- Treasury Delays PPACA Employer Penalties
- July 8, 2013 | Author: W. James Hamilton
- Law Firm: Bose McKinney & Evans LLP - Indianapolis Office
In a stunning move, the U.S. Department of the Treasury ("Treasury") delayed the shared responsibility penalties under the Patient Protection and Affordable Care Act ("PPACA") until 2015. Late Tuesday afternoon, Treasury posted a blog entitled Continuing to Implement the ACA in a Careful, Thoughtful Manner, which was authored by the Assistant Secretary for Tax Policy.
The vast majority of the Treasury blog post discusses the significant new reporting obligations imposed by the PPACA, and the need to delay these reporting obligations to simplify the process and provide more time for employers to adapt. As an aside, in the second to last paragraph, the author briefly mentions that the shared responsibility penalties will be delayed until 2015, as it would be "impractical" to determine the penalties in 2014.
I will have additional observations in the days ahead that I will post to the Bose Employee Benefits Blog (to follow the blog, choose the "Sign Me Up" button on the right side of the blog web page); however, here are my preliminary thoughts on the delay.
- First and foremost, this is wonderful news. The delay will provide much needed relief to thousands of Indiana and Illinois employers and their employees from the Sledgehammer and the Mallet. It is also astonishing given the firm stance taken by the White House in a blog post dated May 16, 2013.
- It is important to emphasize that the Treasury action is simply a delay, not a repeal of the PPACA shared responsibility penalties. Accordingly, to the extent that an employer wishes to revisit certain decisions made earlier this year in preparation for the law (such as reduction of employee hours), it will be important simply to postpone the implementation of these steps. Absent a change in the law, these same decisions will need to be made again next year (or perhaps later this year, as noted under #5).
- If you have been considering increasing the employer contribution towards the cost of coverage to meet the affordability test under the Mallet, you do not need to take this step yet. As a result of the delay, employer coverage does not need to be either affordable or provide minimum value in 2014.
- Many Indiana public school corporations, as well as other Indiana employers, currently utilize a "closed enrollment" policy in connection with their health plans. As a result of the delay, it is not necessary to open enrollment in 2013 to prepare for the PPACA.
- Treasury published proposed regulations on the shared responsibility penalties on January 2, 2013. These proposed regulations permitted employers to utilize a special transition measurement period that lasted a minimum of 6 months and began no later than July 1, 2013. It is unknown at this time whether Treasury will permit use of a similar transition measurement period in 2014. If Treasury does not permit the use of a similar transition measurement period in 2014, many employers may need to start their 12-month measurement period for 2015 in November or December of 2013.
- It is also important to remember that the PPACA provides that an employer cannot discriminate against an employee with respect to employment because the employee has received a health premium tax credit. PPACA § 1558. Otherwise stated, it will not be permissible for employers to reduce hours for an employee who has received a subsidy through the exchange. This fact reinforces the comment in # 5, as employers will have limited options effective January 1, 2014 when certain employees begin to participate in the new insurance exchanges and receive subsidies.
- If employers are not subject to the shared responsibility penalties in 2014, but the insurance exchanges move forward as planned, it is very possible that some employers will drop coverage in its entirety during the 2014 plan year. The employees will benefit from the subsidies available through the insurance exchanges, and there will not be negative financial repercussions to employers as a result of terminating coverage. Each employer would then need to revisit whether to offer health insurance coverage in 2015 when the shared responsibility penalties commence.
- The delay is not applicable to other significant parts of the PPACA that are due to take effect in 2014. Most importantly, the delay does not apply to the new modified community rating rules, which may result in significant premium increases for small employers with fully insured plans. The delay does not impact the Form 720 filing due by July 31, 2013 in connection with the Patient-Centered Outcomes Research Institute (PCORI) fees.
- The law also does not delay the PPACA individual mandate. Accordingly, most Americans will still be required to obtain health insurance coverage in 2014 or pay a fine.