On July 2, 2013, the U.S. Treasury Department announced that implementation of the Pay or Play Rules of the Affordable Care Act ("ACA") will be delayed one year until January 1, 2015. Employers, however, should not delay their compliance planning.
A. The Pay or Play Rules Delayed.
The ACA imposes penalties on large employers (defined as those with 50 or more full-time equivalent employees) that do not offer affordable health plan coverage to their full-time employees. These penalty provisions of the ACA are often referred to as the "Pay or Play Rules."
In general, the Pay or Play Rules provide that, for each month that a large employer does not offer health insurance to at least 95 percent of its full-time employees and at least one full-time employee receives a premium tax credit or subsidy for coverage purchased through an ACA health insurance exchange, the employer will be subject to a penalty equal to $166.67 times its number of full-time employees (not counting the first 30 full-time employees) (the "No Offer Penalty"). For each month that a large employer offers health insurance to full-time employees but that coverage is unaffordable or not minimum value coverage (as defined under regulations), the employer will be required to pay a penalty equal to $250 times the number of full-time employees who purchase coverage on an ACA exchange and receive a premium tax credit or subsidy (the "Unaffordable Coverage Penalty"). In no event will the amount of the Unaffordable Coverage Penalty exceed the amount of the No Offer Penalty if the No Offer Penalty had applied.
In addition to the penalties referenced above, the Pay or Play Rules require large employers to report to the IRS various information needed to track compliance, such as: the number of employees enrolled in the employer's health plan, the months the employer offered coverage, the monthly premium for the lowest cost option, and certain identifying information regarding covered employees.
The implementation of both the penalties and the employer reporting obligations under the Pay or Play Rules has been delayed until January 1, 2015. However, to assist in preparing systems to implement the Pay or Play Rules, the IRS encourages employers to voluntarily comply with the reporting requirements for 2014.
B. Employers Must Continue to Plan for the Pay or Play Rules. It is important for employers to remember that implementation of the Pay or Play Rules has only been delayed. These rules have not been repealed. In addition, the likelihood that the Pay or Play Rules will be repealed is remote. The gridlock in Washington alone makes repeal highly unlikely. As the Treasury Department noted in its announcement, the implementation of the Pay or Play Rules has been delayed to allow employers time to adapt their health coverage and reporting systems to meet the requirements of the ACA. Given the complexity of the Pay or Play Rules, employers should continue to establish their compliance strategies with a sense of urgency.
C. The Compliance Schedule for Other ACA Requirements Remains Unaffected. The delay in the implementation of the Pay or Play Rules does not affect any other provisions of the ACA. Therefore, employers must continue to comply with provisions of the ACA already in effect and continue to prepare for compliance with provisions of the ACA set to take effect in the near future, including, for example: