With less than a year to prepare for the January 1, 2014 effective date of a key Patient Protection & Affordable Care Act (PPACA) provision, employers must begin making decisions now about whether they are going to “Play or Pay.” 

March 2013 Voice Preparing to “Play or Pay”

Understanding key compliance provisions in the 2010 healthcare reform law

With less than a year to prepare for the January 1, 2014 effective date of a key Patient Protection & Affordable Care Act (PPACA) provision, employers must begin making decisions now about whether they are going to “Play or Pay.”

 

“’Play or Pay’ is one of the most challenging compliance provisions in the 2010 healthcare reform law.”

Jim O’Connell, Ceridian Washington insider and executive consultant

jim-oconnell.jpg

Ceridian Washington insider Jim O’Connell says, “Employer ‘Play or Pay’ is one of the most challenging compliance provisions in the 2010 healthcare reform law. Starting this year, employers need to determine if they will be subject to the ‘Play or Pay’ mandate and if so, whether their employee health benefits plans will meet the required conditions.”

O’Connell adds, “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 compliance, designs and costs.”

What does it mean to “Play or Pay”?

“Play or Pay,” otherwise known as “Employer Shared Responsibility,” requires employers with 50 or more full-time employees to offer full-time workers health coverage that is both “affordable” and of “minimum value.” O’Connell explains:

  • Health coverage is “affordable” if an employee’s share of the monthly premium for self-only coverage for the lowest cost plan option 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 U.S. Department of Health and Human Services offers employers an “actuarial value calculator” to assist in the calculation of minimum value coverage.

If the offered health coverage does not meet both of these requirements, the employer can be subject to a penalty of $3,000 per full-time employee who qualifies for an insurance premium subsidy for health coverage bought from a state health insurance exchange.

Who qualifies as a full-time employee?

 The IRS guidance defines a “full-time” employee as one who works an average of at least 30 hours per week (or 130 hours in any given month).

The IRS recently provided new guidance on the definition of a full-time employee for purposes of the “Play or Pay” mandate.

O’Connell says, “This new guidance confirms that government regulatory action under the healthcare reform law will proceed full speed ahead for 2013, 2014 and beyond, and employers need to be prepared and remain in compliance.”

The IRS guidance defines a “full-time” employee as one who works an average of at least 30 hours per week (or 130 hours in any given month); however, uncertainty still remains when it comes to calculating and applying employee status for variable-hour, short-term and seasonal employees.

IRS Notice 2012-58 discusses a safe harbor method that employers can apply in determining the employment status of various ongoing and newly hired employees.

Under the safe harbor method, an employer determines an employee’s full-time status by looking back at a standard measurement period. This is a defined period of time not less than three, but not more than 12 consecutive calendar months, as chosen by the employer.

IRS Notice 2012-58 also more fully explains:

  • The use of a specified administrative period (up to 90 days when using the safe harbor method)
  • Facilitating the transition from new to ongoing employees
  • Providing employers reliance on previous and new guidance through at least 2014

To ensure full compliance and avoid “Play or Pay” penalties, employers should plan ahead now so the coverage they offer employees during open enrollment meets the required affordability and minimum value tests.

For more information:

  • Visit our HR Legislation Blog
  • Read IRS Notice 2012-58
  • Learn more about PPACA rules and regulations