At the beginning of each calendar year all employers who are considered “Applicable Large Employers” (“ALE”) under the Affordable Care Act (“ACA”) Employer Mandate Regulations will be required to file with the Internal Revenue Service (“IRS”) annual information returns concerning the health care coverage offered to full-time employees. Employers may be assessed penalties for failures to offer minimum essential coverage (“MEC”) to substantially all of their full-time employees or for failures to timely file correct returns.
Although the IRS issued its final ACA regulations (“Final Regulations”) in February 2014, this area of the law is consistently evolving as the IRS continues to issue guidance on the regulations. In the last year, the IRS has issued Notices 2015-17 and 2015-87, attempting to clarify questions left open by the Final Regulations. The IRS also issued its final instructions regarding ALE reporting obligations. Whether you are starting to set up operational guidelines and policies to ensure that you are ACA-compliant or finalizing your reporting processes, there may be some information that is new to you. Here are a few examples of some nuances you may not have considered:
Offers of Coverage
- Are you allowing employees to opt out of coverage? Did you know that if you require an employee to enroll in your health plan, the plan must be affordable under the Federal Poverty Line Safe Harbor, otherwise the IRS will not count your “offer” as a valid offer?
- How are you dealing with COBRA? If you have adopted the Look Back Safe Harbor and an employee has a COBRA qualifying event due to a reduction in hours, if that employee’s status is full-time during a stability period, you should continue to offer coverage until the end of the stability period to avoid potential penalties.
- Are you offering employees who change employment status coverage at the right time? If you have adopted the Look Back Safe Harbor, did you know that an employee who begins work with your agency as a part-time, seasonal or variable hour employee, but who has a “change in status” during his or her initial measurement period to become a full-time employee need not be offered coverage on the day that he or she becomes full-time? The regulations provide that when an employee transitions to full-time status, an employer need only offer that employee coverage no later than the first day of the fourth full calendar month of employment. It is not that simple though. If the employee changes to full-time status during his or her initial measurement period, and the initial measurement period ends sooner than the end of the employee’s first full three months of full-time status, the employer must offer the employee minimum essential coverage by the first day of the first month following the end of the initial measurement period, or risk penalties.
- If you have adopted the Look Back Safe Harbor, are you including paid leave when determining Hours of Service? Whether an employee is full-time under the ACA requires an employer to calculate “Hours of Service,” not just hours worked. Hours of Service include hours paid for the performance of duties, hours an employee is entitled to pay for the performance of duties and hours an employee is paid or entitled to pay for time off, such as vacation, holiday, paid sick leave, jury duty, military duty and disability. Furthermore, if your agency has adopted a Look Back Safe Harbor, “Special Unpaid Leave” must be considered in averaging calculations. “Special Unpaid Leave” is defined as leave under the federal Family and Medical Leave Act (FMLA), the federal Uniformed Services Employment and Reemployment Rights Act (USERRA), and unpaid jury duty leave. For example, if an employee goes out on FMLA leave for a period of eight (8) weeks, the averaging method requires an employer to subtract the eight weeks of special unpaid leave from the measurement period, average the employee’s hours of service over the remaining time period and either (1) credit the average hours of service per week to each of the eight weeks or (2) apply the average over the entire measurement period. In other words, even if an employee does not hit 1560 hours over a measurement period, that employee may still qualify as full-time because of the averaging method.
- Are you including contributions to an HRA account or flex contributions to a Section 125 cafeteria plan in your affordability calculations? Did you know that even if you pay 100% of your employee’s premium, coverage may still not be considered affordable if you are contributing money into an HRA account or flex contributions into a cafeteria plan? IRS Notice 2015-87 clarifies that certain employer contributions must be included in calculations when determining whether anALE has made an offer of affordable minimum value coverage.For example, HRA contributions will only count toward the employee’s required contribution if (1) the HRA can be integrated into the employer-sponsored major medical group health plan and (2) the funds the employer makes available under the HRA may be used by the employee to pay his or her share of contributions for major medical coverage or pay the employee’s share of the contributions for major medical, cost-sharing, or other health benefits not covered by the plan in addition to premiums. Other limitations may also apply.Flex contributions will only make premiums affordable and offset the amount the employee pays toward his or her premium if the contributions qualify as a “health flex contribution.” A “health flex contribution” is an employer contribution that meets the following requirements: (1) the employee may not opt to receive the amount as a taxable benefit, (2) the employee may use the amount to pay for minimum essential coverage, and (3) the employee may use the amount exclusively to pay for medical care. If the flex contribution can be taken as cash or used for expenses other than medical care it is not a “health flex contribution,” and therefore, cannot be used to reduce the employee’s premium contribution when calculating affordability under the Employer Mandate.
- Do you provide employees with cash in lieu incentives to opt-out of employer-sponsored health care coverage? Did you know that cash in lieu incentives cannot be taken into account when calculating affordability? In fact, the IRS has indicated that it may treat such incentives as salary reductions if receipt of the cash in lieu is not conditioned upon proof of other group health coverage. This would make premiums even less The IRS plans to issue further guidance on these opt-out payments.
- Are you properly reporting your seasonal employees? Did you know you do not have to file form 1095-C for seasonal employees who work three or fewer full months during your agency’s measurement period, even if they were reasonably expected to be full-time on their date of hire? However, for the months in which the full-time seasonal employee was an employee of the agency, he or she would be included in the total employee count and reported on Form 1094-C.
- Are you properly accounting for full-time employees who return to work after extended absences? Did you know that if you have an employee return to work after an extended absence – a “break in service” of at least 13 weeks (or 26 weeks for educational institutions) – that employee will be considered a new employee when returning from work? In such instances, employers must conduct the reasonable expectation analysis upon the employee’s return. If the employee is reasonably expected to be full-time, it must measure these “new” employees on a monthly basis until that employee has been employed for one full standard measurement period.
It is a great time to ensure that your agency is in full compliance now to avoid possible future penalties later, by auditing current policies and practices. Audits may include determinations of employee eligibility for offers of coverage; affordability determinations; determinations of compliance with group health plan mandates; reviews of ACA policies, including personnel rules and memoranda of understanding; and reviews of reporting practices. You may also want to explore how the ACA impacts the terms of your collectively bargained agreements. Audits may be performed internally or with the assistance of counsel.