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IRS releases guidance for large employers

Posted on December 29, 2012 | Comments (2)

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Key Developments

On Friday, the Internal Revenue Service (IRS) of the Department of Treasury issued a notice of proposed rulemaking (NPRM) addressing the Affordable Care Act’s (ACA’s) employer mandate. The IRS also released a series of questions and answers, highlighting the key provisions in the NPRM. The 144-page document explains how to determine which companies constitute large employers and which employees qualify as full-time. In the guidance, IRS also said that large employers must offer coverage not only to employees, but to their families as well. 

Comments on the proposed rule are not due until March 18, 2013, and a public hearing will be held on the proposal on April 23, 2013. This comment period contrasts the 30-day comment periods imposed on the proposed market reform and essential health benefits rules recently released by the Department of Health and Human Services (HHS).

Comments (2)

  • Bruce Hammond says:

    If a seasonal employee terminates his employment at the end of the season and rehires with the same employer in the next year or any future year, does the employer establish a new initial measurement period with each new date of hire for that employee?

    HealthReformGPS ANSWER: With regard to determining whether an employer is subject to the shared responsibility rule (50 FTE), the initial measurement period can be between 3 and 12 months. Thus, if an employee is terminated and rehired after a 12 month period of time, then the employer would begin a new initial measurement period for that employee.

    If a seasonal employee terminates his employment before the end of the initial measurement period, is the employer still required to determine if the employee worked an average of 30 hours per week for the time actually worked?

    HealthReformGPS ANSWER:Yes, with regard to determining applicable large employer status.

  • Bruce Hammond says:

    Was the deadline pushed back for employers to send out the SBC?

    ANSWER: YES. The original compliance date was March 23, 2012, but that was pushed back by six months. As of September 23, 2012 or soon after, health insurance issuers and group health plans are required to provide individuals with an easy-to-understand summary about a health plan’s benefits and coverage.

