While we have not heard it first-hand, we have heard through the grapevine that some insurance carriers are out there offering to their clients the ability to “renew early.” Part of the strategy is, apparently, to delay the application of health care reform provisions. The following discussion addresses some risks associated with reliance on such a strategy as a means of complying with the employer mandate and the insurance mandates.
EMPLOYER MANDATE: At the outset, let’s be clear about one fact: this does not get an employer out of play or pay. The employer mandate rules specifically say that a plan year can only be changed for a valid business purpose and that, in this case, avoiding the shared responsibility tax is not a valid business purpose. Renewing early is (assuming other legal niceties are satisfied) a change in plan year. Without a business purpose, the mandate will still apply to that employer effective January 1, 2014.
Note that this restriction also applies to fiscal year plans. A non-calendar year plan cannot now change its plan year (absent a valid business purpose) and delay the application of the play or pay penalty. In our view, such an employer would risk losing its ability to rely on the transition relief (which is already fairly skinny to begin with) by engaging in such a practice. Frankly, even if the employer has a valid business purpose, it is unclear whether changing the plan year would delay the application of the penalty.