On February 10, 2014, the IRS issued final regulations on the PPACA employer shared responsibility requirements. The requirements, often referred to as "Play or Pay" were to take effect in 2014. However, the White House announced on July 2, 2013 that compliance would be delayed until 2015.
These requirements apply to “large employers” -- employers that have 50 or more full-time or full-time equivalent employees. However, the final regulations provide a transitional rule that will give many employers an additional year before they need to comply. While employers with 100 or more full-time or full-time equivalent employees will still need to meet the "Play or Pay" requirements in 2015, those with 50 to 99 full-time or full-time equivalent employees do not have to comply until 2016, if they meet certain requirements. For these mid-size employees to be eligible for the delay, the company will have to certify that:
It has not reduced the size of its workforce or the overall hours of service of its employees in order to qualify for this delay; and
It has not eliminated or materially reduced any coverage it had in effect on February 9, 2014 (a material reduction means that the employer’s contribution is less than 95% of the dollar amount of its contribution for single-only coverage on February 9, 2014, or is a smaller percentage than the employer was paying on February 9, 2014);
Any change that was made to the benefits in place on February 9, 2014, will not cause the plan to fall below minimum value (coverage is considered minimum value if the actuarial value of the coverage is at least 60%); or the class of employees or dependents eligible for coverage on February 9, 2014, has been reduced.
This certification will be part of the reporting form that all applicable large employers will need to file early in 2016.
The delayed "Play or Pay" compliance date does not affect the effective date of the other changes that apply in 2014 – most employers still must implement the 90-day maximum for waiting periods, discontinue pre-existing condition limitations, remove annual dollar maximums, and apply cost-sharing (out-of-pocket) limits. Small insured groups still need to offer the 10 essential health benefits at the metal levels (i.e., platinum, gold, silver, and bronze) and use community ratings starting in 2014.
Large Employer are subject to two separate requirements, and potential penalties (these penalties are indexed and may increase each year based on cost-of-living adjustments):
Large employers must offer “minimum essential” coverage to most of its employees (for 2015 this means 70% - for 2016 and later it means 95%). If the employer does not meet this requirement, it will owe $2,000 per full-time employee, even on employees who are offered coverage. However, for 2015 the first 80 employees are excluded from this calculation; and beginning in 2016, the first 30 employees are excluded.
Beginning in 2016, the requirement to offer minimum essential coverage includes dependent children (up to age 26). An employer that offered coverage for dependent children in 2013 or 2014 is expected to maintain that eligibility. Coverage does not have to be offered to stepchildren, foster children, or spouses to meet "Play or Pay" requirements. However, employers will still need to offer coverage to stepchildren and foster children to meet the requirement to offer coverage to dependents to age 26.
- The second requirement is that large employers offer to their full-time (30 or more hours per week) employees coverage that is both “affordable” and “minimum value” or pay a penalty of $3,000 per year for each full-time employee who receives a premium tax credit/subsidy. Therefore, an employer that provides minimum essential coverage to most of its employees and avoids the $2,000 per employee penalty will still have to pay the $3,000 penalty on an employee who is either in the group that is not offered coverage or who is offered coverage that is not both affordable and minimum value if the employee receives a premium tax credit.
Coverage is considered affordable for purposes of the "Play or Pay" requirement if the cost of single coverage for the least expensive plan option that provides minimum value does not exceed 9.5% of the employee’s safe harbor income or Federal Poverty Level (FPL). The cost of single coverage is always the measure of affordability, even if the employee has family coverage. An employer may use any of three safe harbors when measuring the employee’s income:
The employee’s Box 1 W-2 income for the current year
The employee’s rate of pay on the first day of the plan year, multiplied by 130 for hourly employees to create the employee’s assumed monthly income
The most recently published FPL for a single person (for 2014, FPL for a single person in the 48 contiguous states is $11,670; for Alaska it is $14,580 and for Hawaii it is $13,420)