Fiscal Year Health Plans: The PPACA Will Be (Slightly) Flexible

Under the PPACA, applicable large employers must decide whether to provide health insurance coverage to their employees (“play”) or face penalties under the law (“pay”) by January 1, 2014. This play or pay choice may be particularly difficult for large employers who are currently operating a health insurance plan that is tied to the fiscal year, as opposed to a plan that would begin a new year on January 1, 2014. In certain limited circumstances, large employers with fiscal-year plans may be eligible for relief from certain penalties of the PPACA.

The IRS proposed regulations issued on January 2, 2013 offer two transition rules for large employers with fiscal year plans.  However, it is extremely important to note at the outset that both of these transition rules apply only if affordable, minimum value coverage is offered to full-time employees as of the first day of the 2014 fiscal plan year.  If the employer fails to satisfy this requirement, the shared responsibility penalties will apply retroactively for all of 2014 for those full-time employees that are not offered affordable, minimum value coverage.   Accordingly, the safe approach for most large employers will be to ignore these transition rules and make all necessary changes effective no later than January 1, 2014.

The first transition rule will have limited utility for most employers.  The relief applies with respect to employees of a large employer (whenever hired) who would be eligible for coverage as of the first day of the first fiscal year that begins in 2014 under the eligibility terms of the plan as in effect on December 27, 2012.  So, if an employee was not eligible under the terms of the plan on December 27, 2012, this transition rule will not be helpful with respect to that employee.  This transition rule will be most helpful for employers that currently maintain plans that fail the affordability or minimum value tests under the PPACA.

The second transition rule will provide relief for a greater number of large employers.   If a large employer has at least one-quarter of its employees covered under one or more fiscal year plans that have the same plan year or if a large employer offered coverage under such plans to one-third or more of its employees during the most recent open enrollment period before December 27, 2012, then no shared responsibility is owed with respect to employees who are offered affordable, minimum value coverage no later than the first day of the fiscal plan year that begins in 2014.

These transition rules may be helpful for some large employers who maintain health plans that do not coincide with the calendar year.  However, because of the requirement that employees be offered affordable, minimum value coverage as of the first day of the fiscal plan year that begins in 2014, large employers need to be careful in relying on these transition rules.

About Jim Hamilton

I am an employee benefits partner with Bose McKinney & Evans LLP. My broad-based practice covers health and welfare arrangements, insurance, executive compensation and federal and state taxation. Among other areas, I have specific experience with PPACA, HIPAA, COBRA, ERISA and numerous other state and federal laws affecting employee benefit plans.
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