Speakers From Different Groups Strongly Disagree On Employer Mandate Regulations

Representatives of 20 organizations at an April 23 IRS hearing expressed divergent views on the proposed employer mandate regulations under the Patient Protection and Affordable Care Act (ACA). The regulations are proposed to implement provisions that require employers to provide adequate health insurance to full-time employees or pay an assessable payment, known as the employer shared responsibility payment.

Some groups expressed concerns about the costs and impacts on employers, large and small. Other groups wanted the regulations to provide more protection for employees’ health insurance benefits.

Greater flexibility. Alden Bianchi represented the ERISA Industry Committee (ERIC), a group of employers that have large plans. Bianchi said the rules are “vexing” and will provide costly compliance challenges. He asked the government to provide greater flexibility and to clarify the “look-back measurement period” safe harbor to determine whether ongoing employees are full-time or not, for purposes of calculating the penalty under the employer mandate. Bianchi also recommended that employees not be counted across control groups when computing penalties. He said that Code Sec. 4980H provides limited authority for aggregating employers, and that employers would need costly systems to determine hours worked for related employers. Bianchi also asked for a more narrow definition of dependents and suggested that the 90-day administrative period be treated as a three-month period.

Craig Rosenberg spoke on behalf of benefits consultant Aon Hewitt. Rosenberg said that Hewitt views the regulations “positively” but wants them to be less burdensome. The optional look-back measurement safe harbor is helpful, but it is complex, leaves some situations unaddressed, and should be available more broadly. He also described situations where the measurement period regulations are not clear.

Rosenberg asked that the IRS provide a good-faith compliance standard for employer actions under the proposed regulations, along with a reasonable period to implement the final regulations. He said this will help employers become comfortable with the rules, without allowing them to ignore the rules. He proposed that the 95-percent coverage requirement for the penalty under Code Sec. 4980H(a) be trimmed to an 80-percent threshold, saying that a 5-percent margin of error is insufficient. Also, the Form W-2 safe harbor for determining household income should allow employees to use the employee’s prior year wages, he commented.

Stephen Tackney of the IRS Office of Chief Counsel expressed concern that employers would not have sufficient incentive to correct a lack of coverage. Rosenberg said that correction would be an ongoing process, taking place every day or every week, not just once a year. He noted that the key is to spot violations as they happen; one month’s penalty “could be catastrophic.”

Self-insured plans. Scott Sinder, representing the Council of Insurance Agents and Brokers, said that employers are dedicated to making the law work and to maintain employees’ current insurance. He expressed concern about the treatment of self-insured plans, which cover over 50 percent of employees. The regulations should apply the same standards to self-funded and insured plans, he said. He also agreed with Bianchi that the 90-day administrative period should track months, not days, and be treated as a three-month requirement. He requested transition relief for fiscal year plans and asked the government to clarify affordability in the context of cafeteria plan contributions. Sinder also asked that the cost of wellness programs be tied to the affordability standard.

Part-time employees. Nicholas Clark of the United Food and Commercial Workers Union testified that the rules create incentives for employers to create more part-time employees, by not providing any penalties, and will have a substantial impact on low-wage, variable-hour employees. Clark asked that the regulations based the affordability standard on the cost of family coverage, not self-only coverage. The current rules would allow employers to offer unaffordable family coverage, and exchange coverage also may be unaffordable, he said. He also testified that the proposed good faith standard is unworkable for seasonal employees, noting that there is no standard definition of seasonal workers.

Affordability. Clark opposes the 95-percent compliance standard, saying it would allow employers not to offer coverage to thousands of employees. “There is no basis for this exception,” he said. Treasury’s Alan Tawshunsky responded that the 95-percent standard is under a provision that only requires employers to offer “some coverage” that does not have to be affordable or qualify as minimum essential coverage.

Karin Feldman of the AFL-CIO said that organized labor has deep-seated concerns about the proposed rules. Agencies are choosing to minimize employer burdens while restricting the availability of coverage. The rules provide too much flexibility, according to Feldman—the government must minimize rules that reduce incentives for providing coverage. She objected to the proposed 130-hour standard for full-time employees; the statute provides for 120 hours. She agreed with Clark that the rules should not exclude seasonal workers from coverage, “simply by employer designation.” She expressed strong concerns about basing the affordability standard on individual coverage, which is “disappointing,” about the 95-percent rule, which “goes too far,” and about the treatment of wellness coverage, which is “astounding.”

Tawshunsky again asked about the impact of the 95-percent standard. Feldman said the problem is the message it sends to employers—they can cut corners. Employers can avoid a penalty “by doing the right thing”; the regulations should not provide ways around the statute. She said that the rules should not provide additional flexibility for employers.

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