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The U.S. Department of the Treasury announced it would delay the employer shared responsibility penalty (a.k.a. “pay or play” penalty) contained in the Patient Protection and Affordable Care Act (PPACA or ACA) until January 1, 2015.

Navigating health reform

ACA Employer Shared Responsibility Penalty Delayed

  • 7/17/2013

On Tuesday, July 2, the U.S. Department of the Treasury announced it would delay the employer shared responsibility penalty (a.k.a. “pay or play” penalty) contained in the Patient Protection and Affordable Care Act (PPACA or ACA) until January 1, 2015. This ACA initiative requires large employers (with 50 or more full time employees plus full-time equivalents) to either offer minimum essential and affordable coverage or pay a penalty. Originally, this aspect of the law was scheduled to take effect January 1, 2014.

“Although the penalty won’t be applied this year, many elements of the law will still go into effect,” says Nicole Fallon, a health care consultant with CliftonLarsonAllen. "Employers should keep preparing for implementation of other requirements."

Since the announcement, the Obama administration has continued to clarify what this delay means for employers and how it impacts the implementation of other portions of the law scheduled to go into effect January 1, 2014.

What does the delay mean for employers?

Large employers will not need to offer their full-time workers and their dependent children minimum essential and affordable coverage in 2014. They will not have to file an information return with the IRS indicating who their full-time employees are, what coverage they offer, which employees are enrolled, etc. in 2014. The IRS anticipates further guidance will be issued this summer regarding what employers will have to report in information returns in 2015.

However, employers still need to explain available the coverage options to all employees (full and part time), regardless of the employee’s enrollment status in the employer plan prior to October 1, 2013. They will also need to provide:

  • Descriptions of the new state and federal health insurance exchanges (also called marketplaces), services offered, and contact information
  • Details on eligibility for assistance to purchase insurance through the exchanges
  • Information regarding the employee’s loss of eligibility for employer contribution to health benefits if insurance is purchased through an exchange

(The Department of Labor has model notice language on its website for employers who offer a health plan, as well as employers who do not offer a health plan.)

Employers must also pay various fees under the ACA, including the Patient Center Outcomes Research Institute (PCORI) fee by July 31, 2013, if self insured. (The fee is $1 per enrollee for 2014, based on the number of employees reported on IRS Form 720.) Similarly, the transitional reinsurance fee of approximately $63 per enrollee must be submitted at the end of 2014 by employers for self-insured plans and by insurers for fully-insured plans.

Employer responsibilities that have not been delayed include the following:

  • Ensuring that the employee waiting period for enrolling in employer-sponsored insurance coverage does not exceed 90 calendar days (beginning in 2014)
  • Providing a summary of benefits and coverage when plans are changed
  • Ensuring that out-of-pocket maximum limits do not exceed $6,350 for individuals and $12,700 for families ($2,000/$4,000 for small employers) beginning in 2014
  • Reporting the value of the health care coverage on their employees’ W-2 forms. (Employers issuing fewer than 250 W-2s are not required to comply per IRS Notice 2011-28 until further guidance is issued.)

What does this mean for individuals and employees?

Federal and state exchanges are still scheduled to open for enrollment October 1, 2013. All individuals will still need to obtain minimum essential coverage in 2014 or pay a penalty when they file their 2014 taxes. (This is the “individual mandate.”) People who earn between 100-400 percent of the federal poverty level and do not have access to affordable coverage through an employer will still be eligible for exchange subsidies -premium tax credits, and/or cost sharing assistance. And finally, insurers cannot deny coverage to an individual for a pre-existing condition.

What remains unclear?

Many questions remain unanswered about the law. For instance, how does one determine if employees like truck drivers, adjunct professors, missionaries, and consumer-directed caregivers are full-time employees? Additionally, earlier guidance from the IRS offered employers some transition relief in preparing for the 2014 implementation. The delay notice and corresponding regulations issued as of July 12, 2013, do not address whether the 2014 transition relief will be applicable for determining whether an employer is considered a large employer or identifying which employees are considered full-time for the January 1, 2015, implementation. Therefore, expect additional guidance in the coming months.

What should employers do now?

We recommend that employers continue to evaluate the following in preparation for the January 1, 2015, implementation by answering the following questions:

  • Are you a large employer with 50 or more full-time employees plus full-time equivalents (based on the definition that a full-time employee works an average of 30 hours per week of paid time)?
  • If you are a large employer, do you offer minimum essential and affordable coverage to at least 95 percent of your full-time employees and their dependent children under age 26?
  • If you are a large employer, have you evaluated the cost of not offering coverage to offering coverage in 2015?
  • Have you evaluated your current systems for tracking employee wages, hours, and premiums on a per employee basis, as well as on a weekly and monthly basis? This information will be needed to use a look-back measurement period in 2014 for the 2015 implementation and will probably be needed for IRS reporting in 2015.

How we can help

CliftonLarsonAllen will continue to monitor the regulatory activity related to the ACA and provide updates on new developments as they unfold in the coming weeks and months. More information can be found at