• The Health Care Reform "Delay" - What It Means For 2014
  • September 3, 2013 | Authors: Joshua J. Sudbury; Scott V. Wagner
  • Law Firms: Ford & Harrison LLP - Nashville Office ; Ford & Harrison LLP - Atlanta Office
  • Executive Summary:  In July 2013, the Obama Administration delayed implementation of the employer mandate, a major provision of the 2010 health care reform law, which applies to employers with 50 or more full-time or full-time equivalent employees.  This delay did not impact other provisions of the Affordable Care Act (ACA), many of which are going forward as scheduled.  Additionally the reprieve may be short-lived because, unless additional guidance is issued, January 1, 2014, will start the clock on determining employers' size for purposes of the employer mandate, and for determining which employees will be considered full- and part-time for purposes of offering health care coverage.


    Under the ACA's employer mandate, an employer with 50 or more full-time (including full-time equivalent) employees generally must offer minimum essential health coverage that provides minimum value and is affordable to substantially all of its full-time employees (at least 95%) or it will be assessed a penalty if one or more full-time employees obtains coverage from a state- or federally-run health insurance exchange and is eligible for a subsidy or cost-sharing reduction.  Under the ACA, a "full-time" employee is an employee who works 30 hours or more per week or 130 hours or more per month.

    There are special rules that require all employees within an employer's controlled group to be counted for purposes of determining whether the employer is a large or small employer.  These rules are complicated, but generally a controlled group includes a parent-subsidiary group with at least 80% overlapping interest or a brother-sister group owned by five or fewer individuals who have at least 80% combined total interest, and more than 50% shared interest.  In addition, there are special rules for franchises.

    Because of the July 2013 delay, employers who fail to offer minimum essential coverage that provides minimum value and is affordable to their full-time employees under the ACA's employer mandate will not be subject to a penalty in 2014.

    The Affordable Care Act in 2014

    Despite the delay, many provisions of the ACA are moving forward as scheduled, such as: adopting certain plan design requirements regarding the type of coverage that must be provided (such as women's preventive care and the elimination of pre-existing condition exclusions); implementing a 90-day waiting period; reporting on employees' Form W-2 the cost of health care coverage the employer has provided; and distributing certain notices, such as a Summary of Benefits and Coverage (start of open enrollment) and a Notice of Coverage Options (October 1, 2013).

    Additionally, starting January 1, 2014, individuals must still obtain coverage under the ACA's individual mandate, or pay a penalty.  The IRS recently released new regulations on the individual mandate that clarify the individual's responsibility, such as whether an individual will be responsible if his or her dependents do not obtain coverage, and elaborate on what constitutes coverage.  Meanwhile, some lawmakers are still pushing for a delay of the individual mandate to match the delayed employer mandate.

    For small employers (generally, those with fewer than 50 employees), full implementation of the Small Business Health Insurance Exchanges, a featured provision of the state- or federally-run health exchanges, has also been delayed until 2015.  Small businesses should be able to participate in a limited operation of SHOP in 2014, but generally will not have access to a variety of health insurance options until 2015.  Small employers who employ fewer than 25 employees may still qualify for a tax credit for providing health care in 2014.

    Finally, ACA fees are here to stay.  The ACA imposes several fees such as the PCORI fee, Transactional Reinsurance Fees, and, eventually, the Cadillac Tax.  In addition, employers are still required to distribute Medical Loss Ratio rebates, if any, to participants shortly after they are received from insurance companies.

    Back to the Future: 2015 Planning Opportunities Start January 1, 2014 or Sooner

    Determining Employer Size.  The ACA provides that an employer's status as a large or small employer under the employer mandate is determined by looking to the employer's average size during the full 12 months of the preceding calendar year.  Before the delay, the IRS had created a transition rule whereby employers could look to any consecutive six-month period in 2013 to determine whether they were a large or small employer for 2014.  The current employer mandate delay did not delay the transition rule. Accordingly, employers may now have to look to the full 12 months of 2014 to determine whether they are large or small employers.

    Measurement Periods.  In addition, IRS guidance allows employers to use measurement periods to measure variable hour and seasonal employees.  Generally, if an employer cannot reasonably determine whether an employee will be a full- or part-time employee, or if the employee is a seasonal employee, the employer may use a measurement period of between 3 and 12 months to determine the employee's status.  The following is a brief overview of these rules (note - these rules contain many exceptions):

    • During the employee's first measurement period, the employer not need to offer health care coverage to the variable hour or seasonal employee under the employer mandate, even if the employee works full-time.
    • Once the measurement period has run, if the employee is, on average, determined to be full-time (30 hours or more per week or 130 hours or more per month), generally the employer must offer that employee health insurance coverage that is effective for a period of time that is not less than the length of the measurement period, or at least six months (called the "stability period").
    • If, instead, the employee was, on average, considered to be part-time during the measurement period, the employer does not need to offer that employee health care coverage for a stability period (that is no longer than the preceding measurement period).
    • There are special, complicated rules for employees hired mid-year that generally follow these principles but apply separately until the new hire "syncs" with ongoing variable hour or seasonal employees.
    • The IRS rules allow for a gap period (called the "administrative period") of no more than 90 days between the measurement period and the stability period, during which time the employer can determine the employee's full- or part-time status, and offer coverage to the employee.

    Many restaurant industry employers are expected to rely on measurement periods to determine whether coverage must be offered to their variable hour employees.

    Under a 2013 IRS transition rule, employers could use a six-month measurement period in 2013 and still use a full 12-month stability period in 2014.  Now, unless other guidance is released, employers who want to use a 12-month stability period in 2015 may need to start measuring variable hour employees as soon as October 1, 2013, if the employers also plan to use the full administrative period.


    Employers cannot afford to wait until next year to start planning compliance with the ACA.  Although the penalties under the employer mandate have been delayed until 2015, employers will still face compliance hurdles in 2014 in implementing the other provisions of the ACA.  In addition, because many of the transition rules have not yet been delayed, planning for 2015 starts much sooner than many employers expect.