The IRS and other federal agencies have issued new guidance on when employers must allow employees to enroll for group health coverage to avoid paying penalties under the shared responsibility (also known as employer “pay or play”) provisions and comply with the waiting period requirements under the Affordable Care Act (ACA). The new rules follow up on proposals published last year and set forth rules and opportunities that employers may rely on through 2014.
Effective January 1, 2014, employers with 50 or more full-time equivalent employees are subject to the ACA's pay or play provisions. These provisions may impose a monthly penalty on an employer when certain of its full-time employees receive subsidized coverage through a state insurance exchange if the employer fails to offer them (and their dependents) the opportunity to enroll in appropriate health coverage or if that coverage fails to meet minimum value or affordability requirements.
Accordingly, an employer needs to be able to identify which of its employees will be considered full-time, defined by the ACA as those working 30 or more hours per week. In Notice 2011-36, the IRS proposed a safe harbor that would allow an employer to look back at the average hours an employee worked in a specified prior period (look-back period) and apply that result to a fixed period going forward (stability period).
In the recently issued Notice 2012-58, the IRS modifies and expands on its earlier safe harbor proposal, setting forth rules not only for ongoing employees but for new hires. The notice provides that:
- Employers may establish a look-back period that ends before the stability period begins and use that period to determine the status of employees and allow the full-time employees to enroll.
- Employers may select different measurement periods and stability periods for determining coverage for specified categories of employees (for example, different periods may be used for union and non-union employees).
- A modified safe harbor rule applies to newly hired employees, along with safe harbor rules that facilitate the transition of a new hire to the standards that apply to ongoing employees.
The safe harbor methods set forth in the notice are particularly applicable to seasonal employees and employees who work variable hours that may or may not average at least 30 hours. The Notice requests comments by September 30, 2012, on various aspects of the look-back/stability safe harbor method, whether additional safe harbors and guidance should be developed, or other issues related to the Notice.
On the same date, the U.S. Department of Treasury, the U.S. Department of Labor, and the Department of Health and Human Services jointly issued guidance on the implementation of the 90-day waiting period limitation under the ACA. This guidance defines the maximum period that may pass before an otherwise eligible individual's coverage becomes effective and coordinates to some degree with the new pay or play safe harbors.