The Obama administration has decided to postpone the employer responsibility payment and insurance reporting requirements under the Affordable Care Act for one year to give businesses more time to comply with the health care reform law.
The requirements will instead begin in January 2015 for employers with 50 or more full-time employees (or the equivalent in full- and part-time employees) to offer quality affordable health insurance to employees or face a $2,000 fine per employee if the employee receives a premium tax credit for purchasing individual coverage on one of the upcoming health insurance exchanges.
“The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin,” said Mark Mazur, assistant secretary for tax policy at the Treasury Department, in a statement Tuesday. “This is designed to meet two goals. First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees. Within the next week, we will publish formal guidance describing this transition. Just like the Administration’s effort to turn the initial 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible about reporting requirements as we implement the law.”
Mazur noted that the ACA includes information reporting requirements (under section 6055) by insurers, self-insuring employers, and other parties that provide health coverage. It also requires information reporting (under section 6056) by certain employers with respect to the health coverage offered to their full-time employees. He said the Treasury expects to publish proposed rules implementing these provisions this summer, after conducting a dialogue with stakeholders—including those responsible employers that already provide their full-time work force with coverage far exceeding the minimum employer shared responsibility requirements—in an effort to minimize the reporting, consistent with effective implementation of the law.
Once the rules have been issued, Mazur said the administration would work with employers, insurers and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015. Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.
“We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014,” Mazur acknowledged. “Accordingly, we are extending this transition relief to the employer shared responsibility payments. These payments will not apply for 2014. Any employer shared responsibility payments will not apply until 2015.”
During the 2014 transition period, the administration is strongly encouraging employers to maintain or expand health coverage, Mazur noted. He added that the delay does not affect employees’ access to the premium tax credits available under the ACA (nor any other provision of the ACA).
The employer shared responsibility payments are intended to apply to large companies whose employees need to receive tax credits from the government to afford insurance because their employers do not provide it to them.
Valerie Jarrett, a senior advisor to President Obama who oversees the Offices of Public Engagement and Intergovernmental Affairs, explained the delay on the White House’s Web site.
“As we implement this law, we have and will continue to make changes as needed,” she wrote. “In our ongoing discussions with businesses we have heard that you need the time to get this right. We are listening. So in response to your concerns, we are making two changes. First, we are cutting red tape and simplifying the reporting process. We have heard the concern that the reporting called for under the law about each worker’s access to and enrollment in health insurance requires new data collection systems and coordination. So we plan to re-vamp and simplify the reporting process. Some of this detailed reporting may be unnecessary for businesses that more than meet the minimum standards in the law. We will convene employers, insurers, and experts to propose a smarter system and, in the interim, suspend reporting for 2014.
“Second, we are giving businesses more time to comply,” she added. “As we make these changes, we believe we need to give employers more time to comply with the new rules. Since employer responsibility payments can only be assessed based on this new reporting, payments won’t be collected for 2014. This allows employers the time to test the new reporting systems and make any necessary adaptations to their health benefits while staying the course toward making health coverage more affordable and accessible for their workers. Just like our effort to turn the 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible in employer and insurer reporting as we implement the law.”
She pointed out that for small businesses with less than 50 workers, the health care law’s employer shared responsibility policies do not apply. Instead, they will gain access to the Small Business Health Options Program that gives them the purchasing power of large businesses in the health insurance marketplace. Small businesses may also be eligible for a tax credit that covers up to half the cost of insurance if they offer quality coverage to employees, she added.
Companies with more than 50 workers that already offer workers quality affordable health care coverage will be able to keep quality coverage affordable. Companies with more than 50 employees that do not offer quality affordable coverage to workers will have more flexibility and transition time with the delay. Meanwhile, the administration still plans to open health insurance marketplaces on Oct. 1.
The delay until 2015 will also enable the administration to avoid further backlash from businesses forced to comply with the controversial health care reform law before the midterm elections in 2014.
Republicans on the House Ways and Means Committee spokeswoman criticized the decision. “The Obama Administration’s decision to give corporate America a free pass on the employer mandate while continuing to force average, everyday Americans to abide by the law is deeply disturbing,” said spokesperson Sarah Swinehart. “Instead, the Administration should spend its time focusing on what impacts individuals and families struggling to afford government-mandated insurance. The Administration's decision is an admission that this law is a failure and that we still need to lower the cost of health care for all Americans—which this job-killing law fails to do.”
Jackson Hewitt Tax Service pointed out some of the potential effects of Tuesday’s announcement delaying the implementation of the Affordable Care Act's employer mandate that imposes a penalty on employers with 50 or more full-time equivalent employees if the employees enroll in the tax credit programs because the employer did not offer them an opportunity to enroll in affordable minimum essential coverage. The company pointed out that the tax penalties may be substantial. An employer subject to the penalty could face a liability equal to $2,000 times the number of employees (minus 30 employees). The Treasury Department noted that it would publish rules about employer reporting requirements later this summer.
Jackson Hewitt noted the following potential effects of the Treasury's announcement:
• Fewer employers may cut employee hours in 2014. This one-year respite may make employers (e.g., restaurant and retail establishments) less likely to reduce employee hours below 30 hours per week (so as to classify such employees as part-time for section 4980H penalty calculations).
• Many families with children will have an unexpected benefit. For employers who offer employee but not dependent coverage, this one-year delay may also cause employers to postpone any offer of coverage to dependents. This may have a positive effect on such families for two reasons. First, children without an offer of employer-sponsored coverage may be eligible for the Children's Health Insurance Program (CHIP) if they meet the state-specific income and other eligibility requirements. Second, children without an offer of employer coverage may be eligible for the new premium assistance tax credits in 2014 even if their incomes are above the state-specific CHIP limit. Indeed, employers may be more likely to cooperate with enrollment efforts to get uninsured employees and their uninsured dependents covered under various ACA programs because they know with certainty that they will not face a penalty in 2014.
• States may face less pressure from business interests to expand Medicaid. Jackson Hewitt had released a report earlier this year estimating that American employers would incur $876 million to $1.3 billion in penalties in 22 states that were refusing to expand their Medicaid programs as contemplated under the ACA. Today's decision effectively removes that penalty liability for 2014. However, employers will continue to face such penalties in 2015 and thereafter in states that do not expand their Medicaid programs.
• The Treasury action addresses anxiety among employers about the lack of final regulations from the IRS. While many employers with large part-time and seasonal employees embraced the flexibility afforded to them by the IRS's proposed approach, they voiced increasingly loud concerns that the IRS had yet to finalize this approach in a final rule. The IRS has not publicly pledged to finalize these proposed rules before the major provisions of the ACA take effect in 2014, Jackson Hewitt pointed out. In an unexpected development late Tuesday, though, the Treasury Department effectively moots this issue for 2014.
"Today's announcement from the Treasury Department alleviates several key concerns held by a large number of American employers that have a significant part-time and seasonal workforce," said Brian Haile, senior vice president for health care policy at Jackson Hewitt Tax Service Inc., in a statement. "The federal approach acknowledges the challenges with implementing a policy that will affect so many employers—and strikes the right balance between speedy implementation and thoughtful policy-making."
Haile further noted, "Notwithstanding the Administration's announcement today, we continue to expect the launch of the health insurance marketplaces on Oct. 1, 2013."