A final rule released by the Internal Revenue Service (IRS) addresses the reporting requirements for large employers under the Affordable Care Act (ACA). Beginning in 2015, employers with more than 50 full-time employees are required to offer quality and affordable insurance to their employees. The new rule provides a methodology designed to simplify and reduce the costs associated with the employer reporting requirements mandated under the ACA. Another final rule issued by the IRS describes how issuers of minimum essential coverage are expected to report information to the IRS on the type and duration of coverage.
The Internal Revenue Service (IRS) released two proposed rules concerning employer coverage requirements under the Affordable Care Act (ACA). The first rule addresses reporting requirements employers must satisfy in order to be deemed compliant with the ACA. Businesses with more than 50 full-time equivalent employees must offer affordable insurance, statutorily defined as less than 9.5% of the employee's income. This provision of the ACA was delayed until 2015, but the IRS is encouraging employers to comply in the interim. The second proposed rule described the method by which employers offering minimum essential coverage will report the type and period of coverage they offer to their employees. The IRS will use this provided information to determine if the employer has satisfied the coverage requirements under the law.
The Internal Revenue Service (IRS) published new guidance concerning the implications of delaying the employer shared responsibility provision of the Affordable Care Act (ACA). The guidance states a streamlined version of the rules will go in place at the onset of 2015. In the interim, IRS is encouraging employers to offer coverage and report the relevant income and insurance data, although they will not be penalized for non-compliance. Additionally, the guidance states that individuals not receiving affordable coverage from their employer will be able to obtain insurance from the Exchanges and will be subsidy-eligible based upon their income.
The Internal Revenue Service (IRS) issued a proposed rule discussing the minimum value of employer-sponsored health coverage and the ability of employees to receive premium assistance tax credits. According to the proposed rule, IRS states that the minimum value would be determined by dividing the cost of certain benefits to the standard population by the cost of all benefits for the population, including employee cost-sharing and plan payments, and converting that value to a percentage. Several values, such as the amount contributed by employer's to health savings accounts, will be considered in determining the employer's share of costs. However, IRS has also proposed that employer contributions to wellness incentive programs does not count toward health plan minimum value. Additionally, the proposed rule also states that employee-sponsored large group plans are not beholden to every essential health benefit category (EHB), nor must they design their plans to mimic the EHB standards that apply to qualified health plans offered in the Exchange. Adherence to the minimum value requirements will prevent employers from paying the employee shared responsibility payment penalties and will render their employees ineligible for premium assistance tax credits in the Exchange.
Last week, the Internal Revenue Service (IRS) issued a notice regarding safe harbor methods that employers may use to determine which employees will be considered as full-time employees for purposes of the shared employer responsibility provisions under the Internal Revenue Code, as added by the Affordable Care Act (ACA). The guidance expands on the previous guidance by including a safe harbor method that may apply to newly-hired employees. The notice provides employers with the option to use a look-back measurement period of up to 12 months to determine whether new employees are full-time employees, without being subject to a payment for this period with respect to those employees. Also last week, the IRS, Department of Health & Human Services (HHS), and Department of Labor (DOL) issued a notice regarding the 90-day waiting period limitation in Public Health Service Act (PHS Act). The PHS Act provides that, for plan years beginning on or after January 1, 2014, a plan or issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.
ADP Research Institute released their inaugural annual report highlighting how companies are preparing for the implementation of the Affordable Care Act (ACA) and its impact on employer-sponsored coverage. ADP Annual Health Benefits Report: 2013 Benchmarks and Trends for Large Companies analyzes health care premiums and demographic variations in eligibility and participation. Important findings from the initial report include:
  • Between 2010 and 2013, eligibility and participation in employer-sponsored plans remained relatively steady. Around 88% of full-time employers offer health insurance, and 65% of employees accept it.
  • Premium costs rose moderately for all age groups, leveling off more so in the last two years. Increases were greatest for employees under 30, half of whom accepted employer-sponsored coverage.
  • Employees with higher incomes had higher premiums, attributable to these individuals also having more dependents. Premium contributions as a percentage of income was also higher for employees earning lower wages.
The Robert Wood Johnson Foundation and State Health Access Data Assistance Center released a report finding that 60% of all insured Americans receive insurance through their work. This percentage is down from 70% in 2000, indicating a difference of 11.5 million individuals. The study notes that the decrease in receipt of employer coverage began prior to the 2010 implementation of the Affordable Care Act (ACA), and is caused by a combination of employers no longer offering coverage and employees no longer accepting it. Rising insurance costs is identified as the culprit responsible for the decline of employer-based health insurance.
A Congressional Research Service (CRS) report released last week clarified confusion associated with how companies treat their part-time and seasonal workers, and how this treatment may make them eligible for employer penalties under the Affordable Care Act (ACA). The CRS report includes updated information on employer penalties, which was provided by IRS guidance released late last year. According to the ACA, employers with a minimum of 50 full-time equivalent employees must offer affordable and adequate health insurance to their employees, or run the risk of receiving significant penalties under the law. The confusion on the issue stems from the difference in calculating which businesses are subject to penalties, and the IRS guidance helps to clarify this issue by explaining the ACA's classification of a full-time employee and provisions related to seasonal workers.
According to a new study for the National Institute for Health Care Reform (NIHCR), offering employer-sponsored health insurance will continue to make fiscal sense for businesses employing most workers (81%) now offered insurance. The study found that the economic incentives to offer coverage will remain strong under the Affordable Care Act (ACA) for most larger, higher-wage firms,  but will weaken for small and low-wage employers. These smaller firms are the companies already more likely to drop coverage to due rising costs. Pre-ACA, all businesses had the option to offer health insurance coverage. After 2014, employer premium contributions remain tax exempt, and two new policies will take effect. First,  larger employers that do not offer affordable health insurance will be penalized and second, premium tax credits for lower-income people to purchase insurance in new state exchanges if they lack access to affordable employer coverage will be available. The economic incentive to cover employees is calculated by adding the dollar value of the employer-sponsored insurance tax subsidy and the value of avoiding the penalty for not offering insurance, and then subtracting the value of the premium tax credits that eligible workers could use in an exchange if their employer does not offer coverage. After 2014, the largest firms (500 or more workers) will continue to have a strong economic incentive, with an average incentive of $2,503 per employee. However, the smallest firms (fewer than 50 workers) will face lower economic incentives because they are exempt from the penalty. Certain industries, such as food service, entertainment, agriculture, forestry and fishing, will have less incentive to offer employer coverage, as their workers will be eligible for exchange subsidies. The study draws on data from the 2008-2010 Medical Expenditure Panel Survey.
The Government Accountability Office (GAO) released a report yesterday which reviews estimates of the impact of the Affordable Care Act (ACA) on employer-sponsored coverage. According to some researchers, the ACA's Medicaid expansion and subsidized coverage for low- and moderate-income people who buy health insurance through Exchanges beginning may discourage employers from offering coverage. However, other researchers believe that the financial penalties imposed by the ACA will actually encourage employers to offer coverage. The GAO report examines 27 studies published between January 1, 2009 and March 30, 2012 that offer estimates regarding changes in employer-sponsored health coverage as a result of the ACA.