Overview
- Compliance for companies with less than 100 employees or for any company that at least offers insurance to only 70% of its employees is delayed until 2016.
- The requirement to offer coverage to 95% of full-time employees will be phased in over 2 years.
- Certain 2014 transition relief is extended, including relief for non-calendar year plans.
- Full-time status is clarified for certain groups including complex new rules around the use of staffing agencies.
- Seasonal workers clarified.
- Requirement to cover children delayed to 2016.
- New "rule" created by President compels employers who who want to take advantage of this release to certify to the IRS — under the threat of perjury — that the reasons for your employee head-count have nothing to do with your opposition to or avoidance of ObamaCare.
Opinion and Commentary
We predicted this, in part, on the radio on July 25, 2013. This law is too unpopular, too unworkable and drafted with monumentally large sections of total distain for economic reality. It can't be enforced as is, which is why the President delayed a huge section of it again on February 10, 2014. This was the 27th delay, partial repeal or amendment to the law, in total.
In regulations issued Monday, the Treasury Department, said that employers with less than 100 full-time workers (or 98% of all businesses) won't have to comply with the law's requirement to provide insurance or pay a penalty of $2,000 per worker until 2016. Furthermore, companies with more workers will avoid the vast majority of penalties in 2015 if they show they simply offer coverage to at least 70% of full-time workers. Prior to Monday that offer had to be to 95% of all workers.
- Here is a Fact Sheet from the U.S. Treasury Department outlining what some of those delays will entail.
- The final IRS regulations, scheduled to be published in the Federal Register on February 12th, are available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2014-03082.pdf.
Once again, businesses have had the rug torn out from underneath them. Yes, this is better for business but it is still a horrific and pointless drain on our economy. Companies had already moved employees to 29 hours (as working less than 30 hours means an employee is part-time and the employer does not need to buy them healthcare) and worked to keep their employment below 50 employees (because employer mandate penalties don't apply to sub-50 employee groups). All this does is kick the can down the road another year. Companies are not going to increase hours and start hiring during the mass upheavals caused by the President's legal pronouncements by blog-post, press conference and regulatory proclamation. Uncertainly forces economic decision makers to wait out the storm. It makes no practical sense to act in times of such tumult.
Now, instead of boiling this to a head this summer when employers would have resumed the employee-hour-slaughter by moving heaps of hourly folks to 29 hours a week, that will occur in the summer of 2015. Conveniently, that is after the 2014 midterm elections. Red state Democrats in the Senate are thankful for that.
The economy will limp along with chronic underemployment and mountains of cash on the sidelines. The current Administration is far more concerned with clearing the political hurdle of the week than actually crafting policy that works. So the game of whack-a-mole will continue until this thing finally caves in on itself. That could have been this summer or fall when about 50 million Americans would have lost their coverage due to the President's Health Law. That will now drag along like a zombie for another year.
Just imagine all of the hours lost and GDP drained while businesses spend countless hours reading the regulations and millions of dollars to attorneys to help them comply. Then, once you think you have a handle on the 30,000 to 40,000 pages of laws and regulations in Obamacare that have already been written, regulators issue another 200 or 300 pages, once again changing the rules to the game. (Monday's release alone was 227 pages.) None of these hours and dollars go toward making our economy any stronger. To wit, this harms our gross national product by draining our resources in countless projects of compliance overhead. Mind you, I'm an attorney whose career is booming in this mess and I'm screaming as loud as I can, "this is total lunacy. It has to stop!"
One estimate provides that we still have at least 28 more regulatory releases totaling 46 million burden hours to the U.S. workforce and costing $1.4 billion annually. And economics 101 tells us that workers and consumers will bear those costs: not businesses.
Monday's regulations also ameliorate the mandate for certain occupations and industries that were at particular risk for disruption, like volunteer firefighters, teachers, adjunct faculty members and seasonal employees. The Treasury also now states that, "As these limited transition rules take effect, we will consider whether it is necessary to further extend any of them beyond 2015." So the law may be suspended indefinitely if the President pleases. Stay tuned.
