Interesting Provisions from the Proposed Treasury Regulations on the Play or Pay Mandate

While reviewing the recently released Treasury regulations regarding the Play or Pay Mandate (the Mandate) several provisions stood out to me.  Below is a list of provisions that may surprise you.
  • When measuring the “affordability” of coverage provided to an employee for the second tax associated with the Mandate, an employer only needs to be concerned with the “affordability” of self-only coverage.  This provision will allow an employer to offer “affordable” coverage for self-only coverage, but charge its employees an amount far in excess of 9.5 percent of an employee’s household income for family coverage.
  • When identifying full-time employees for the Mandate an employer must take into account each hour an employee is paid or entitled to be paid for services to the employer and each hour the employee is paid or entitled to be paid during which no duties are performed such as vacation, holidays, jury duty, etc.  The proposed regulations remove a previous idea of limiting paid leave time to 160-hours.  Therefore, all paid leave hours must  be taken into account when identifying full-time employees.
  • The proposed regulations discuss a structure employers have considered to avoid the Mandate in which the employer would employ its employees for 20 hours a week and then hire those same individuals through a temporary staffing agency for an additional 20 hours a week.  On its face it looks like this structure defeats the Mandate as neither the employer nor the temporary staffing agency would employ the individuals for the requisite 30 hours a week to be considered full-time employees.  However, the Treasury Department states that an anti-abuse rule will be included in the final regulations to prevent the transaction discussed above and similar transactions.
  • The proposed regulations disclose who an employer must offer coverage to in order to comply with the Mandate.  In addition to its full-time employees an employer must offer coverage to its full-time employees’ dependents.  The proposed regulations limit an employee’s dependents to an employee’s children under the age of 26.  Interestingly, the Mandate does not require an employer to offer coverage to an employee’s spouse. 
  • The proposed regulations allow an employer who currently offers coverage only to its employees, and not the employees’ dependents transition relief for plan years that begin in 2014.  If an employer described in the preceding sentence takes steps during the plan year that begins in 2014 toward satisfying the coverage requirements for full-time employees’ dependents, the employer will not be liable under the Mandate solely for a failure to offer coverage to its employee’s dependents for that plan year.  The transition relief creates an incentive for an employer to delay adding its full-time employee’s dependents to its plan’s coverage until the 2015 plan year.
  • The proposed regulations allow an employer to comply with the Mandate if it offers coverage to all but five percent or, if greater, five of its full-time employees (and their dependents).  While this may seem like a way to reduce coverage costs, this opens the trap door to the third (secret) way the second tax associated with the Mandate can apply.  Therefore, if an employee is not covered because an employer elects to use the five percent rule and the employee receives a premium tax credit or cost-sharing subsidy, the employer will be liable for $3,000 for each such employee per year.  If an employer is going to use the five percent rule, it should do so with respect to employees who make more than 400 percent of the federal poverty line.