News Flash July 10 2013 IRS Clarifies Pay-or-Play Delay
News Flash: July 10, 2013 – IRS Clarifies Pay-or-Play Delay
Late yesterday, the IRS issued a notice confirming its July 2 announcement that the pay-or-play
excise tax will not apply during 2014 and providing some additional details. The notice clarified
that the delay “has no effect on the effective date or application of other Affordable Care Act
provisions.” The notice emphasizes that the premium tax credit will take effect as scheduled for
qualifying individuals who, among other things, are not eligible for an employer plan providing
minimum essential coverage that is affordable and provides minimum value.
Under the health care reform law, large employers – those with 50 or more full-time employees
(generally counting part-time employees as fractions) – may incur a penalty tax unless they meet
standards for offering health coverage to their full-time employees. Specifically, no employer will
incur the penalty tax if it offers its full-time employees and those employees’ dependents
“minimum essential coverage” and, with respect to the full-time employees, the coverage is
affordable and provides minimum value. The pay-or-play excise tax was set to become effective
for coverage provided during 2014. (For details on the employer pay or play excise tax, see Willis
Human Capital Practice Alert, February 2013, "Employer Pay or Play Excise Taxes - Where Are
We Now?") For the past several months, the employer pay-or-play excise tax has been the major
health plan compliance focus for large employers.
Other Compliance Issues for 2013 and 2014
With the excise tax now delayed, employers have an opportunity to take a breath and focus on the
other compliance issues that have taken a back seat to pay-or-play, but that have significant
consequences for non-compliance.
• Final rules implementing changes made to HIPAA privacy, security and breach notification
requirements. While many of the changes became effective a few years ago, the final rules
require prompt action on several items. Those include:
o Revised notices of privacy practices
o Revised policies and procedures
o Revised business associate contracts
o Revised standards for breach notification
• U.S. Supreme Court decision invalidating the Defense of Marriage Act’s definition of
marriage for purposes of all federal laws. Over the next several months, we expect federal
agencies – particularly the IRS – to issue guidance addressing the fallout from the Supreme
Court’s decision. As that guidance is issued, it is likely to require employers’ prompt
• Health insurance exchange notices, which are due by October 1, 2013
• Health care reform law provisions other than pay-or-play that will become effective during
2014. These include:
o 90-day limit on waiting periods
o Required modifications to programs providing incentives for achieving wellness
goals, as well as optional changes to increase such programs’ incentives
o Limits on cost-sharing for non-grandfathered plans (out-of-pocket maximum cannot
exceed $6,350 for self-only coverage or $12,700 for other coverage tiers and, for
insured plans issued to smaller employers, annual deductibles cannot exceed
$2,0000 for self-only coverage or $4,000 for other coverage tiers)
o Revised SBCs disclosing whether coverage is minimum essential coverage and
whether it provides minimum value
o Per capita CER/PCORI fee, with first payment due July 31, 2013 for many
o Per capita transitional reinsurance fee with respect to coverage during 2014
Employers Are Likely to Get Coverage Inquiries from Employees and Exchanges
Shortly after the IRS announced the delay of the employer pay-or-play excise tax, HHS finalized
its rules regarding exchanges’ obligations to verify individuals’ eligibility for the premium tax
credit. This includes verifying that individuals are not eligible for an employer plan providing
minimum essential coverage that is affordable and provides minimum value. Under the HHS
process, applicants are required to state whether they are eligible for employer coverage and, if so,
to provide information on its cost and value. Significant penalties apply to false statements.
While the applicant is required to provide the information, the application form instructs the
applicant to “[t]ake the Employer Coverage Tool on the next page to the employer who offers
coverage to help you answer these questions.” Therefore, employers can expect to receive requests
from employees to complete such forms or otherwise provide information regarding coverage.
Employers apparently are not required, however, to provide assistance. Employers may also
receive requests for information from exchanges seeking to verify employee statements about
employer coverage. As with employee requests, there is apparently no obligation for employers to
respond, and failure to respond apparently will not deprive the employee of premium assistance.
Employers should consider how they prefer to handle these inquiries and what form their response
will take (e.g., not responding at all, completing a form in advance, providing information as part
of the exchange notice, or providing an SBC instead of completing a form).
Willis’ National Legal & Research Group will continue to closely monitor developments regarding
all of the health care reform law provisions affecting employers and provide timely updates.
This information is not intended to represent legal or tax advice and has been prepared solely for informational
purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.