Finally, in a rather peculiar twist, the regulatory release eliminates the requirement for employers to cover an employee's dependents until 2016. Earlier releases removed spouses from the definition of dependent all together. But now, employers looking to save cash could completely cut kids off of the plans until 2016. I doubt many would as the political and morale backlash would be monumental. But I just find the law change to be particularly bizarre. I suppose absolutely nothing should surprise me anymore with respect to the ever-changing world of PPACA.
The one argument I can see in favor of cutting spouses and kids off of the plan is that is a way to actually preserve their ability to get subsidies in the exchanges. If an employer permits spouses and kids on the plan but asks those enrollees to pay 100% of their cost, the coverage will likely be unaffordable (in the practical but not legal sense) and leave those dependents without coverage. But by making such dependents ineligible for the plan, they can access the exchanges and other taxpayers can pay for part of their coverage provided they are under 400% of the federal poverty level.
As Charles Krauthammer stated about this latest change:
Technical Guidance
The Affordable Care Act (ACA) imposes a penalty on large employers that do not offer minimum essential coverage to full-time employees and their dependents. Large employers that offer this coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value. The ACA’s employer mandate provision is often referred to as the “employer shared responsibility” or “pay or play” rules.
On Feb. 10, 2014, the U.S. Treasury Department released final regulations implementing the employer shared responsibility provisions of the ACA. The regulations are effective upon publication in the Federal Register.
Delay for Medium-sized Businesses
According to the Departments, approximately 96% of employers are small businesses that have fewer than 50 workers and are exempt from the employer responsibility provisions. The employer shared responsibility provisions apply only to applicable large employers that have 50 or more full- time employees.
The final rules will delay implementation for medium-sized employers that are covered by the employer mandate. Applicable large employers that have fewer than 100 full-time employees will have an additional year, until 2016, to comply with the pay or play rules.
Thus, the employer shared responsibility provisions will generally apply to:
To qualify for this delay, the employer must provide an appropriate certification as described in the final rules.
Extension of 2014 Transition Relief
In addition to the two forms of 2015 transition relief noted earlier, a package of limited transition rules that applied for 2014 under the proposed regulations is extended to 2015 under the final regulations, including:
As these limited transition rules take effect, the Treasury and the IRS will consider whether it is necessary to further extend any of them beyond 2015.
Provisions for Businesses That Offer Coverage to Most, but Not All, Employees in 2015
Under the proposed rules, applicable large employers would need to offer coverage to at least 95 percent of their full-time employees to avoid the most significant penalties. The final rule provides transition relief that will phase in this requirement over two years, beginning in 2015.
To avoid a payment for failing to offer health coverage in 2015, applicable large employers will need to offer coverage to 70 percent of their full-time employees.
In 2016 and beyond, applicable large employers will need to offer coverage to 95 percent of their full-time employees to avoid these penalties.
This rule is intended to provide relief to employers that, for example, may offer coverage to employees working 35 or more hours per week, but not yet to those employees who work 30 to 34 hours per week.
Various Employee Categories
The final regulations provide clarifications—many of which are based on comments on the proposed regulations—regarding whether employees of certain types or in certain occupations are considered full-time.
Like the December 2012 proposed regulations, the final rules allow employers to use an optional look-back measurement method to make it easier to determine whether employees with varying hours and seasonal employees are full-time.
In responding to comments, the final regulations also clarify the application of this method and the alternative monthly method of determining full-time status.
Affordability Safe Harbors
Like the proposed regulations, the final rules provide safe harbors that employers can use to determine whether the coverage they offer is affordable to employees.
These safe harbors permit employers to use the wages they pay, their employees’ hourly rates, or the federal poverty level in determining whether employer coverage is affordable under the ACA.
A New "Crime" For Employers to Navigate
This is from Ed Rogers in the Washington Post, hat tip to Dr. John Goodman:
Next Steps: Final Rules Simplifying Employer Information Reporting
Many comments on the proposed employer information reporting regulations have urged that final rules provide streamlined ways to comply with employer information reporting—especially for employers that offer highly affordable coverage to all or virtually all of their full-time employees.
Others have asked for a single form for employer and insurer reporting provisions when possible. The Treasury and the IRS will issue final regulations shortly that aim to substantially simplify and streamline the employer reporting requirements.
