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Health Care Reform: Delay in Employer Mandate Offers Only Temporary Relief -- Employers Should Not Postpone Their Efforts to Comply

November 2013

The implementation of the Patient Protection and Affordable Care Act of 2010 (the “Act”) is moving forward in spite of recent setbacks, and while employers have welcomed the recent delay in the Act’s “shared responsibility” employer mandate to make health insurance available to employees, they should not take too much comfort. As further explained below, employers’ compliance obligations under the Act are fast approaching and require their immediate assessment and preparation.

Background – Information Reporting and Shared Responsibility Payments

Under the Act, self-insuring and applicable large employers (50+ full-time equivalent employees) and other health coverage providers must engage in annual information reporting regarding the health care coverage they offer their employees. Based on this and other reported information, the Internal Revenue Service (“IRS”) will then assess these entities a “shared responsibility” payment if they (1) do not offer minimum essential coverage and any employee obtains federally subsidized coverage through a health insurance exchange, or (2) offer coverage that is unaffordable or does not provide minimum value.

Transition Relief from the Employer Mandate

The commencement date for the required employer information reporting and shared responsibility payments has been postponed from 2014 until 2015. The decision to delay the employer information reporting was intended to allow time both to simplify the requirements and to allow employers to adapt their systems while making health coverage more affordable and accessible for their employees. Consequently, the shared responsibility payments will also be delayed until 2015 because the IRS cannot assess such payments without the information reported by employers. While the IRS strongly encourages employers to comply with the reporting requirements in 2014 pursuant to recently proposed reporting rules (“Proposed Rules”), it is clear that information reporting prior to 2015 is voluntary and the failure to report will not result in a penalty.

Practical Effects of the Transition Relief and What Employers Need to Do Now

The delay in reporting and the associated assessable payments provides more time to prepare but does not allow employers to suspend preparations. For instance, certain employers who wish to avoid penalties assessed in 2015 by using a safe harbor method to calculate their number of full-time employees may need to track the average hours worked by certain employees for a one year period beginning as of October 2013. Employers should also be closely monitoring the Proposed Rules to determine the mechanics of reporting as soon as possible so that they can put appropriate information systems in place.

Additionally, employers have significant responsibilities prior to 2015 under the other provisions of the Act that remain in full effect. For example, employers must continue meeting currently applicable obligations under the Act, such as engaging in IRS Form W-2 reporting of “Aggregate Cost”, and providing an appropriate summary of benefits and coverage for each benefit package offered under a group health plan. In 2014 employers may also need to be prepared to assist employees in determining their eligibility for premium tax credits.

Wolff & Samson is prepared to assist clients in complying with the Affordable Care Act. Should you have any questions regarding what the Affordable Care Act means for you and/or your business, please do not hesitate to contact an attorney in our Health Care and Hospital or Employee Benefits and Executive Compensation Groups.