Employer Mandate Delayed Again: More Compliance Complexity

As our Reading the Tea Leaves blog predicted a few weeks ago, the Obama Administration has once again delayed the Affordable Care Act “Employer Shared Responsibility” requirement, also known as the Play or Pay mandate.
This controversial compliance requirement was to have taken effect this year for employers with 50 or more full-time employees but was delayed in July 2013 until next year. It has now been delayed again for most employers, this time until 2016.

Specifically, the U.S. Treasury has announced that for employers with between 50 and 99 full-time workers the mandate will be delayed for an additional year, to 2016.

Employers with 100 or more full-time employees would be required to offer health coverage that is affordable and provides minimum value to 70 percent of their full-time employees starting in plan year 2015, rising to 95 percent in 2016.

Employers with between 50 and 99 full-time workers employ only about 7 percent of all employees, while employers with over 100 workers employ two-thirds of all employees, according to the Washington Post’s review of SBA data.

Implications for Employers—
First, for small businesses with fewer than 100 full-timers, which represents most employers, the Treasury announcement is very good news. The play or pay mandate is once again kicked down the road.

Second, employers who have over 100 workers face even greater compliance complexity next year. They will need to decipher which 30 percent of their full-time population will not need to be offered health coverage in 2015. For example, Treasury expects some employers to offer coverage only to employees working 35 or more hours a week, using 2015 to transition to the 30-hour ACA full-time employee definition.

These employers will need to plan in earnest this year for compliance with the 2015 effective date—now only 10 months away for calendar year plans. This will include all the idiosyncrasies of ACA Employer Shared Responsibility, including minimum essential coverage, dependents, affordability, minimum value, look-back and stability periods for determining full-time status and the entire regulatory superstructure the mandate imposes on employers.

Most significantly, these employers await the dropping of the proverbial second shoe—Section 6056 employer reporting, the linchpin of play or pay regulatory enforcement and penalties.

In February 2016 these employers will be required to file a new return with IRS for every employee, much like Form W-2, reporting detailed information on the terms and conditions of that employee’s health coverage. Penalties for non-compliance with the play or pay mandate would be based on the 6056 report and be imposed sometime in 2016. This week’s announcement states that final 6056 reporting rules will be issued shortly.

Outlook—
One question that looms over this week’s announcement is, Why was the mandate delayed again? While a Treasury Department official said the delay was a response to business concerns, some suspect that 2014 election politics played a role. With all the negative headlines about canceled health plans, too-narrow provider networks, the fumbled rollout of the exchanges and the recent CBO report on jobs, perhaps the White House wanted to get this issue off voter radar screens.

Accordingly, for employers with fewer than 100 employees, who now face a 2016 effective date, one could conclude that the mandate will ultimately be delayed past the 2016 presidential elections, i.e., permanently.

For larger employers, however, the outlook remains uncertain. Compliance questions abound. For example, what happens if a full-time employee in the 30 percent employee group that need not be offered coverage in 2015 qualifies for a subsidy to buy an exchange health plan? Is the employer still subject to a Play or Pay penalty in 2016?

And does the 70 percent-30 percent workforce segmentation make sense for employers? Was this done to delay de facto the 30-hour a week definition of a full-time employee?

One thing is certain: the Obama Administration, while showing some flexibility, particularly for small business, seems determined to execute and enforce the mandate for larger employers. Prudent employers will use this year to get prepared for 2015 Play or Pay, including having the tools they need for ACA compliance.