More Information on Suggested Reading on this Topic
The one argument I can see in favor of cutting spouses and kids off of the plan is that is a way to actually preserve their ability to get subsidies in the exchanges. If an employer permits spouses and kids on the plan but asks those enrollees to pay 100% of their cost, the coverage will likely be unaffordable (in the practical but not legal sense) and leave those dependents without coverage. But by making such dependents ineligible for the plan, they can access the exchanges and other taxpayers can pay for part of their coverage provided they are under 400% of the federal poverty level.
As Charles Krauthammer stated about this latest change:
[G]enerally speaking you get past the next election by changing your policies, by announcing new initiatives, but not by wantonly changing the law lawlessly. This is stuff you do in a banana republic. It’s as if the law is simply a blackboard on which Obama writes any number he wants, any delay he wants, and any provision.
It’s now reached a point where it is so endemic that nobody even notices or complains. I think if the complaints had started with the first arbitrary changes — and these are not adjustments or transitions. These are political decisions to minimize the impact leading up to an election. And it’s changing the law in a way that you are not allowed to do.
Technical Guidance
The Affordable Care Act (ACA) imposes a penalty on large employers that do not offer minimum essential coverage to full-time employees and their dependents. Large employers that offer this coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value. The ACA’s employer mandate provision is often referred to as the “employer shared responsibility” or “pay or play” rules.
On Feb. 10, 2014, the U.S. Treasury Department released final regulations implementing the employer shared responsibility provisions of the ACA. The regulations are effective upon publication in the Federal Register.
Delay for Medium-sized Businesses
According to the Departments, approximately 96% of employers are small businesses that have fewer than 50 workers and are exempt from the employer responsibility provisions. The employer shared responsibility provisions apply only to applicable large employers that have 50 or more full- time employees.
The final rules will delay implementation for medium-sized employers that are covered by the employer mandate. Applicable large employers that have fewer than 100 full-time employees will have an additional year, until 2016, to comply with the pay or play rules.
Thus, the employer shared responsibility provisions will generally apply to:
- Employers with 100 or more full-time employees starting in 2015; and
- Employers with 50-99 full-time employees starting in 2016.
To qualify for this delay, the employer must provide an appropriate certification as described in the final rules.
Extension of 2014 Transition Relief
In addition to the two forms of 2015 transition relief noted earlier, a package of limited transition rules that applied for 2014 under the proposed regulations is extended to 2015 under the final regulations, including:
- Employers first subject to shared responsibility provisions: Employers can determine whether they had at least 100 full- time or full-time equivalent employees in the previous year by reference to a period of at least six consecutive months, instead of a full year.
- Non-calendar year plans: Employers with plan years that do not start on Jan. 1 will be able to begin compliance with the employer mandate at the start of their plan years in 2015 rather than on Jan. 1, 2015, and the conditions for this relief are expanded to include more plan sponsors.
- Dependent coverage: The policy that employers offer coverage to their full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
- Measurement and Stability Periods: On a one-time basis, in 2014 preparing for 2015, employers using the look-back measurement method to determine full-time status may use a measurement period of six months, even with respect to a stability period—the time during which an employee with variable hours must be offered coverage—of up to 12 months.
As these limited transition rules take effect, the Treasury and the IRS will consider whether it is necessary to further extend any of them beyond 2015.
Provisions for Businesses That Offer Coverage to Most, but Not All, Employees in 2015
Under the proposed rules, applicable large employers would need to offer coverage to at least 95 percent of their full-time employees to avoid the most significant penalties. The final rule provides transition relief that will phase in this requirement over two years, beginning in 2015.
To avoid a payment for failing to offer health coverage in 2015, applicable large employers will need to offer coverage to 70 percent of their full-time employees.
In 2016 and beyond, applicable large employers will need to offer coverage to 95 percent of their full-time employees to avoid these penalties.
This rule is intended to provide relief to employers that, for example, may offer coverage to employees working 35 or more hours per week, but not yet to those employees who work 30 to 34 hours per week.
Various Employee Categories
The final regulations provide clarifications—many of which are based on comments on the proposed regulations—regarding whether employees of certain types or in certain occupations are considered full-time.
- Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees.
- Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
- Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
- Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees.
- Adjunct faculty: Until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer shared responsibility provisions. However, to accommodate the need for predictability and ease of administration, and consistent with the request for a “bright line” approach suggested in a number of the comments, the final regulations expressly allow crediting an adjunct faculty member with 2 1⁄4 hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.
- Employers who hire workers through staffing agencies need to consider a new rule. For an offer of coverage to an employee performing services for an employer that is a client of a staffing agency, in cases where the staffing agency is not the common law employer of the worker and the staffing firm makes an offer of coverage to the employee on behalf of the client employer under a staffing agency plan, the offer is treated as made by the client employer for pay-or-play purposes only if the fee the client employer would pay to the staffing agency for an employee enrolled in health coverage is higher than the fee the client employer would pay the staffing agency for the same employee if that employee did not enroll in health coverage. Source for this bullet.
Like the December 2012 proposed regulations, the final rules allow employers to use an optional look-back measurement method to make it easier to determine whether employees with varying hours and seasonal employees are full-time.
In responding to comments, the final regulations also clarify the application of this method and the alternative monthly method of determining full-time status.
Affordability Safe Harbors
Like the proposed regulations, the final rules provide safe harbors that employers can use to determine whether the coverage they offer is affordable to employees.
These safe harbors permit employers to use the wages they pay, their employees’ hourly rates, or the federal poverty level in determining whether employer coverage is affordable under the ACA.
A New "Crime" For Employers to Navigate
This is from Ed Rogers in the Washington Post, hat tip to Dr. John Goodman:
And the fine print of the latest announcement from the Administration is worse than the terrible headlines. This rule includes a provision that says you have to have the right motives for having a certain number of employees to be in compliance with Obamacare. Bear with me, that’s right: You must certify to the IRS — under the threat of perjury — that the reasons for your employee head-count have nothing to do with your opposition to or avoidance of ObamaCare. This president doesn’t just selectively enforce the law as he sees fit; now he is actually inventing new crimes. It’s jaw-dropping that if you fall below 100 employees, the burden will be on you to prove that you meant no disrespect to ObamaCare. I can’t wait to see the video of the first Democrat who tries to defend this new threat of prosecution within ObamaCare. In fact, look for the White House to fix this and somehow drop this provision altogether. It’s completely indefensible.Open Questions
- The final regulations do not provide safe harbor relief for employers hiring independent contractors. Instead, employers need to determine who their employees are based on a common law standard without regard to rules, such as “section 530 relief” applicable in the employment tax area. Source.
- The regulations also do not provide any specific relief for employers in “high turnover” industries. Source.
- Employers who hire workers through staffing agencies need to consider a new rule. For an offer of coverage to an employee performing services for an employer that is a client of a staffing agency, in cases where the staffing agency is not the common law employer of the worker and the staffing firm makes an offer of coverage to the employee on behalf of the client employer under a staffing agency plan, the offer is treated as made by the client employer for pay-or-play purposes only if the fee the client employer would pay to the staffing agency for an employee enrolled in health coverage is higher than the fee the client employer would pay the staffing agency for the same employee if that employee did not enroll in health coverage. Source.
Next Steps: Final Rules Simplifying Employer Information Reporting
Many comments on the proposed employer information reporting regulations have urged that final rules provide streamlined ways to comply with employer information reporting—especially for employers that offer highly affordable coverage to all or virtually all of their full-time employees.
Others have asked for a single form for employer and insurer reporting provisions when possible. The Treasury and the IRS will issue final regulations shortly that aim to substantially simplify and streamline the employer reporting requirements.
More Information on Suggested Reading on this Topic
- For a more detailed description of the final regulations, please review the following Council of Insurance Agents and Brokers (CIAB) memorandum, prepared by Steptoe & Johnson. I highly recommend this memo.
- For more information on the employer shared responsibility regulations, see the most recent IRS Questions and Answers.
- Implementing Health Reform: The Employer Responsibility Final Rule (Part 1) by Timothy Jost at the Health Affairs Blog.
- Implementing Health Reform: The Employer Responsibility Final Rule (Part 2) by Timothy Jost at the Health Affairs Blog.
