After posting “New Hires and Counting Hours for Play or Pay Purposes,” an alert reader pointed out to us that we had (unintentionally) identified a hole in the play or pay regulations with our example involving John Boy.

If you go back and look at the post, the example at the end of Q8 (we’ve updated the post with question numbers for convenience) shows John Boy being hired two weeks into the SMP and, in the example, a 12-month IMP is used (see the post for what the abbreviations mean).  As the rules require, John Boy’s stability period following the IMP ends on December 31, 2014.

However, at that point, he has not been employed for an entire SMP.  As a result, come January 1, 2015, he is in a proverbial “no man’s land:” he’s not a new employee because he has now been employed more than a year, but he’s also not an “ongoing” employee under the rules because he has not been employed for an entire SMP (see our other prior post for a discussion of ongoing employees).

The rules won’t allow the employer to treat him as a new employee again because the end of his IMP plus the administrative period would extend beyond the 13+ month period required by the rules (see Q9).

So what are we to do with John Boy?  The short answer is, we don’t know yet.  Fortunately, if you use a 12-month IMP, you will likely have plenty of time to await new guidance (which we hope will be forthcoming) from the IRS on this point.  Until then, there is no answer.

If we were involved in writing the guidance, we might suggest that the rules should be revised to treat John Boy as follows:

John Boy should still be considered not full-time for his entire 12-month initial stability period following the IMP. Then, once his first full SMP ends, he should be offered coverage (or not) starting at the end of his initial stability period. However, to give his employer some time to react, the employer should be allowed at least a 60-day administrative period following the end of the initial stability period to make the offer of coverage.  On the other hand, to be fair to the employee, this administrative period could not end later than the end of the SMP (plus any associated administrative period) in which the initial stability period ends.

To be clear, this is not an approach that is currently endorsed by the regulations or any other guidance; it’s one we hope the IRS will adopt.  This approach would treat new employees as consistently as possible with ongoing employees.   Have any other thoughts on how to fix this? Leave a comment!

While we await the actual answer, we have revised Q10, answer (3), to delete the reference to the John Boy example since the rules cannot be applied to the example under our assumed facts.  The rest of the post is unchanged (other than adding the numbers to the questions).

This discovery underscores the complexity of health care reform and the tremendous difficulty the IRS, DoL, and HHS are under in implementing an entirely new set of rules and programs in such a short timeline.