In the last post, we examined the first of a series of proposed
regulations that further explain and define the exact requirements of
the Patient Protection and Affordable Care Act.
In this post, we’ll look at the proposed regulations that outline
the assessable payment rules, those that define affordability, those
that define controlled-group issues, and those that outline transition
rules.
Assessable Payment Rules
An applicable large employer that
fails to offer minimum essential coverage or offers coverage that is
unaffordable or does not provide minimum value may be liable for an
assessable payment only if one or more full-time employees are certified
to the employer by a health benefit exchange as having received an
applicable premium tax credit or cost-sharing reduction. If this is the
case, an employer would have an opportunity to respond to the exchange’s
certification before the IRS would take action to collect the payment.
According to the PPACA, an employer is considered to have made an
offer of coverage if the employee has an effective opportunity to elect
to enroll (or decline to enroll) in the coverage at least once during
the plan year. The proposed regulations provide that if an employer
offers coverage to all but 5% of its full-time employees in a calendar
month or, if greater, five full-time employees (and their dependents),
the employer is considered to have offered coverage to substantially all
full-time employees and is not subject to the Sec. 4980H(a) assessable
payment for failing to provide coverage. However, if one of the
employees who is not offered coverage does obtain subsidized coverage
through a health benefit exchange, the employer will be subject to the
$250 per month penalty under Sec. 4980H(b).
As used in the proposed regulations, the terms “minimum essential
coverage” and “minimum value” have the same meaning, which is a plan or
coverage offered in the small or large group market within a state
(including grandfathered plans) or a governmental plan. Coverage
provides minimum value if the plan’s share of the cost of allowed
benefits is at least 60%.
Affordability
An employee who is offered coverage by an
applicable large employer may be eligible for a premium tax credit or
cost reduction if that offer of coverage is not affordable within the
meaning of Sec. 36B(c)(2)(C)(i). Coverage is considered affordable if
the employee’s required contribution for self-only coverage does not
exceed 9.5% of the employee’s household income for the tax year.
Because of the difficulty of determining household income, the IRS
has established three affordability safe harbors for employers. These
safe harbors apply even if a health benefit exchange grants the employee
a premium tax credit or cost-sharing reduction, as long as the employer
offers its full-time employees and their dependents the opportunity to
enroll in a plan that provides minimum essential coverage and that
provides minimum value with respect to the self-only coverage offered to
the employees.
- Form W-2 safe harbor: An employer will not be subject to
an assessable payment with respect to a full-time employee if that
employee’s required contribution for the calendar year for the
employer’s lowest-cost, self-only coverage that provides minimum value
does not exceed 9.5% of that employee’s wages as reported in Box 1 of
Form W-2, Wage and Tax Statement, wages. The applicability of this safe
harbor is determined after the close of the calendar year. To qualify
for this safe harbor, the cost of coverage must remain at a consistent
amount or percentage of W-2 wages during the calendar year. - Rate-of-pay safe harbor: An employer can use the rate-of-pay
safe harbor with respect to an employee for a calendar month if the
employee’s required contribution for the month for the lowest-cost,
self-only coverage that provides minimum value does not exceed 9.5% of
an amount equal to 130 hours multiplied by the employee’s hourly rate of
pay as of the first day of the coverage period (generally the first day
of the plan year). For salaried employees, monthly salaries are used,
and the employer may use any reasonable method for converting other
payroll periods to monthly salaries. However, an employer may use this
safe harbor only to the extent it does not reduce the hourly wage of
hourly employees or the monthly wages of salaried employees during the
calendar year (including through the transfer of employment to another
member of the employer’s controlled group). - Federal poverty-line safe harbor: The poverty-line safe
harbor may be used if the employee’s required contribution for the
calendar month for the lowest-cost, self-only coverage that provides
minimum value does not exceed 9.5% of the annual amount established as
the federal poverty line (for the state in which the employee is
employed) for a single individual for the applicable calendar year,
divided by 12.
Controlled-Group Issues
Even though the regulations
aggregate all employers in a controlled group to determine applicable
large employer status, the determination of whether an employer is
subject to an assessable payment and the amount of any such payment is
made on a member-by-member basis. So, any assessable payment under Sec.
4980H is computed and assessed separately for each applicable large
employer member. However, this separate determination of liability does
not permit each member of the controlled group to use the 30-employee
offset of Sec. 4980H(c)(2)(D). The 30-employee offset permits an
applicable large employer to reduce its number of full-time employees by
30 solely for purposes of calculating either the assessable payment for
not offering minimum essential coverage under Sec. 4980H(a) or the
overall limitation under Sec. 4980H(b)(2) where the employer does not
offer affordable or minimum-value coverage.
Transition Rules for Fiscal-Year Plans and Dependent Coverage
Although
many employers operate their plans on a fiscal-year basis, the
assessable payment rules apply on a calendar-year basis. The proposed
regulations provide that if an applicable large employer member
maintains a fiscal-year plan as of Dec. 27, 2012, and if its eligible
employees are offered affordable, minimum-value coverage no later than
the first day of the 2014 plan year, no Sec. 4980H assessable payment
will be due with respect to that employee for the period prior to the
first day of the 2014 plan year.
The IRS also recognized that not all employers’ plans cover
dependents. So, the proposed regulations provide that any employer that
takes steps during its 2014 plan year toward satisfying the provisions
relating to offering coverage to the dependents of its full-time
employees will not be liable for any assessable payment solely on
account of a failure to offer coverage to the dependents for the 2014
plan year.
