Pay or Play Penalty – Dependent Coverage Requirements

If you don't offer health coverage to
your employees' dependents, you may
be subject to penalties, also referred

to as a "shared responsibility payment."

Beginning in 2015, the Affordable Care Act (ACA) imposes “pay or play” requirements on large employers. Under these “pay or play” requirements, large employers that do not offer health coverage to their full-time employees and their dependents, or that offer coverage that is either unaffordable or does not provide minimum value, may be subject to a penalty. This penalty is also referred to as a “shared responsibility payment.”

On Jan. 2, 2013, the Internal Revenue Service (IRS) published proposed rules that provide further guidance on the employer shared responsibility provisions, including the requirement to cover dependents. These proposed rules:

• Clarify the term “dependent” for purposes of the coverage requirement; and 

• Provide transition relief for plan years that begin in 2015.

The regulations are not final. However, employers may rely on the proposed regulations until final regulations or other applicable guidance is issued.

Who qualifies as a dependent?

The proposed regulations clarify that, starting in 2015, an applicable large employer must offer health coverage to both its full-time employees and their dependents to avoid the shared responsibility payment. The term “dependent” is defined as an employee’s child who is under 26 years of age. An employee’s child includes a natural son or daughter, adopted child, stepchild and foster child. 

For these purposes, “dependent” does not include any other individual, including the employee’s spouse. This means that employers are not required to offer coverage to an employee’s spouse under the employer shared responsibility provisions, and will not be liable for any penalty due to failure to offer coverage to an employee’s spouse.

Despite the dependent coverage requirement, an employer’s liability for the shared responsibility payment is triggered only by a full-time employee receiving a premium tax credit, regardless of whether any dependents are eligible for, or receive, a premium tax credit.

Transition Relief

The IRS recognizes that a number of employers currently offer employee-only coverage, and that expanding their health plans to include dependent coverage will require substantial revisions to their plans. Therefore, the proposed regulations provide transition relief with respect to dependent coverage for plan years that begin in 2015.

Any employer that does not offer coverage to dependents during the 2015 plan year will not be liable for a penalty for that plan year as long as it takes steps toward offering dependent coverage during the year.

Source: Internal Revenue Service

For more information, please contact Elizabeth Long, Senior Benefits Consultant, Champion Risk & Insurance Services, L.P., 858-369-7923 Direct / 619-733-4176 Cell or via email: elong@championrisk.net