Thursday, February 27, 2014

Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers

(Revised February 20, 2014)

By Nancy K. Campbell Snell & Wilmer L.L.P.: 
Historically, employers have had complete discretion in deciding whether to offer group health plan coverage to their employees. If they offered coverage, they had to comply with the requirements of the Employee Retirement Income Security Act (“ERISA”), the Internal Revenue Code (the “Code”), and other applicable laws. However, if they did not offer coverage, they were not subject to penalties. It was simply a business decision whether to offer coverage. Starting in 2015, this will change-- employers employing at least a certain number of employees (generally 50 full- time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the employer shared responsibility provisions under Section 4980H of the Code, sometimes referred to as the “large employer play or pay penalties.” 
In July 2013, IRS announced that the penalties would not take effect until 2015. The one-year delay was welcome news, but it unfortunately resulted in many employers pushing this issue to the back burner. With the IRS just having published final regulations on February 12, 2014, now is a great time to refocus on this issue. 
Under these new rules, “large” employers will be subject to a penalty if they either: (1) fail to offer minimum essential coverage to substantially all full-time employees (and their dependents); or (2) offer employer-sponsored coverage to substantially all full-time employees (and their dependents), but the coverage is either not “affordable” or does not provide “minimum value.” The penalties are due only if at least one of a large employer’s full-time employees receives a premium tax credit for purchasing individual coverage on a Health Insurance Marketplace (hereinafter a “Marketplace”). 
Although the rules take effect for most employers on January 1, 2015, what an employer’s workforce looks like in 2014 is determinative of whether the employer may be subject to the penalties in 2015. Also, many employers may need to start counting hours in 2014 in order to take advantage of the look-back measurement safe harbor that permits full-time or part-time status to be locked in for some period rather than having to track full-time status each month. Time is of the essence in understanding these new rules. 
This checklist is intended to help employers:
  • Determine whether an employer is a “large” employer (Worksheet #1);
  • Calculate the potential penalties (Worksheet #2);
  • Identify “full-time employees” for purposes of calculating the penalties (Worksheet #3); and
  • Design group health plans to avoid/minimize the penalties (Worksheet #4).