Many employers recently breathed a huge sigh of relief when the Administration agreed to delay until 2015 the “play or pay” mandate that applies to them under Health Care Reform, but some members of Congress are questioning if the delay is appropriate or even legal.
Originally under the Patient Protection and Affordable Care Act (PPACA), employers with 50 or more employees were facing the requirement — and potentially huge penalties referred to as “shared responsibility payments” — beginning Jan. 1, 2014.
The mandate requires groups with 50 or more full time equivalent (FTE) employees to offer minimum essential coverage (MEC) or pay an annual penalty. The penalty is $2,000 per employee over the 30-employee mark.
The U.S. Department of the Treasury, in a recent blog post by Mark J. Mazur, the assistant secretary for tax policy, announced that penalties under the employer mandate and associated reporting requirements would be delayed for one year.
Since PPACA is the law and only Congress can change the law, several members of Congress are questioning if the move is legal. For today’s discussion we will assume the legal wrangling will work out, and the employer mandate will be delayed.
Please note, at this time the delay only applies to the employer coverage requirement. Although a number of members of Congress have expressed a desire to delay the individual mandate, individuals still face a “play or pay” requirement under PPACA, and that requirement still is set to take effect Jan. 1, 2014.
In the coming weeks we will review in detail the individual play or pay mandate — and we will let you know if it’s delayed.
In the blog post, Mazur outlined the two-fold reason for the “transition relief” period of the employer mandate: first, it allows federal agencies time to consider ways to simplify the reporting requirements; and secondly, it allows time for employers to adapt health coverage and reporting systems.
Another thing that it allows time for is the mid-term elections, which some are hoping will be a catalyst for more changes to PPACA while others are hoping voters aren’t focused on PPACA.
For employers, play or pay means entities with 50 or more full-time equivalent (FTE) employees in the previous calendar year must offer employees and their dependents minimum essential coverage or face penalties. Interestingly, coverage does not need to be offered to the spouse of the FTE. Instead, proposed regulations define “dependent” as the child of an employee who has not attained age 26.
Employer groups with less than 50 FTEs are not subject to the play or pay mandate, but the members of those groups will be subject to the individual mandate requirements, which we will cover in the coming weeks.
Minimum essential coverage is coverage offered, for example, through an employer-sponsored health plan, certain government sponsored health plans and individual health plans. There are other coverages that qualify, but these are the most common.
Employers that do not offer MEC will face a penalty of $2,000 per employee less the first 30 employees if an FTE is certified as having received a premium tax credit or cost-sharing reduction under PPACA through the coming state health exchange.
Let’s look at an example. XYZ Corporation has 75 FTEs, and the company does not offer a minimum essential coverage plan. XYZ’s “shared responsibility” is calculated as follows: 75 – 30 = 45 x $2,000 = $90,000. Remember, the penalty does not apply to the first 30 employees.
Employers also face a penalty of $3,000 for each employee who receives a premium tax credit or cost-sharing reduction if the employer offers its full-time employees and their dependents the opportunity to enroll in MEC that is either unaffordable or does not provide minimum essential coverage and the employee is certified as having received a premium tax credit or cost-sharing reduction.
Over the next few weeks we will continue our look at the impact of play or pay on employers, and I will share some feedback I’ve heard from a number of my clients of the impact of the penalties (shared responsibility?) on their businesses.
Questions or comments? Feel free to e-mail me at firstname.lastname@example.org.
Tony L. Wilson is a principal with NUVISION Financial Corporation based in Conyers. NUVISION is a subsidiary of National Financial Partners Corp. (NFP), which provides benefits solutions for companies.