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Wednesday, July 17, 2013

IRS Issues Guidance on Delay of Employer Mandate

Last week, the IRS issued guidance on the one-year delay of Obamacare's employer shared responsibility (i.e., "Pay or Play") mandate.  The guidance confirmed that the new effective date for both the employer reporting requirements and penalty provisions will be January 1, 2015.   This gives  "large employers" (i.e., those with 50 or more full-time employees or equivalents) an additional year to plan for the employer mandate.

Many business owners are asking how they should proceed in light of the delay.  Here are my initial thoughts:

  • One option is to take advantage of the additional year to plan for implementation and better ensure compliance in 2015.  
    • Large employers could begin putting in place systems to identify and count their full-time employees and full-time equivalents under the rather complex proposed regulations issued by the IRS earlier this year.  The IRS guidance encourages large employers to voluntarily begin reporting information in 2014 as a kind of of real-world testing of the mandatory reporting requirements that will begin in 2015.  Employers could use 2014 as a kind of trial run to get ready for 2015.
    • Closely-held businesses with overlapping ownership might use the extra time to determine whether their employees will be aggregated together for purposes of the employer mandate under the "controlled group" rules.  If so, such businesses now have additional time to consider various options to limit Obamacare liability, including business restructuring, business succession plans, and estate planning.
  • A second option that some large employers may want to consider is simply "wait and see."  
    • Although the Obama Administration steadfastly maintains that the one-year delay will not affect the ultimate implementation of the employer mandate, it seems clear that the delay has clouded the employer mandate in uncertainty as to whether it will ever be implemented in its current form.  Business lobbies, for instance have pressed Congress to change the ACA's definition of full-time employee (currently those working at least 30 hours per week).  Even in the current dysfunctional Congress, there is some possibility that bipartisan support could emerge to amend the employer mandate before 2015.
    • Further, the IRS still has not issued final rules on the employer mandate.  The IRS previously suggested that the final rules would not differ much from the proposed rules.  However, in light of the delay, it would not be surprising to see some significant changes.
Employers of all sizes should also keep in mind that the delay in the "Pay or Play" mandate does not affect other Obamacare provisions that are set to take effect this year.  For instance, employers must still issue notices to employees about the availability of health care exchanges by October 1, 2013. The individual mandate is still in effect, so employers who do not offer minimum health coverage should bear in mind that any otherwise uninsured employees will be required to obtain minimum health insurance or else face a possible tax penalty.

This article is intended to provide information about current legal developments of general interest and consists of the opinions of the author.  It should not be construed as legal advice, and readers should not act upon the information contained herein without consulting professional counsel.

Monday, May 20, 2013

WSJ: Employers Eye Bare-Bones Health Plans Under New Law

An interesting story in the Wall Street Journal discusses how larger employers are looking to comply with the Affordable Care Act by offering bare-bones coverage that does not even cover hospitalization, surgery, X-rays, or maternity care.  Insurance brokers are now marketing these stripped-down products, particularly to employers in low-wage industries.

As Prof. Timothy Jost and others have pointed out, large-group plans (i.e., those for employers with more than 100  employees) and self-insured plans are exempt from one of the most important provisions in the ACA--the requirement to cover a package of "essential health-benefits" including ambulatory and emergency services, mental health care, and maternity and newborn care.  Large-group and self-insured plans are only required to cover preventive health services, such as immunizations, well-child visits, and various screenings.  By contrast, small-group plans (i.e., those for employers with 100 or fewer employees) must cover the full package of essential health benefits.

This is a major loophole in the ACA that has at least two negative consequences.  First, it puts small- and medium-sized businesses at a competitive disadvantage against larger businesses that can offer stripped-down coverage and still avoid penalties under the ACA.  Smaller business, meanwhile, must either offer more expensive plans with generous benefits or pay potentially hefty penalties.

This flaw in the ACA also hits low-wage employees of those large employers who decide to offer only the kind of bare-bones plans described by the Wall Street Journal.   Employees in this situation likely would be better off if the employer had offered no coverage at all.  If an employee chooses to accept the bare-bones coverage, he and his family would not really have what we think of as health insurance.  If the employee is seriously injured in an auto accident, the low-benefit insurance would not cover the ambulance ride, would not cover the surgery, would not cover the hospital stay, and would not cover the rehabilitation.  The employee could be left holding a bill on the order of tens of thousands of dollars.

On the other hand, the employee could decline the employer-sponsored coverage and go out and purchase coverage on one of the new Health Insurance Exchanges (or Marketplaces).  However, assuming the bare-bones coverage offered by the employer was affordable and offered minimum value (as set forth in the ACA), the employee would not be eligible for a premium tax credit when he buys insurance on an exchange.  For low-wage workers, the premium tax credit would otherwise cover a large percentage of the cost of premiums.  But for the unlucky worker whose employer offers bare-bones coverage, he will have to pay the full sticker price if wants to buy health insurance with real benefits.

I welcome your comments on this issue, which appears to be a major structural problem with the ACA.

Monday, May 6, 2013

WSJ: Employers Push Back on Health Law's Insurance Trigger

This story by WSJ discusses lobbying by the National Restaurant Association and others to raise the threshold (now 30 hours per week) for the definition of full-time employees under the ACA.  A couple corrections/clarifications: It states that "Under the Affordable Care Act, employers must provide health insurance to employees working an average of 30 hours a week or more. If they don't, the employer faces fees starting at $2,000 per worker annually."  But it should also note that this requirement only kicks in for "large" employers with 50 or more full-time employees or full-time equivalents, and even those businesses are not subject to a penalty for their first 30 full-time employees.  I also have a nit-picky correction: large employers do not actually have to "provide" insurance to full-time employees, they only have to "offer" coverage to those employees to comply.

