Obama Administration Takes Its Foot off the Gas Pedal, Announces One-Year Delay of the Employer Mandate

Late in the day on July 2, 2013, the Obama Administration announced via two blog posts that it will provide a one-year delay to the implementation of significant aspects of the Affordable Care Act (“ACA”) affecting employers. This delay applies to: (1) the ACA’s new health care coverage reporting requirements applicable to employers, insurers and/or plan sponsors; and (2) the “play or pay” penalty taxes that would be triggered by large employers (50 or more employees) that either do not offer employee health care coverage or do not offer employee health care coverage that meets certain affordability and minimum value requirements. These provisions, which were scheduled to be effective beginning January 1, 2014, will now be effective beginning January 1, 2015. This delay does not affect the health insurance exchanges/marketplaces established by the ACA, which are scheduled to open on October 1 of this year and are intended to provide small businesses and individuals access to affordable health coverage.

Background

As part of the framework to expand and ensure access to health care coverage for all Americans, the ACA includes provisions intended to encourage employers to maintain health care coverage for their employees. Most notably, the ACA added Section 4980H to the Internal Revenue Code, which provides that employers with 50 or more full-time employees are subject to a penalty tax if they: (1) fail to offer minimum essential health care coverage for all full-time employees (and their dependants); or (2) offer eligible employer-sponsored coverage that is not “affordable” (i.e., the employee’s cost exceeds a specified percentage of the employee’s household income) or does not provide “minimum value” (i.e., the plan’s share of the total allowed cost of benefits is not at least 60%). This provision is known as the employer shared responsibility provision and is interchangeably referred to as the employer play or pay penalty tax and the employer mandate. Since the enactment of the ACA in 2010, multiple federal agencies (e.g., the Treasury Department, Internal Revenue Service, Department of Health and Human Services, Department of Labor and the Centers for Medicare & Medicaid Services) have been steadily issuing guidance relating to Code Section 4980H and the operation of the health insurance exchanges/marketplaces.

The ACA also added Code Sections 6055 and 6056, which establish new and significant information reporting requirements for employers, insurers and/or plan sponsors concerning health care coverage. While the Treasury Department and the Internal Revenue Service have requested comments concerning these reporting requirements, no guidance has been issued to date.

Reasons for the Delay

The approaching January 1, 2014 deadline, coupled with the anticipated administrative challenges of complying with these new requirements, had been a growing concern for employers across the country. In its announcement of the one-year delay, the Obama Administration acknowledged these concerns on The White House Blog, stating:

We have heard the concern that the reporting called for under the law about each worker’s access to and enrollment in health insurance requires new data collection systems and coordination. So we plan to re-vamp and simplify the reporting process. Some of this detailed reporting may be unnecessary for businesses that more than meet the minimum standards in the law. We will convene employers, insurers, and experts to propose a smarter system and, in the interim, suspend reporting for 2014.

Similarly, Mark Mazur, Assistant Secretary for Tax Policy, Department of the Treasury, explained the reasoning for the delay on the Treasury Department’s Blog as follows:

Over the past several months, the Administration has been engaging in a dialogue with businesses – many of which already provide health coverage for their workers – about the new employer and insurer reporting requirements under the Affordable Care Act (ACA). We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively.

At this point, the details of the one-year delay are minimal. However, the Obama Administration indicated in the Treasury Department’s Blog that formal guidance will be published within the next week concerning the details of the delay.

Implications for the Individual Mandate and Health Insurance Exchanges/ Marketplaces

This delay does not in any way affect the individual mandate contained in the ACA, which provides that individual taxpayers will be assessed a “shared responsibility” penalty (or tax) for any months during which they, their spouses or their dependants do not maintain health care coverage (whether through an employer, a government program, a health insurance exchange/marketplace or an individual policy). Likewise, this delay does not affect the planned opening of the health insurance exchanges/marketplaces on October 1, 2013 for coverage beginning on or after January 1, 2014 or the requirement for employers to provide employees with a notice of the existence of the health insurance exchanges/marketplaces by October 1, 2013.

What the Delay Means for Employers

This delay provides the Obama Administration with more time to develop and refine these rules concerning employer-sponsored health care coverage. In turn, employers now have more time to review and understand the implications of these rules. Employers should also watch for additional guidance to be released in the coming months. Finally, leading up to January 1, 2015, employers should continue to evaluate the health care coverage they provide to their employees, the financial effect of the employer play or pay penalty tax and the administrative effect of the new reporting requirements.

Should your organization require assistance in evaluating the implications of the employer mandate, please contact: