By: Ronald J. Kramer, Esq.

In an informal July 2nd blog post, a Treasury official announced that the Obama Administration will not be imposing penalties on employers who do not offer minimal affordable coverage in compliance with the Affordable Care Act (“ACA”)–the so-called employer mandate–in 2014. The promised follow-up IRS notice 2013-45 regarding this “Transition Relief,” issued July 9th, confirms that the information reporting requirements necessary for the IRS to determine which employers owe shared responsibility payments (for failing to offer minimum essential coverage or failing to offer affordable coverage) will not become mandatory until 2015. (Employers and other reporting entities, however, are encouraged to voluntarily submit reports in 2014 once the reporting rules have been issued.) Given the absence of the reporting requirements, no employer shared responsibility payments will be assessed for 2014.

Many employers have been asking what this one year stay of execution might mean for their efforts to bargain with their unions to ensure ACA compliance. The short answer is:  “Don’t stop fixing your contracts.” As discussed in an earlier blog post, click here, employers with union contracts have a lot of issues to address to ensure those contracts are in full compliance with the ACA. The delay in the imposition of the employer mandate, while helpful, does not extend to any other provisions of the ACA effective in 2014, such as the 90-day limit on medical plan waiting periods and the elimination of annual caps. To the extent the employer has provisions within its contracts, such as waiting periods longer than 90 days, that would not comply with the ACA, those still need to be changed.

If an employer has a contract expiring in 2014, the best time to address any ACA-related issues is still now—with the employer negotiating sufficient flexibility to cover what the ACA and its implementing regulations might look like in 2015 and beyond. With such flexibility, an employer should be able to be in a position to both fully comply with the 2014 changes as well as the employer mandate in 2015. For those employers that are not in a position to negotiate the necessary flexibility, however, whether because the union will not provide such flexibility or because the employer is still unsure whether it intends to provide compliant coverage, negotiating any changes necessary to meet the remaining 2014 requirements with a re-opener in 2014 to address 2015 may make sense.

Flexibility (whether by the right to act unilaterally or via the right to re-open the contract to bargain the changes) is desirable for employers because the delay gives Congress more time to modify the ACA to minimize its impact on employers. In 2015, the ACA may not look like it does today. A newly proposed bill with bipartisan support, the Forty Hours is Full Time Act of 2013, would redefine a full-time employee from an employee who works 30 hours per week to one who works 40 hours a week or 174 hours a month based on a 52-week year. This has been a major issue for employers with uninsured part-time employees who work 30 or more hours per week. Given this proposed legislation, employers may not want to simply agree to cover employees who work 30 hours per week or more as of 2015. Instead, they may want to offer coverage to “full-time employees, as determined by the Employer in its discretion in accordance with the Affordable Care Act or applicable state or local laws.” If an express number of weekly hours of work is already baked into the contract, sticking with whatever currently is in the contract with a caveat saying that, for insurance purposes, “or such lower amount as may be provided for by the ACA or applicable state or local laws” also would work.

Who are considered “full-time” employees is not the only issue that may change. For example, waiting and eligibility periods have been the subject of much angst among employers and multiemployer plans. Multiemployer plans also have been trying hard to convince the Obama administration that their participants should be determined to be eligible for the premium tax subsidies under the ACA. While so far these efforts have failed, the added time before the implementation of the employer mandate might permit there to be new legislation. Employers will want to have the flexibility with their contracts to address, mid-term, any changes to the ACA, whether they occur by statute or regulation.

Last but not least, the delay provides relief for those employers that have non-compliant contracts that expire sometime in 2014. Rather than going to their unions, hat-in-hand, seeking mid-term modifications now, these employers can address the employer mandate issue in their regular 2014 negotiations.

So say a prayer of thanks for the delay, but keep moving forward on negotiating language that both will comply with the ACA as it stands today and adjust for any changes to the ACA or its regulations going forward.