On July 2, 2013, the Treasury Department and White House announced in separate blog posts that the Pay or Play Rule (also called the “Employer Shared Responsibility” or Code Section 4980H rules) will be delayed for one year.
The surprise announcement is extremely welcome news for employers. Employers which had been working quickly to come into compliance with the Pay or Play Rule may delay further action for several months. Most other Affordable Care Act (“ACA”) requirements do not seem to be impacted by the announcement.
Background on Pay or Play Rule. The Pay or Play Rule generally requires “large” employers (those with 50 or more full-time or full-time-equivalent employees) to provide acceptable health plan coverage or face a tax penalty. The Rule generally was supposed to become effective on Jan. 1, 2014. With the delay, the Rule will now be effective in 2015. Many large employers were in the process of devising Pay or Play Rule strategies, amending health plan documents and taking other administrative actions to prepare for the deadline.
Details on delay. As of now, few details are available about the delay. We expect formal guidance in the next few days. The blog posts state that the delay was needed to coordinate the Rule’s penalties and requirements with additional reporting rules. No guidance has yet been issued on those additional reporting rules (which are referred to as the “Code Section 6055” and “Code Section 6056” reporting rules). It appears that the delay in the Code Section 6055 / 6056 reporting rules directly caused the delay in the Pay or Play Rule.
What is not delayed. The new delay does not directly impact other ACA requirements and fees. For example, the PCORI fee, which can be due as early as the end of this month, remains unaffected. Certain other health plan changes (such as elimination of all pre-existing condition exclusions, limits on waiting periods and no discrimination against providers) also seem to remain in effect, without change.
Could the individual mandate and the Exchanges be delayed? That is speculative at this point. There is some link between the Pay or Play Rule and these other items, but they could proceed in 2014 even if the Pay or Play Rule is delayed. The blog posts specifically state that certain Exchange credits will be available in 2014 — essentially confirming that the White House and Treasury believe the Exchanges (at a minimum) will proceed. This would seem to also mean that the Exchange notice must be distributed by employers on time, by October 1, 2013.
Action steps. Employers who had been actively preparing for the Pay or Play Rule by establishing their “measurement periods,” “stability periods” and “administrative periods” — and amending their health plans to reflect those choices — will likely pause that process. Employers may want to wait for additional guidance or final regulations before selecting their course in this regard. Some employers have also been actively engaged in “managing” employee hours downward (e.g., reducing 35-hour-per-week employees to 25-hour-per-week employees). That strategy has some risk associated with it, and this risk may increase in 2014. Thus, employers who are embarking on that strategy should carefully consider whether to proceed in 2013 or delay those actions until 2014.
Employers will now have time to focus on other pressing compliance issues, including examining their benefit plans in light of the Supreme Court’s Defense of Marriage Act case from last week, new HIPAA wellness regulations, new HIPAA privacy and security rule regulations, and other plan changes that are not affected by the Pay or Play Rule delay. Thus, we expect that employers will be very pleased with this delay.
John Barlament is an attorney at Quarles & Brady LLP in Milwaukee.
