-time employees. Additionally, the regulations modify the Shared Responsibility Payment for the 2015 plan year. Under this transition relief, an employer can exclude the first 80 employees when calculating the Shared Responsibility Payment of $2,000 per employee for 2015.

Other Highlights of the Final Regulations

Seasonal Employees: Seasonal employees are treated as variable hour employees for purposes of determining full-time employee status, but the proposed regulations did not define the term. The final regulations define "seasonal employee" to mean an employee in a position for which the customary annual employment period is six months or less. The preamble to the regulations notes that the period of employment for a seasonal employee should generally begin in the same part of the year each year. Examples include ski instructors and detasselers.

Dependents: In order to avoid a penalty, covered employers must offer dependent coverage. The proposed regulations provide that the spouse is not a "dependent" for this purpose, and the final regulations confirm that rule. In addition, the final regulations exclude stepchildren and foster children from the definition of "dependent" for purposes of the mandate. A child is considered to be a "dependent" for the entire month of attainment of age 26. The final regulations also included a transition rule for employers who do not currently offer dependent coverage that complies with these requirements. In that case, the penalty will not apply as long as the employer takes steps during the 2015 plan year toward offering the coverage in 2016.

Elimination of HIPPA Certificates of Creditable Coverage: In a rare simplification from existing law, the regulations provide that the requirement to provide certificates of creditable coverage will no longer apply, beginning December 31, 2014, due to the prohibition on preexisting condition exclusions under the ACA.

Information Returns: On March 5, the IRS issued final regulations regarding information returns that are required under the ACA. One reporting requirement applies only to large (50+) employers regardless of whether they offer health coverage. Another reporting requirement applies to employers, regardless of size, who sponsor a self-insured health plan. The first returns will be due early in 2016 for the 2015 calendar year. Reporting will require some data that is typically not collected by employers, however, so affected employers will need to review the new rules and their current data collection and reporting procedures well in advance of 2015.

Next Steps for Employers

With these final regulations in place, many employers must begin making important decisions about compliance prior to the beginning of 2015. Failure to comply with these requirements can result in substantial penalties for employers. Employers should begin planning and developing a strategy for compliance now. If you have any questions about the information contained in this post or what steps you should take to comply with the Affordable Care Act, you should contact your BrownWinick employee benefits attorney.

Alice E. Helle is a member of BrownWinick and practices primarily in the areas of pension and employee benefits. Alice can be reached at (515) 242-2407 or helle@brownwinick.com.

Cynthia Boyle Lande is an associate at BrownWinick and has a general practice including, but not limited to, general business transactions, taxation, employee benefits and estate planning. Cynthia can be reached at (515) 242-2476 or lande@brownwinick.com.