Employer ‘Affordability' Safe Harbor Might Limit Premium Credits, Treasury Aide Says

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By Florence Olsen

The Treasury Department and the Internal Revenue Service are considering offering a safe harbor for large employers that will be required to offer their employees affordable health insurance in 2014, but the safe harbor most likely would not be available to employers that have a large percentage of employees that qualify for refundable premium assistance tax credits, a senior Treasury official said Oct. 11.

“We don't want an affordability safe harbor where you end up having 50 percent of the people who are covered ending up getting the credit,” said Kevin Knopf, attorney-adviser to Treasury's Office of Benefits Tax Counsel. Knopf spoke at a District of Columbia Bar lunch series program on recent and anticipated health insurance law guidance.

Knopf invited practitioners at the event to submit their ideas on how Treasury and IRS might structure an affordability safe harbor.

Under tax code Section 4980H, a large employer is subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction and the employer does not offer “its full-time employees (and their dependents)” the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan.

“It seems to me if you are not offering coverage to employees and their dependents, you are subject to the 4980H penalty of $2,000 per full-time employee,” Knopf said.

Among practitioners, however, the parenthetical reference to “and their dependents” has created considerable confusion as to whether Congress meant that employers must provide family coverage to avoid the 4980H penalty, Seth T. Perretta, a partner at Crowell & Moring in Washington, D.C., said at the D.C. Bar event.

‘Do Not Leave It Parenthetical'

Treasury and IRS should clarify the meaning of the statute and “not leave it parenthetical,” said Gretchen Young, senior vice president for health policy at the ERISA Industry Committee, who also spoke at the event.

In Notice 2011-73, issued in September, IRS requested comments on a possible affordability safe harbor for employers under the Patient Protection and Affordable Care Act's shared-responsibility provisions. The comment deadline is Dec. 13.

The affordability safe harbor that might be proposed in future guidance would permit large employers, which are required to provide affordable health coverage to full-time employees, to determine “affordability” based on an employee's wages rather than on an employee's household income.

The safe harbor, if implemented, would apply to PPACA‘s employer shared-responsibility provisions, IRS said in the notice. Beginning in 2014, employers with 50 or more full-time employees that do not offer affordable health coverage to their full-time employees could be required under PPACA to make shared-responsibility payments.