Open enrollment is well underway for individuals and small employers under the state and federally facilitated marketplace exchanges created by the Affordable Care Act.
As exchange coverage becomes available, many employers are in the process of evaluating whether, or at what level, to continue to offer health insurance benefits to their employees. Some employers are staying the course and offering robust medical plan choices to their employees. Others are turning to private health exchanges for solutions and still others are deciding that their employees may be better off obtaining subsidized coverage in the state or federally facilitated marketplace exchanges.
A large part of this decision turns on whether an employer will incur tax penalties for failure to offer adequate coverage to its employees and whether its employees will, in fact, be better off obtaining coverage elsewhere.
The Affordable Care Act added Section 4980H to the Internal Revenue Code of 1986, as amended (the Code). Code Section 4980H requires employers to provide a minimum level of health care coverage to full-time employees or risk tax penalty.
The Section 4980H requirements are frequently referred to as either the ''pay or play'' or ''employer shared responsibility'' requirements (hereafter, the Pay or Play Rules). On Jan. 2, 2013, the Internal Revenue Service published proposed regulations regarding the Pay or Play Rules, which are the subject of this article. Final regulations are pending.
Earlier this summer, employers were granted a much-needed reprieve from compliance when the IRS announced a one-year enforcement delay of the Pay or Play Rules until 2015. Under this transition relief, no penalties under the Pay or Play Rules will be assessed on employers for 2014 and, effectively, employers are not required to provide health care coverage to full-time employees until 2015 to avoid potential tax penalties. This transition relief does not apply, however, to prevent the imposition of a tax penalty on certain individuals who do not have adequate coverage. The individual penalty for failure to obtain adequate coverage in 2014 is generally equal to the greater of $95 per individual or 1 percent of income, and increases for 2015 and 2016.
It is important to note that the Affordable Care Act does not require employers to offer health coverage to their employees, but penalizes large employers who fail to do so. Thus, employers are faced with an important business decision: whether to (a) offer a minimum level of employer-sponsored health coverage to full-time employees that will avoid the imposition of tax penalties, or (b) offer inadequate or no coverage and face potential liability for what may be significant tax penalties. The purpose of this article is to provide employers with the tools necessary to understand the law and to make this important decision.
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*Reproduced with permission from Bloomberg BNA Pension & Benefits Daily.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
