Defending his trades of future first-round draft choices for veteran stars, famed Washington Redskins coach George Allen insisted, “The future is now!”

That’s good advice for America’s employers, who must prepare right now for the January 1, 2014 effective date of the most challenging compliance provision in the 2010 healthcare reform law—the Patient Protection & Affordable Care Act (PPACA).

In brief, “Play or Pay,” or more formally, “Employer Shared Responsibility,” requires employers with more than 50 full-time employees to offer workers and their dependents health coverage that is both “affordable” and of “minimum value.” If the coverage does not meet both of those tests the employer can be subject to a special penalty–$3,000 for each full-time employee who qualifies for an insurance premium subsidy for health coverage bought from a State health insurance exchange marketplace. Read more.

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Employer Play or Pay: The Future is Now

Thu Jan 24, 2013

Defending his trades of future first-round draft choices for veteran stars, famed Washington Redskins coach George Allen insisted, “The future is now!”

That’s good advice for America’s employers, who must prepare right now for the January 1, 2014 effective date of the most challenging compliance provision in the 2010 healthcare reform law—the Patient Protection & Affordable Care Act (PPACA).

In brief, “Play or Pay,” or more formally, “Employer Shared Responsibility,” requires employers with more than 50 full-time employees to offer workers and their dependents health coverage that is both “affordable” and of “minimum value.” If the coverage does not meet both of those tests the employer can be subject to a special penalty–$3,000 for each full-time employee who qualifies for an insurance premium subsidy for health coverage bought from a State health insurance exchange marketplace.

Health coverage is “affordable” if an employee’s share of the monthly premium for self-only coverage for the lowest cost option that provides minimum value does not exceed 9.5% of the employee’s wages as reported in W-2, Box 1.

Health coverage provides “Minimum Value” if the employer-sponsored health plan’s share of the total allowed costs of health benefits is at least 60%, i.e., 60% actuarial value of benefits. The US Department of Health and Human Services offers employers a convenient “actuarial value calculator” to assist in the calculation of minimum value coverage.

To be sure, penalties are even stiffer for employers who choose not to offer any health coverage to full-time employees (Code section 4980 (H) (a)), but that’s a subject for another report.
The future is now for these 2014 compliance mandates because on December 28, 2012 the Treasury Department and IRS issued proposed regulations and Q/As providing new guidance on the employer Play or Pay requirement.

The Notice of Proposed Rulemaking provides helpful guidance on the definition of full-time employee (30 hours of service per week or 130 hours per month), differentiating among on-going employees, new employees, short-term employees, seasonal employees and rehired employees.
According to the Groom Law Group in Washington DC, Treasury and IRS have also provided an optional safe-harbor to help employers calculate whether an employee is to be counted as full-time for purposes of Play or Pay. The so-called “look-back” measurement period for counting hours of service for ongoing employees, says Groom, “cannot be less than 3 months or more than 12 months,” i.e., hours worked in 2013!

December’s issuance of new guidance for employers for the Play or Pay mandate confirms that government regulatory action under the healthcare reform law will proceed full speed ahead for 2013, 2014 and beyond.

Starting next year employers will be required to offer employees “affordable” and “minimum value” health coverage—or pay an excise tax penalty if employees qualify for subsidized coverage from exchange marketplaces.

But starting this year employers need first to determine if they are subject to Play or Pay based on their number of full-time employees and relying on the recently issued Treasury-IRS guidance.

If they are subject to the mandate, and most will be, then as soon as possible subject employers need to undertake some serious strategic planning about their 2014 health plan designs and costs. To avoid Play or Pay penalties employers will make sure the coverage they offer employees and their dependents during open enrollment later this year will meet the required affordability and minimum value tests.

The future is now.