The Supreme Court did not overturn the Patient Protection and Affordable Care Act, President Obama won re-election and the Mayan calendar did not accurately predict the end of the world, so health care reform is here to stay … and it’s time to coordinate efforts to prepare your organization for the impact.
Pay or Play Mandate
Beginning in 2014, all applicable large employers (generally those with 50 or more full-time equivalent employees) must offer substantially all full-time employees and their children group health plan coverage or risk being subject to a penalty for failure to offer coverage.
If an applicable large employer offers no group health plan coverage
and any of the employer’s full-time employees purchase insurance through a state exchange and receive a premium tax credit or cost-sharing subsidy, the employer is liable for a penalty in an amount equal to $2,000 times the employer’s number of full-time employees, less 30.
If an applicable large employer offers group health plan coverage that is either unaffordable or fails to offer minimum value
and any of the employer’s full-time employees purchase insurance through a state exchange and receive a premium tax credit or cost-sharing subsidy, the employer is liable for a penalty in an amount equal to $3,000 times the number of full-time employees who purchase coverage through a state exchange and receive a premium tax credit or cost-sharing subsidy. This penalty is capped at the amount of the penalty the employer would be required to pay if the employer failed to offer any group health plan coverage ($2,000 times the number of the employer’s full-time employees, less 30).
As a result, employers subject to the pay or play mandate should already be evaluating the following:
- Not offering group health plan benefits to employees. While this may seem like an attractive option from a total cost and resources standpoint, employers must take into consideration their ability to attract and retain talent. Historically, group health plan benefits have been viewed as valuable by employees and potential employees, but this may change in the future depending on the success of the state exchanges. Human resources, benefits, strategic planning and business unit heads need to work together to determine talent acquisition and retention strategies, including the role of the employer’s group health plan in the total compensation strategy.
How to determine full-time employee status. Proposed Regulations and other sub-regulatory guidance set forth a complicated system for determining full-time employee status. Every employee must be classified as either an "ongoing" or "new hire" employee, and further classified as a "full-time," "variable hour" or "seasonal" employee.
- For this purpose, an ongoing employee is one who has been employed for at least one complete measurement period (the look-back period over which an employer is permitted to determine full-time employee status), and a new hire employee is one who has not been employed for at least one complete measurement period.
- A full-time employee is one who is reasonably expected to work on average at least 30 hours per week during a measurement period. A variable hour employee is one who is not reasonably expected to work on average at least 30 hours per week. A seasonal employee is one who may be reasonably expected to work on average at least 30 hours per week, but who is not reasonably expected to work for more than one season.
Human resources and HRIS personnel need to be trained to appropriately classify all existing and future employees as ongoing or new hire employees and as full-time, variable hour or seasonal employees.
How to count and track hours for purposes of determining full-time employee status. The Proposed Regulations require that actual hours be tracked for hourly employees. However for non-hourly employees, the Proposed Regulations provide that employers may track actual hours or use a daily (eight hours per day) or weekly (40 hours per week) equivalency. Note that equivalencies may not be used if their use will result in significantly understated hours. The Proposed Regulations also provide special rules for employees of educational institutions and require additional hours of service to be credited for employees on FMLA leave, USERRA leave or leave for jury duty.
This is a significant change from existing practice for most employers who currently determine group health plan eligibility based on expected hours rather than actual hours. As a result, employers need to work with their payroll and benefits groups to establish guidelines and systems for accurately and consistently determining hours of service.
How to treat new hire employees who have a change in status during their initial measurement period. The Proposed Regulations provide that if a new hire employee changes status during his or her initial measurement period from a variable hour or seasonal employee to a full-time employee, the employer must offer group health plan coverage to that employee by the earlier of the first day of the fourth month after the change in status or the first day of the first period of coverage (the stability period) if the employee worked on average at least 30 hours per week during the initial measurement period.
This rule requires employers to have processes and systems in place to evaluate an employee’s status whenever the terms of the employment relationship change.
How to treat rehired employees and employees returning from unpaid leaves of absence. Under the Proposed Regulations, an employer may treat a rehired/returning employee as a new hire employee if no hours of service are credited for a period of at least 26 weeks or no hours of service are credited for a period of time that is greater in length than the immediately preceding period of employment. All other rehired/returning employees must be treated as continuing employees. This means that they must be returned to the same status they had when they left, which includes coverage as of the date of rehire/return, if applicable.
Likewise, this rule requires employers to have processes and systems in place to evaluate an employee’s status immediately upon rehire or return to employment.
Employer Notice of the Exchanges
In late summer or fall of 2013, employers will be required to provide all active employees with a written notice of the exchanges. This notice is intended to inform employees of the availability of a state exchange in their state of residence in advance of the open enrollment period for the exchange, and must include the following information:
- Basic exchange information. The existence of an exchange in the employee’s state of residence, the services provided by the exchange and how the employee may contact or access the exchange.
- Cost. Whether the employer’s plan provides minimum value and, if the employer’s plan does not provide minimum value, that the employee may be eligible for a premium subsidy or a cost-sharing reduction if he or she purchases coverage through the exchange.
- Ramifications. If an employee purchases coverage through the exchange, he or she will lose any available employer contribution for the employer’s plan.
While the Departments of Labor and Health and Human Services have each indicated that model notices will be published, to date no such models have been made available.
In the meantime, employers should prepare by:
- Becoming educated on the exchanges being made available in the states in which their employees reside so they may answer questions raised by employees and their dependents.
- Determining whether their current group health plan provides minimum value and, if not, whether any action will be taken to change the coverage to minimum value coverage for 2014.
Now more than ever, various functions within an organization, including human resources, benefits, talent acquisition, tax and payroll, must coordinate efforts in order to comply with the Pay or Play Mandate and the various disclosure obligations under the Affordable Care Act. Effective coordination will result in more efficient and cost-effective compliance with the Affordable Care Act mandates.