Government agencies have issued new health care reform guidance for employers. This guidance is designed to assist employers in determining who is considered a full-time employee for purposes of the employer "pay or play" mandate and in calculating the 90-day waiting period limitation, each of which takes effect in 2014.
Guidance on Determining Full-Time Employee Status
Under the Patient Protection and Affordable Care Act ("Affordable Care Act"), beginning in 2014, employers with 50 or more full-time employees (including full-time equivalent employees) generally must offer qualifying health insurance coverage for their full-time employees or pay a penalty.
The Affordable Care Act defines "full-time" as an employee who works an average of at least 30 hours per week in a month, but does not provide any further clarification on how to determine who is a full-time employee. As a result, there has been much uncertainty about how to calculate full-time employees, in particular with respect to employees who work variable hours and who work on a seasonal basis.
The Internal Revenue Service has now issued guidance to assist employers in determining who is a full-time employee. The new guidance is 18 pages in length and sets forth very detailed and complex rules.
The new guidance provides a "safe harbor" method for determining whether an employee is counted as a full-time employee for purposes of the employer mandate. Employers may rely on this guidance at least through the end of 2014.
- Safe Harbor for Ongoing Employees. Employers may determine each "ongoing" employee's full-time status by looking to a "standard measurement period." An "ongoing" employee is generally an employee who has been employed by the employer for at least one complete "standard measurement period." A "standard measurement period" must be at least three but not more than 12 consecutive calendar months, as chosen by the employer. If an employer determines that an employee averaged at least 30 hours per week during the standard measurement period, then the employer must treat the employee as a full-time employee during a subsequent "stability period," regardless of the employee's actual number of hours of service during the stability period, so long as the employee remains employed by the employer. The stability period must be a period of at least six consecutive calendar months and must be at least as long as the standard measurement period (and must begin after the standard measurement period and any applicable administrative period, as discussed below).
- For example, Company A chooses to use a 12-month calendar year stability period that begins January 1st and a 12-month standard measurement period that begins October 15th. Jane Smith has been continuously employed by Company A for several years. Jane Smith works full-time during the standard measurement period that begins October 15, 2012 and ends October 14, 2013. As a result, Jane Smith is an ongoing employee with respect to the stability period for calendar year 2014. Because Jane Smith worked full-time during the standard measurement period from October 15, 2012 through October 14, 2013, Jane Smith must be offered coverage under Company A's group health plan for the entire calendar year 2014 or Company A will be subject to a penalty.
Employers may use measurement periods and stability periods that differ in length, or in starting and ending dates, for the following categories of employees: (1) collectively-bargained employees and non-collectively bargained employees; (2) salaried and non-salaried employees; (3) employees of different entities; and (4) employees located in different states.
Administrative Period for Ongoing Employees. Employers may end the standard measurement period before the associated stability period begins, in order to allow time to take necessary administrative steps to determine which employees are eligible for coverage under the employer's group health plan and to notify and enroll employees. This shortened measurement period is called an "administrative period." Any administrative period may last up to 90 days. However, any administrative period between the standard measurement period and the stability period may not reduce or lengthen the measurement period or the stability period.
- In the above example, the period from October 15, 2013 through December 31, 2013 is an "administrative period."
- An employer is not required to have an administrative period. To prevent an administrative period from creating gaps in coverage, any administrative period must overlap with the prior stability period, so that ongoing employees who are eligible for coverage based on a prior measurement period would continue to be offered coverage during a subsequent administrative period.
- Continuing the above example, Jane Smith must be offered coverage under Company A's group health plan for the entire 2014 calendar year stability period, which includes the administrative period from October 15, 2014 through December 31, 2014.
- New Employees Reasonably Expected to Work Full-Time. If an employee is reasonably expected to work full-time when hired, the employer must offer coverage to the employee on or before the third month anniversary of the employee's start date.
- New Employee Safe Harbor for Variable Hour and Seasonal Employees. Employers may not extend the measurement period and the administrative period beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee's start date. For variable hour and seasonal employees, employers may use an "initial measurement period" of between three and 12 months (as determined by the employer).
- Transition from New Employee Rules to Ongoing Employee Rules. After a new employee, who has been employed for an initial measurement period, is employed for an entire standard measurement period, the employee must be tested for full-time status beginning with that standard measurement period, at the same time and under the same conditions as ongoing employees.
- Optional Administrative Period for New Employees. In addition to the initial measurement period, an employer may apply an administrative period before the start of the stability period for new employees. The administrative period may not exceed 90 days. The combined length of the initial measurement period and the administrative period applicable to a new variable hour or seasonal employee cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's start date.
- Link to Guidance. For more information, see Notice 2012-58.
Guidance on 90-Day Waiting Period Limitation
The Affordable Care Act provides that, for plan years beginning on or after January 1, 2014, a group health plan cannot apply any waiting period that exceeds 90 days. This provision applies to both grandfathered and non-grandfathered plans. The Department of Labor, Department of Health and Human Services and Department of the Treasury have issued guidance on how to apply the 90-day waiting period limitation. This guidance will remain in effect at least through the end of 2014. Regulations or other guidance on the 90-day waiting period limitation are expected to be issued for periods after 2014.
"Waiting Period" Defined. A "waiting period" is the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan becomes effective. For purposes of this definition, being eligible for coverage means having met the plan's substantive eligibility requirements (that is, being in an eligible job classification or achieving job-related requirements specified in the plan's terms).
- Eligibility conditions based solely on the lapse of a time period cannot exceed 90 days.
- Other eligibility conditions generally are permissible, unless the condition is designed to avoid compliance with the 90-day waiting period limitation.
- If an employee may, under the terms of the plan, elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation will be considered satisfied. In other words, the 90-day waiting period limitation will not be violated merely because an employee takes additional time to elect coverage.
- Application to Variable-Hour Employees. When a plan requires an employee to regularly work for a specified number of hours per period (or to work full-time), and it cannot be determined that a newly-hired employee is reasonably expected to regularly work that number of hours per period (or to work full-time), the plan may take a reasonable period of time to determine whether the employee meets the plan's eligibility condition.
- Links to Guidance. For more information, see DOL Technical Release 2012-02, Notice 2012-59, and HHS Guidance on 90-Day Waiting Period Limitation under Public Health Service Act § 2708.