The Obama Administration has
announced a one-year delay in the employer "play-or-pay"
penalties contained in the Patient Protection and Affordable Care Act
("PPACA"). Under PPACA, employers with 50 or more full-time
equivalent employees are subject to one of two play-or-pay penalties
if they fail to comply with PPACA's "employer shared
The first penalty applies
if: (i) an employer fails to offer health care coverage to
"substantially all" of its full-time employees; and (ii) a
low-income, full-time employee receives a premium tax credit through
an Exchange. In those situations, the employer must pay an annual
penalty of $2,000 multiplied by number of full-time employees in
excess of 30.
The other penalty applies in
situations where: (i) an employer offers health care coverage to its
full-time employees that is either "unaffordable" or does
not provide "minimum value;" and (ii) a low-income,
full-time employee receives a premium tax credit through an Exchange.
In such situations, the employer must pay an annual penalty of $3,000
for each full-time employee who receives the premium tax credit.
However, this penalty is capped at $2,000 multiplied by the number of
full-time employees in excess of 30.
On July 2, 2013, the
Assistant Secretary for Tax Policy at the U.S. Department of the
Treasury issued a statement that "the Administration has been
engaging in a dialogue with businesses....We have heard concerns
about the complexity of the requirements and the need for more time
to implement them effectively....And we are taking action." The
statement goes on to say that the play-or-pay penalties will be
delayed for one year, from 2014 to 2015.
The delay in the effective
date of these employer penalties raises some additional questions,
such as whether the Administration also intends to delay PPACA's
individual shared responsibility provision which requires individuals
either to be insured by "minimum essential coverage" or to
pay a penalty on their federal tax returns. Also, if the
Administration believes the play-or-pay penalties are too complex to
implement at this time, will it also delay other provisions of PPACA,
such as the equally complex prohibition against group health plans
having waiting periods in excess of 90 days?
In addition, the state
Exchanges are to be operational by January 1, 2014, with open
enrollment periods beginning in October. However, insurers
participating in the Exchanges are setting their rates based on the
implementation of both the employer and the individual shared
responsibility provisions. It remains to be seen what effect the
delay of the play-or-pay penalties will have on coverages marketed
through the Exchanges.