Very large employers will be required to offer health care
coverage to their full-time employees or pay a penalty to the federal
government beginning Jan. 1, 2015. Under the final regulations released by the
U.S. Department of Treasury on Feb. 10, 2014, however, employers with fewer
than 100 full-time employees will have an extra year to plan for and implement
the employer mandate.
For larger employers, enforcement in 2015 will apply only to
employers who fail to offer coverage to at least 70% of their full-time
workforce. The regulations also provide additional guidance for determining the
status of full-time employees and counting hours of service. Otherwise, the
final regulations retain most of the guidance issued in the proposed
regulations and four earlier Internal Revenue Service notices on minimum value
and reporting requirements and methods for determining employee status.
The shared responsibility provisions of the Affordable Care
Act require large employers to offer full-time employees (and their dependents)
the opportunity to enroll in adequate and affordable coverage under an
employer-sponsored plan or pay a penalty. The rules are often referred to as
the employer mandate or pay-or-play requirement. In July 2013, the Treasury
Department announced that no penalties would apply for 2014 and delayed related
informational reporting obligations for large employers and providers of their
plans. With the issuance of these final regulations, employers subject to the
mandate can now make employee coverage decisions and prepare for enforcement
beginning as early as Jan. 1, 2015.
Highlights of the
final regulations include:
Employer mandate
delay
The final regulations reaffirm that the requirement to offer
health coverage applies only to employers with an average of at least 50
full-time employees, based on the prior year's data. To ensure a gradual
phase-in of the employer mandate, however, the final regulations provide that only
employers with 100 or more full-time employees will be subject to the employer
mandate for 2015. Employers that are subject to the employer mandate provisions
in 2015 must offer coverage to at least 70% (as opposed to 95%) of their
full-time employees (and their dependents) to avoid a penalty.
Beginning in 2016, employers with 50 or more full-time
employees will be subject to the employer mandate. Employers that are subject
to the employer mandate provisions in 2016 must offer coverage to at least 95% of
their full-time employees (and their dependents) in order to avoid a penalty.
Full-time
determinations
Like the proposed regulations, the final regulations allow
employers to use an optional look-back measurement method to make it easier to
determine whether employees with varying hours and seasonal employees are
full-time employees (employees who average at least 30 hours of service per
week). The final regulations clarify the application of this method (along with
the associated administrative and stability periods) and the alternative
monthly method of determining full-time employee status.
Hours of service
guidance
The Treasury Department discusses the challenge of
determining "hours of service" for employees of certain types or in
certain occupations and identifies certain methodologies that will be accepted
as reasonable until further guidance is issued, including:
Adjunct faculty:
Employers of adjunct faculty must use a method of crediting hours of service
for those employees that is reasonable in the circumstances and consistent with
the employer mandate provisions. The Treasury Department has determined that
one reasonable method is to credit an adjunct faculty member with 2¼ hours of
service per week for each hour of teaching or classroom time and one hour of
service per week for each additional hour outside of the classroom the faculty
member spends performing required duties.
Employees with
"on-call" hours: Employers of employees with on-call hours
are to use a method of crediting hours of service for those employees that is
reasonable in the circumstances and consistent with the employer mandate
provisions. The Treasury Department provides a few examples, including that an
employer must credit an employee with an hour of service for any on-call hour
for which the employee has been paid or is entitled to payment.
Temporary staffing
firms: The final regulations discuss how employees of temporary
staffing firms should be categorized and when such employees have separated
from service with the staffing firm.
Seasonal
employees: Employees in positions for which the customary annual
employment is six months or less generally will not be considered full-time
employees.
Rehired employees:
The final regulations retain the rehire rules contained in the proposed
regulations but reduce, in most situations, the length of the break in service
required before a returning employee may be treated as a new employee from 26
weeks to 13 weeks.
The regulations exclude from "hours of service"
certain workforce activities, including:
Hours contributed by bona fide volunteers for a government
or tax-exempt entity
Service performed by students under federal or
state-sponsored work-study programs
Any work performed by an individual who is subject to a vow
of poverty as a member of a religious order when the work is in the performance
of tasks usually required of an active member of the order
Notably, the final regulations do not include any special
provisions that address short-term employees or employees in high-turnover
positions.
Affordability safe
harbors
The final regulations preserve several safe harbors that are
designed to make it easier for employers to determine whether the coverage they
offer is affordable to employees. These safe harbors permit employers to use
the Form W-2 wages they pay, their employees’ hourly rates, or the federal
poverty level in determining whether employer coverage is affordable under the
ACA. The Treasury Department clarified a few outstanding questions on how these
safe harbors should be administered.
2015 transition
provisions
In addition to the 2015 transition relief provided regarding
the employer mandate, the final regulations extend 2015 transition relief to
several other rules that originally applied only to 2014 under the proposed
regulations, including:
Non-calendar year plans: Employers with plan years that do
not start on Jan. 1 will be subject to the employer mandate when their plan
years begin in 2015, rather than on Jan. 1, 2015.
Transition
measurement period: For stability periods that begin in 2015, employers
may adopt a transition measurement period that is shorter than 12 months but no
less than six months, even if the corresponding stability period is 12 months.
Determining large
employer status in 2015: Employers can determine whether they are a
large employer for 2015 by reference to a period of at least six consecutive
months in 2014, instead of the full 2014 calendar year.
Dependent
coverage: The requirement that employers offer coverage to their
full-time employees’ dependents will not apply in 2015 to employers that are
taking steps to arrange for such coverage to begin in 2016.
Multiemployer
plans: Like the proposed regulations, the final regulations contain
transition guidance that is intended to provide employers that contribute to
multiemployer plans with an administratively feasible means to comply with the
employer mandate.
As the federal health care reform effort gained steam,
Ballard Spahr attorneys established the Health Care Reform Initiative to
monitor and analyze legislative developments. With federal health care reform
now a reality, our attorneys are assisting health care entities and employers
in understanding the relevant changes and planning for the future. They also
have launched the Health Care Reform Dashboard, an online resource center for
news and analysis on developments under the ACA.
Brian M. Pinheiro is
the practice leader of the Ballard Spahr's employee benefits and executive
compensation group. Jean C. Hemphill is the practice leader of Ballard Spahr's
health care group and Jonathan M. Calpas is an associate that represents
for-profit, tax-exempt, church, and government employers.
Source: Employee
Benefit News
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