Just a few hours ago, it was announced that the Obama Administration would delay the implementation of the Affordable Care Act. Specifically, the Administration is delaying the employer mandate portion of the ACA.
The employer mandate imposes a penalty on employers with 50 or more full-time equivalent employees if the employees enroll in the tax credit programs because the employer did not offer them an opportunity to enroll in affordable minimum essential coverage.
The tax penalties may be substantial: an employer subject to the penalty could face a liability equal to $2,000 times the number of employees (minus 30 employees). The Treasury Department noted that it would publish rules about employer reporting requirements later this summer.
Jackson Hewitt Tax Service, an industry-leading provider of full service individual federal and state income tax preparation, noted the potential effects of the Treasury’s announcement:
- Fewer employers may cut employee hours in 2014. This one-year respite may make employers (e.g., restaurant and retail establishments) less likely to reduce employee hours below 30 hours per week (so as to classify such employees as part-time for section 4980H penalty calculations).
- Many families with children will have an unexpected benefit. For employers who offer employee but not dependent coverage, this one-year delay may also cause employers to postpone any offer of coverage to dependents. Interestingly, this may have a positive effect on such families for two reasons. First, children without an offer of employer-sponsored coverage may be eligible for the Children’s Health Insurance Program (CHIP) if they meet the state-specific income and other eligibility requirements. Second, children without an offer of employer coverage may be eligible for the new premium assistance tax credits in 2014 even if their incomes are above the state-specific CHIP limit. Indeed, employers may be more likely to cooperate with enrollment efforts to get uninsured employees and their uninsured dependents covered under various ACA programs because they know with certainty that they will not face a penalty in 2014.
- States may face less pressure from business interests to expand Medicaid. Jackson Hewitt had released a report earlier this year estimating that American employers would incur $876 million to $1.3 billion in penalties in 22 states that were refusing to expand their Medicaid programs as contemplated under the ACA. Today’s decision effectively removes that penalty liability for 2014. However, employers will continue to face such penalties in 2015 and thereafter in states that do not expand their Medicaid programs.
- The Treasury action today addresses anxiety among employers about the lack of final regulations from the IRS. While many employers with large part-time and seasonal employees embraced the flexibility afforded to them by the IRS’ proposed approach, they voiced increasingly loud concerns that the IRS had yet to finalize this approach in a final rule. Indeed, the IRS has not publicly pledged to finalize these proposed rules before the major provisions of the ACA take effect in 2014. In an unexpected development late Tuesday, though, the Treasury Department effectively moots this issue for 2014.
“Today’s announcement from the Treasury Department alleviates several key concerns held by a large number of American employers that have a significant part-time and seasonal workforce,” said Brian Haile, Senior Vice President for Health Care Policy, Jackson Hewitt Tax Service Inc. “Notwithstanding the Administration’s announcement today, we continue to expect the launch of the health insurance marketplaces on October 1, 2013.”