Wednesday, May 1, 2013

New IRS Proposed Rules on Affordability and Minimum Value

On April 30, 2013, the IRS released new proposed rules addressing certain questions about when employer-sponsored coverage is "affordable" and when it provides "minimum value."

This Health Affairs Blog post provides an excellent summary.  Among other things, it discusses various safe harbors that the IRS has proposed to establish that a plan has minimum value.  For instance, minimum value would be established for a plan with "a $3,500 medical deductible, $0 drug deductible, 60 percent medical cost sharing, a $10/$20/$50 copay tiered drug plan, and a 75 percent coinsurance for specialty drugs."

Government Releases Form Individuals Will Use to Apply for Exchange Coverage

Wednesday, March 27, 2013

FT: Employers Seek Help over Obamacare Costs

A report in the Financial Times says that the U.S. Chamber of Commerce has petitioned the Obama administration to exempt employers in states that have rejected Medicaid expansion (such as Texas) from tax penalties for failing to provide coverage to employees would would have been covered by Medicaid.  The Chamber points to the administration's decision to exempt low-income workers in states rejecting Medicaid expansion from the individual mandate's tax penalties.

Thursday, February 21, 2013

NYT: New Federal Rule Requires Insurers to Offer Mental Health Coverage

NYT: Some Employers Could Opt Out of Insurance Market, Raising Others’ Costs

This article notes that future regulations could seek to curtail attempts to circumvent Obamacare through self-insured arrangements: "The Obama administration is investigating the use of stop-loss insurance by employers with healthier employees, and officials said they were considering regulations to discourage small and midsize employers from using such arrangements to circumvent the new health care law."

WSJ: Health-Plan Details Unveiled

Monday, February 18, 2013

Why Employers Should Plan Now for Obamacare

Why Employers Should Plan Now for Obamacare
By Joe Conley, J.D., Ph.D. | Joe Conley, Attorney at Law

Beginning in 2014, large employers will be subject to a potential tax penalty under the “shared responsibility” provisions of the Affordable Care Act’ (“ACA” or “Obamacare”).  This is commonly known as the “play or pay” penalty, because applicable large employers may be subject to the penalty if they fail to offer their full-time employees (and their dependents) minimum essential health coverage, or if the coverage they offer is either unaffordable to the employee or does not provide minimum value. 

The IRS recently proposed regulations to implement the ACA’s employer mandate, and final regulations are expected later this year.  The IRS also issued a series of Question and Answers on the employer mandate. This was the last large piece of the regulatory puzzle to fall into place before play or pay begins next year.  Notably, the IRS made clear that it would seek to crack down on an employer’s manipulation of the workforce to avoid penalties, for instance, through the use of temporary staffing agencies that might be employers in name only.

Although potential penalties will not accrue until 2014, employers should plan now for Obamacare.  Many employers will need to look at both the structure of their workforce and the structure of their business entities in 2013 in order to assess the potential tax penalties and compliance issues when play or pay comes into force.  This article discusses a couple key reasons why it is important for employers to begin planning and assessing their options as soon as possible.

The Makeup of Your Workforce in 2013 Matters

The play-or-pay mandate applies to “applicable large employers,” defined as employers with more than 50 full-time employees (or full-time-equivalent employees).  For large employers who do not offer coverage to their full-time workers (and their dependents), the yearly tax penalty could be $2,000 times the total number of full-time employees less thirty (i.e., $2,000 x [Total Full-Time Employees – 30]). 

Employers may also be subject to a penalty if they do offer such coverage, but that coverage is either unaffordable or does not provide minimum value (as defined in the ACA and IRS regulations).  That tax penalty could amount to $3,000 per year for each worker for whom the offered coverage is either not affordable or does not provide minimum value.

The ACA defines “applicable large employer” as an employer who employed, on average, 50 or more full-time employees (or full-time equivalents) during the preceding calendar year. Employers will thus need to look closely at their workforce in 2013 to understand their obligations and potential penalties under play or pay beginning in 2014.

Employers who are near, or slightly in excess of, the 50-full-time-employee threshold should give serious attention to the makeup of their workforce and the structure of their business entities in 2013.  Many employers – particularly those with many part-time workers – likely do not know whether they are at the 50-full-time-employee threshold.

Under proposed IRS regulations, employers have the option of determining whether they are an applicable large employer for 2014 by using a reference period of at least 6 consecutive calendar months in 2013.  Employers who wish to take advantage of this “transition relief” should take steps now to establish a counting method, count employee hours over a 6-month period, and then consider whether to offer the required coverage or instead pay the tax penalty.

The Structure of Business Entities in 2013 Matters

Many business owners will also want to take a close look at the legal and ownership structure of their business organizations well in advance of 2014.  That is because, before counting employees to determine whether the play-or-pay threshold has been reached, one must first determine whose employees must be counted. 

Certain businesses that have a parent-subsidiary relationship or that reach a certain level of common ownership will be treated a single “employer” under Obamacare, meaning that all of their employees are aggregated for purposes of play or pay.  The applicable IRS regulations here are complex and require individualized analysis tailored to the structure of your organization.  But this rule undoubtedly will bring into Obamacare’s fold many small and family-owned businesses that have overlapping ownership structures.

To sum up, while we will continue to learn more about Obamacare implementation in the coming months, there are good reasons for employers to take concrete steps now to plan for Obamacare.

Joe Conley, Attorney at Law ©2013 | Attorney Advertising

This article is intended to provide information about current legal developments of general interest and consists of the opinions of the author.  It should not be construed as legal advice, and readers should not act upon the information contained herein without consulting professional counsel.

Financial Times: US business hits out at ‘Obamacare’ costs

Washington Post: It’s official: The feds will run most Obamacare exchanges

Wednesday, January 2, 2013