More Details on Employer Mandate Final Regulation

NBCH thanks the American Benefits Council for the information provided in this post.

The U.S. Treasury Department and Internal Revenue Service (IRS) released final regulations on February 10 implementing the “Employer Shared Responsibility” provisions (commonly known as the “employer mandate” or the “pay-or-play mandate”) under Section 4980H of the Internal Revenue Code, as added by the Patient Protection and Affordable Care Act (PPACA). A Treasury Department fact sheet is also available.

Generally, the employer shared responsibility provisions require employers to offer “affordable,” minimum-value health coverage to their “full-time employees” (defined as on average at least 30 hours per week) or pay a penalty, triggered when at least one full-time employee receives a premium tax credit to purchase coverage through a health insurance exchange. As has been established in prior regulations and elaborated upon in the final regulations, employers that employed on average at least 50 full-time employees or equivalents on business days during the preceding calendar year are subject to these rules. These provisions were originally intended to be effective beginning in 2014, but Notice 2013-45 delayed implementation until 2015.

The IRS issued proposed regulations in December 2013.

For companies with between 50 and 99 employees, the final regulations effectively delay the mandate for a full year to 2016. However, such employers will have to certify that they are not reducing the size of their workforces to fall under the 99-employee threshold and are subject to certain maintenance of coverage requirements.

Additionally, the final regulations temporarily scale back certain limited aspects of the mandate for employers with 100 or more workers. Previously, the regulations required such employers to offer coverage to 95 percent of their full-time employees in the first year the regulations were effective, or they would be subject to a penalty. The final regulations have reduced the threshold to 70 percent for the first year (2015), although companies will need to reach the 95 percent threshold in 2016. Please note, however, that this relief does not affect the other penalty under the mandate. In other words, an employer could still be subject to penalties if its coverage is unaffordable or does not provide minimum value, and one or more of its employees receives a premium tax credit or cost sharing reduction through an exchange.

Also of note, the final regulations generally preserve the measurement and stability period regime of the proposed regulations for purposes of determining full-time employee status. Additionally, the final regulations preserve the special treatment of seasonal employees and provide a definition of such term, providing that those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.

Many of the transition rules set forth in the proposed regulations are retained, including:

• For employers with non-calendar year plans, the mandate will generally apply beginning with the first day of the 2015 plan year (versus January 1, 2015, for sponsors of calendar year plans).
• The requirement to cover dependents will not apply to an employer in 2015 so long the employer is taking steps to arrange for such coverage to begin in 2016.
• On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period – the time during which an employee with variable hours must be offered coverage - of up to 12 months. 

The final regulations also provide several new transition rules, including:

• In 2015, for purposes of determining whether an employer is subject to the mandate, employers can determine whether they had at least 100 full-time or full-time equivalent employees by reference to a period of at least six consecutive months.
• As noted above, in 2015, employers subject to Code Section 4980H only have to offer Minimum Essential Coverage to 70 percent of their full-time employees (versus 95 percent as proposed) in order to satisfy Code Section 4980H(a).