Late on Friday, July 5, the HHS released a 606-page supplement to its final rule on Exchange operations with respect to Medicaid, CHIP, eligibility notices, reviews and appeals, premium and cost sharing subsidies, and subsidy eligibility and verification.  Then, late on July 9, the IRS published Notice 2013-45, explaining, briefly, the July 2 announcement that enforcement of Code sections 4980H (employer coverage mandate), 6055 (coverage reporting mandate for group health plans) and 6056 (employer information reporting mandate) would be delayed until 2015.  This article hits the highlights, in the agencies’ own words, to the extent useful.

Employer Mandate Enforcement Delay

In a prior article, we noted that the July 2 blog posts could be read in three materially different ways – (1) as a permanent, unconditional waiver of enforcement of any tax or penalty accruing during 2014 under those Code sections, or (2) as a waiver conditioned on 2015 compliance with those Code sections, or (3) as a one year delay of enforcement, but not a waiver of any tax or penalty. Here is the language of Notice 2013-45 that reasonably may be regarded as an attempted clarification.

“Q-1. When will the rules be published regarding § 6055 Information Reporting and § 6056 Information Reporting? How will these provisions apply for 2014?”

“A-1. [ . . . ]  Proposed rules for the information reporting provisions are expected to be published this summer. The proposed rules will reflect the fact that transition relief will be provided for information reporting under §§ 6055 and 6056 for 2014. [ . . . ]  Employers, insurers, and other reporting entities are encouraged to voluntarily comply with these information reporting provisions for 2014 (once the information reporting rules have been issued) in preparation for the full application of the provisions for 2015. However, information reporting under §§ 6055 and 6056 will be optional for 2014; accordingly, no penalties will be applied for failure to comply with these information reporting provisions for 2014.”

“Q-2. What does the 2014 transition relief for § 6056 Information Reporting mean for application of the Employer Shared Responsibility Provisions for 2014?”

“A-2. [ . . . ]  In particular, because an employer typically will not know whether a full-time employee received a premium tax credit, the employer will not have all of the information needed to determine whether it owes a payment under § 4980H. Accordingly, the employer is not required to calculate a payment with respect to § 4980H or file returns submitting such a payment. Instead, after receiving the information returns filed by applicable large employers under § 6056 and the information about employees claiming the premium tax credit for any given calendar year, the Internal Revenue Service (IRS) will determine whether any of the employer’s full-time employees received the premium tax credit and, if so, whether an assessable payment under § 4980H may be due. If the IRS concludes that an employer may owe such an assessable payment, it will contact the employer, and the employer will have an opportunity to respond to the information the IRS provides before a payment is assessed.”

“For this reason, the transition relief from § 6056 Information Reporting for 2014 is expected to make it impractical to determine which employers owe shared responsibility payments for 2014 under the Employer Shared Responsibility Provisions. Accordingly, no employer shared responsibility payments will be assessed for 2014. However, in preparation for the application of the Employer Shared Responsibility Provisions beginning in 2015, employers and other affected entities are encouraged to voluntarily comply for 2014 with the information reporting provisions (once the information reporting rules have been issued) and to maintain or expand health coverage in 2014. Real-world testing of reporting systems and plan designs through voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015.”

Those words offer puzzling assurances.  As detaield in the July 9 rules discussed below, the Exchanges are required to report their tax credit certifications electronically to the government and by mail to the employer.  Thus the IRS should not need employer-provided certification data to assess under-reporting employers for 2014.  Nevertheless, subject to re-examination after we see the promised rules, we consider it preliminarily reliable that, “no employer shared responsibility payments will be assessed for 2014.”  We hope that no conditions later will be attached.

Waiver of Subsidy Eligibility Verification, And More

Here are the employer compliance highlights of the July 9 final rule supplement.  Insurers and providers should note that this supplement also tweaks rules applicable to them.  The differences are too detailed to quote, but it’s true, as presented in media coverage, that state-operated Exchanges will be substantially free of subsidy eligibility verification requirements during 2014, while Federally Facilitated Exchanges will conduct some limited verification inquiries.

“[W]e expect that notices sent from the Exchange to employers will likely be provided by standard mail, at least in the early years of program implementation.”

“Upon making such an eligibility determination, the Exchange will notify an employer that an individual in an employee’s tax household has been determined eligible for advance payments of the premium tax credit and/or cost sharing reductions based in part on the employer not offering minimum essential coverage or not offering qualifying coverage in an eligible employer-sponsored plan.  [T]he Exchange will send a notice to the employer with information identifying the employee, along with a notification that the employer may be liable for the payment under section 4980H of the Code, and that the employer has a right to appeal this determination.  [ . . . ]  HHS will provide model notice text for Exchanges to use in developing this notice.”

“[W]hile generally, applicants will establish residency in the Exchange service area in which they intend to reside, since there are exceptions to this general principle, the clause limiting residency to one Exchange service area is unnecessary.”

“If it is not reasonably expected that the necessary electronic data source will be available within 1 day, or it is reasonably expected that the necessary electronic data course will be available within 1 day, but this expectation proves incorrect, then the Exchange will determine the applicant’s eligibility using his or her attestation regarding the factor of eligibility for which the electronic data source is unavailable.”

“For income verification, for the first year of operations, we are providing Exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification . . . .”

“The paper application for enrollment in a QHP through the Exchange and insurance affordability programs can be found at:

 http://www.cciio.cms.gov/resources/other/Files/AttachmentC_042913.pdf.”

 ”[E]mployers have the option of combining the employer coverage tool with the notice specified under section 18B of the fair Labor Standards Act . . . found at this link,

 http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf.”

“The employer coverage tool can be found at:

http://www.cciio.cms.gov/resources/other/Files/AttachmentC_042913.pdf

“We are finalizing our proposal to rely on an applicant’s attestation if the Exchange is unable to obtain the necessary information from an employer.”

“For eligibility determinations for insurance affordability programs that are effective before January 1, 2015 . . . if the Exchange does not have any of the information specified . . . the Exchange may accept the applicant’s attestation regarding enrollment in an eligible employer-sponsored plan and eligibility for qualifying coverage in an eligible employer-sponsored plan . . . .”

In short, applicants for subsidized Exchange insurance purchases will be subject to minimal verification of their relevant attestations; they may apply through an Exchange serving another state where they express intent to reside in the future; and, more rules and forms are on their way.

P.S.:  After this article was posted, the Treasury Department issued its semiannual regulatory agenda on July 23, 2013 (78 FR 44307), announcing its plan to issue by December 2013 a proposed rule implementing the employer information reporting requirements of Code section 6056.