Filed Under:Health Insurance, Individual Health

How exactly might play-or-pay work?

"All full-time employees" could mean "95 percent."

The Internal Revenue Service (IRS) seems to be reading some Patient Protection and Affordable Care Act (PPACA) employer coverage mandate provisions in ways that could help employers.

Ed Fensholt, a health compliance analyst at Lockton Companies, has given that assessment in a commentary on IRS PPACA employer mandate regulations that were proposed earlier this month.

The draft regulations, and a related set of IRS answers to frequently asked questions (FAQ), would help the IRS, employers and benefits firms implement the PPACA "employer shared responsibility" provisions.

The provisions call for employers with at least 50 full-time equivalent (FTE) employees to provide a minimum level of health coverage for those employees starting in 2014 or else pay a penalty.

An employer is supposed to calculate the penalty by determining how many full-time employees it has, subtracting 30, and then multiplying the result by $2,000.

Comments on the proposed regulations are due March 18, and the IRS is planning to hold a public hearing on the draft April 23.

In some cases, the IRS has been less flexible than employers would have liked, Fensholt wrote in his commentary. 

The IRS decided, for example, against delaying PPACA mandate reporting requirements for an employer with a plan year that's different from the calendar year, Fensholt said.

The IRS wants to let an employer with a non-calendar plan year wait until the first day of the 2014-2015 plan year to begin paying penalties. But, even though the IRS would put off imposing the penalty payment requirement on the employer, "the employer will still have an obligation to make any applicable, and as yet undefined, reports to federal authorities for periods beginning January 1, 2014," Fensholt said.

The IRS still has not given a precise definition of the extent of the "minimum essential coverage" that an employer must provide to avoid the PPACA mandate penalties, and the agency also has not yet given much detail about the "minimum value" of the "minimum essential coverage" that a PPACA-friendly plan must provide, Fensholt said.

But many of the definitions and interpretations proposed favor employers, Fensholt said.

IRS officials said the preamble to the proposed regulations that they want to keep employers from gaming the 50 FTE employee limit by, for example, employing workers directly part of the week and employing workers through staffing agencies the rest of the week, or by counting employees' hours in strange ways.

But the IRS said it wants to let employers exclude hours worked overseas and, generally, disregard employees who are not common law employees, such as genuine leased workers, partners, sole proprietors and bona fide independent contractors, Fensholt said.

Employers near the 50-employee threshold can choose to use any 6-consecutive-month period in 2013 to get an employee count rather than the entire 2013 calendar year, Fensholt said.

If a parent company owns a group of companies, the IRS plans to apply the mandate rules to each company in the group separately, rather than applying the $2,000-per-employee penalty requirement to an entire group of companies just because one company in the group skimps on coverage, Fensholt said.

"The proposed regulations defuse the much feared 'nuclear penalty' under which one employer's failure to offer coverage to some full-time employees would have sent penalties rippling through the entire controlled group, even with respect to other group members who offer coverage to their employees," Fensholt said. "

PPACA itself states that an employer must provide minimum essential coverage for all employees and dependents.

But the draft regulations would define "all full-time employees and dependents" to mean 95 percent of the employees and dependents, Fensholt said. 

"It doesn't matter whether the failure to offer coverage to the other 5 percent is inadvertent or deliberate," Fensholt said. "Employers have a 5 percent margin of error."

In addition, the IRS is proposing a definition of "dependent" that would include only children, including step children and foster children, up to age 26, and does not include spouses, Fensholt said.

Under the proposed regulations, employers need not offer coverage for spouses, and they need not subsidize coverage for children or offer coverage for children that meets a PPACA minimum value requirement, Fensholt said.

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