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Transitional Relief Provided in Final Affordable Care Act Pay-or-Play Regulations

on Thursday, 24 April 2014 in Labor & Employment Law Update: Sarah M. Huyck, Editor

The Internal Revenue Service recently issued Final Regulations for the employer pay-or-play mandate under the Affordable Care Act.  The Final Regulations, which include both clarifications and changes to the Proposed Regulations, address the extension of the transition rules, full-time employees, hours-of-service determinations, affordability safe harbors and applicable large employer status.


Many large employers generally must begin to comply with the pay-or-play mandate as of January 1, 2015.  However, the transition rules (as discussed in this article) in the Final Regulations will serve to delay 100% implementation of the requirements. 


As background, the Affordable Care Act requires large employers to offer full-time employees (and dependents) affordable minimum essential coverage that meets minimum value requirements.  If an employer fails to do so and a full-time employee receives a premium tax credit or cost-sharing reduction on a public exchange, the employer is subject to a penalty.  The following discussion centers on the transitional relief.


Transitional Relief

The Final Regulations exempt applicable large employers from the failure-to-offer coverage penalty if they offer coverage to at least 70% of their full-time employees (and dependents, if applicable).  The Proposed Regulations excluded the first 30 full-time employees for penalty calculation purposes, and the Final Regulations increase that exclusion to 80 for 2015.


The Final Regulations also provide that for 2015, an employer may base its determination of applicable large employer status on a period of at least six consecutive months in 2014.  Employers which are determined to be an applicable large employer and which offer coverage to full-time employees by the first payroll period beginning in January 2015 will be deemed to have offered coverage for January 2015.


The Final Regulations provide that employers with non-calendar year plans will not be subject to the pay-or-play penalties until the first day of the 2015 plan year.


The Final Regulations provide that for stability periods starting in 2015, employers may use a transition measurement period of at least six consecutive months that begins by July 1, 2014, and ends no more than 90 days before the 2015 plan year starts. 


The Final Regulations further provide a reprieve from the pay-or-play requirement in 2015 for employers with less than 100 full-time employees.  Employers with at least 50 full-time employees (an applicable large employer) but less than 100 full-time employees (including full-time equivalents) in 2014 are exempt from the pay-or-play requirement for the 2015 plan year.


Finally, the Final Regulations stated that employers do not need to offer coverage to their full-time employees’ dependents in 2015 as long as they are arranging for such dependent coverage to be offered in 2016.  However, this relief only applies to plans that (1) did not offer dependent coverage in 2013 or 2014, (2) offer dependent coverage that is not minimum essential coverage, or (3) offer coverage to some but not all dependents.


Despite the transitional relief afforded under the Final Regulations, it is imperative that employers prepare for the pay-or-play requirements for 2015 and beyond.




Adam Cockerill

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