Earlier this month, the IRS released long-awaited final regulations implementing the Affordable Care Act’s employer shared responsibility provisions, also known as the employer mandate or the “pay or play” rules. These rules impose penalties on certain large employers that do not offer health coverage to their full-time employees, beginning as early as Jan. 1, 2015. The final regulations were expected by the end of last year, but many of the agency’s functions were affected by last fall’s government shutdown and the regulations were delayed until now. Since we are well into 2014, employers need to make plans for any required changes, if they have not already done so.

Key Provisions of the Final Rules

Overall, the regulations maintain the general structure of the proposed rules, which were issued in January 2013. This structure includes the basic rules for identifying employees, counting hours of service and determining full-time status, including the safe harbor look-back measurement method. The final rules build upon these elements by providing additional clarification.

Most importantly, the final regulations extend transition relief provisions that were previously provided for 2014 and provide some new transition rules to help employers ease into compliance with the employer shared responsibility rules. Note that employers that change their plan years are not eligible for some of the relief.

• Large employers that are subject to the employer mandate but have fewer than 100 full-time/full-time equivalent employees will generally have an additional year, until 2016, to comply with the rules. These employers must meet a number of conditions to qualify for the delay and must provide written certification that it meets all of the eligibility requirements. The certification form is expected to be issued as part of the section 6056 employer reporting final regulations.
• For 2015, employers can determine whether they had at least 100 full-time or full-time equivalent employees in 2014 by reference to a period of at least six consecutive months, instead of the full year.
• Employers with non-calendar year plans may delay their compliance with the employer mandate until the first day of the 2015 plan year if they meet certain requirements related to eligibility for coverage. This relief has been expanded to cover additional employers.
• The proposed “substantially all” standard would require employers to offer coverage to at least 95 percent of their full-time employees to avoid the most significant penalties. The final rule provides transition relief that will phase in this requirement over two years, so that applicable large employers will need to offer coverage to 70 percent of full-time employees in 2015 to avoid a penalty for failing to offer health coverage in 2015.
• Applicable large employers using the look-back measurement method to determine full-time employee status may use a measurement period of six months with respect to a stability period of up to 12 months on a one-time basis, for stability periods that begin in 2015.
• For 2015, employers with 100 or more full-time and full-time equivalent employees that must pay a penalty for failing to offer coverage can reduce their full-time employee count by 80 (rather than 30) when calculating the penalty. The penalty calculation would be done by taking the number of all full-time employees (minus 80 full-time employees) multiplied by one-twelfth of $2,000 for each calendar month.
• The employer mandate requires employers to offer coverage to their full-time employees’ children to avoid penalties. This rule will not apply in 2015 to employers that are taking steps to arrange for dependent coverage for children to begin in 2016.

Helping Clients with a Pay or Play Strategy

Brokers working with large employers impacted by these rules can take advantage of this guidance in a few different ways. Brokers should consider the following steps:

• Become familiar with the pay or play rules. Employers will have questions about the new regulations and how they affect their current plans. Brokers can become a trusted resource for employers if they can answer these questions and help formulate a strategy.
• Determine whether any groups are eligible for the one year delay for medium-sized employers or the transition relief for non-calendar year plans (which is essentially a delay until the 2015 plan year). These employers need to meet certain requirements in order to qualify for either of these delayed effective dates. They will also have additional time to put their compliance plan into place, but the time to start planning is now.
• Check in with large employers that already have a pay or play strategy in place and let them know that the final rules may impact their existing plans. Depending on the situation, these employers may need to make adjustments to their current strategies.
• Reach out to employers that haven’t finalized their plans for responding to the employer mandate. Now that these rules are out, some of the uncertainty surrounding implementation has been resolved. 2015 is not that far away from a planning perspective, and decisions will have to be made in advance.