AugustReport - page 10

August 2013 CBA REPORT
feature article
s 2014 approaches, many employ-
ers are analyzing health plan
eligibility provisions with an eye
toward PPACA’s pay or play penalty.
PPACA’s employer pay or play penalty
will apply to an applicable large employer
that fails to offer minimum essential
health coverage to its full-time employees
(and their dependents) if any full-time
employee obtains federally-subsidized
health insurance through a state Market-
Accordingly, many employers are
evaluating the extent to which their plan
currently offers coverage to full-time em-
ployees and the extent to which the plan’s
eligibility provisions should be changed
to avoid or minimize the penalty.
In addition to examining the eligi-
bility of full-time employees, however,
employers should also be examining the
plan’s eligibility provisions applicable to
PPACA’s statutory language provides
that the penalty may apply if the em-
ployer fails to offer coverage to full-time
employees “(and their dependents).”
An English teacher’s dream, employ-
ers and practitioners have analyzed and
pontificated about the significance of
the parentheses. Given the use of the
parentheses and the fact that a full-time
employee (not his or her dependent) must
obtain subsidized Marketplace coverage
in order to trigger the employer’s liability
for the penalty, employers hoped that
they would not be subject to a penalty for
failing to offer coverage to one or more
classes of dependents.
When Planning for PPACA,
Don’t Forget the Children
Ed. Note: This is the sixth in a series of articles that will be published in the CBA Report over the next several
months related to the 2014 implementation of the Patient Protection and Affordable Care Act (“PPACA”). This
information was submitted for publication on June 28, 2013. It does not reflect guidance issued on or after this date.
By Kimberly Wilcoxon
The Treasury Department and IRS
defeated those hopes in proposed regula-
tions, which confirm that an employee
will be treated as having been offered
coverage for purposes of the pay or play
penalty only if the coverage is also of-
fered to that employee’s dependents.
Because the words “and their depen-
dents” are contained within the statutory
text, the Treasury Department and IRS
do not feel that they have authority to
ignore those words. However, they do
have authority to interpret them.
The proposed regulations define
“dependent” by reference to the Internal
Revenue Code Section 152(f)(1) defini-
tion of “child,” which includes a birth
child, a stepchild, an adopted child, a
child placed with the employee for adop-
tion and an eligible foster child of the
While many employer-provided
health plans offer dependent coverage
to children, they do not necessarily of-
fer coverage to all persons who would
be considered children under Section
152(f)(1). For example, some plans offer
coverage to persons who were adopted
before age 18, but not to persons adopted
at a later age. Some plans offer coverage
to stepchildren who reside with the em-
ployee, but not to those who reside with
their other parent. Some plans don’t
offer coverage to foster children at all.
Under a provision of PPACA that
became effective in 2011, plans that
provide dependent coverage of children
are required to extend that coverage
until the child reaches age 26, regardless
of dependency or residency status. In
addition, plans generally are not permit-
ted to apply plan terms differently based
on the age of a child under 26. The term
“child” has not been officially defined for
these purposes, so the “children” who
must be offered coverage under these re-
quirements are not necessarily the same
“children” who must be offered coverage
in order to avoid a pay or play penalty.
Employers who do not offer depen-
dent coverage to one of the Section 152(f)
(1) categories of children may want to
consider the potential cost of extending
the coverage as compared to the penalty
that could be imposed under PPACA.
The amount of the penalty will
depend upon whether the employer has
offered coverage to at least 95 percent
(or, if greater, all but five) of its full-time
employees and their dependents. If the
employer has not offered coverage to the
requisite number of persons, the penalty
generally will equal $2,000 per full-time
employee, minus the first thirty employ-
ees. If the employer has offered coverage
to the requisite number of persons, the
penalty generally will equal $3,000 per
full-time employee who has obtained
subsidized Marketplace insurance cover-
It is not clear how the penalty would
apply to an employer that does not offer
coverage to a class of Section 152(f)(1)
children. Based on current guidance, it
is possible that the failure to offer cover-
age to any listed category of children
could result in application of the larger
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