IRS Finalizes Regulations on Employer Health Insurance Mandate, Includes Relief for Small Employers

Feb. 13, 2014

On Feb. 10, the IRS issued final regulations regarding the large-employer “pay-or-play” mandate in the Patient Protection and Affordable Care Act. The mandate requires employers to offer health insurance to their employees if they employed at least 50 full-time employees on average during the preceding calendar year. The regulations finalize proposed regulations issued in December 2012. The final regulations apply for periods beginning on or after Jan. 1, 2015, but they may be relied on for prior periods.

The Obama administration previously delayed the effective date of the employer mandate from 2014 to 2015. The final regulations further delay the application of the employer mandate until 2016 for employers with 50 to 100 employees. Employers still subject to the employer mandate need to offer coverage to only 70 percent of their full-time workforce in 2015 to avoid penalties, increasing to 95 percent for 2016 and beyond.

The regulations also address in detail how employers should calculate whether they exceed the 50- or 100-employee threshold. Although many of the included provisions are similar to those in the proposed regulations, the IRS made several significant changes to the final regulations, including:

  • Special rules apply to determine when a new employer is subject to employer mandate.
  • An employer that determines it meets the large-employer test for the prior year will not be subject to penalty if it offers its employees coverage by April 1 of the current year.
  • The regulations exempt “bona fide volunteers,” such as volunteer firefighters and certain emergency medical providers, from counting toward the large-employer mandate. A bona fide volunteer is one who receives reimbursement only for reasonable expenses incurred in performing services, or reasonable benefits (including length of service awards) and nominal fees for the services.
  • The regulations exempt unpaid interns and students in federal or state work-study programs from counting toward the large-employer mandate, but there is no special exception for paid interns.
  • The regulations provide guidance to determine hours of service for specialized situations including adjunct faculty, on-call employees, and layover hours.

The regulations include a complicated structure to determine whether employers are subject to the mandate. Although the mandate is not effective until 2015, in some cases 2016, employers approaching the 50- or 100-employee threshold should review their requirements under the employer mandate.

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