The Affordable Care Act Overview Chapter #10 B. Table of Contents What Coverage Must Be Offered? .................. 9 C. 4980H(a) Penalties for Failure to Offer Coverage .................................................................... 9 I. INTRODUCTION .............................. 2 II. BACKGROUND ................................. 2 III. SUMMARY OF ACA ......................... 2 D. 4980H(b) Penalties - Affordability and Minimum Value ...................................................... 10 1. 2. Affordability Safe Harbors ................................... 11 Determining if Coverage Provides Minimum Value 11 E. Employer Shared Responsibility Penalty Trigger ..................................................................... 11 A. No Lifetime or Annual Limits .......................... 3 B. Guaranteed Eligibility ....................................... 3 C. Pre-Existing Condition Exclusions ................... 3 VIII. EMPLOYER REPORTING/NOTICE REQUIREMENTS........................................... 11 D. Out of Pocket Maximums ................................. 3 A. FLSA §218b Model Notice.............................. 11 New Hire Wait Periods ..................................... 4 B. IRS Form 6056 ................................................ 12 E. 1. Penalties for Failure to Offer Coverage within 90 Days……….....................................................................4 2. Use of Measurement Periods/Stability Period Safe Harbors ............................................................................4 3. Other Substantive Eligibility Conditions .............4 IV. INDIVIDUAL MANDATE ................ 5 C. Certification of Eligibility for Transition Relief (Fewer than 100 FTEs) ……………………13 IX. MEASUREMENT PERIOD STABILITY PERIOD SAFE HARBOR ....... 13 A. New Hires Safe Harbor................................... 13 V. THE IMPORTANCE OF COUNTING EMPLOYEES ............................. 6 A. Formula to Calculate Employer Status ........... 6 B. Common Law Employees ................................. 6 1. 2. 3. B. VI. Limited Exception for Seasonal Workers ........ 7 SMALL GROUP RULES .................. 8 Ongoing Employees.............................. 15 1. Transition from New Employees to Ongoing Employee Rules……………………………………….16 2. Ongoing Employees: Safe Harbor ........................ 15 3. Use of Optional Administrative Period ................ 16 C. Common Ownership and Control Group Issues .......................................................................... 7 D. Initial Measurement Period ................................... 14 Administrative Period ........................................... 14 Stability Period ..................................................... 14 C. Look-Back Period ........................................... 16 D. Different Measurement Periods/Stability Periods ..................................................................... 16 A. Essential Health Benefits................................... 8 B. Modified Community Rating ............................ 8 X. OTHER LEGAL CONSIDERATAIONS .................................... 16 VII. APPLICABLE LARGE EMPLOYER RULES 8 A. Make sure to keep ACCURATE track of hours worked and pay correctly:...................................... 16 A. Employer Mandate ............................................ 8 1 The Affordable Care Act Overview Chapter #10 B. Employees Misclassified as Independent Contractor....………………………………………17 XI. CONCLUSION ................................. 17 I. INTRODUCTION The Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA) may be the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965. ACA was enacted with the goals of increasing the quality, affordability and availability of health insurance through online healthcare exchanges, now called Marketplaces. II. BACKGROUND On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (H.R. 3590) (“the Act”). On March 25, 2010, the House and Senate passed The Health Care and Education Reconciliation Act of 2010 (H.R. 4827) (the “Reconciliation Bill”) which amended several provisions of the Act. Together, the bills comprise the overall healthcare reform legislation package. President Obama signed the Reconciliation Bill into law on March 30, 2010. The law is now known as the Affordable Care Act (“ACA”). Subtitles A and C of title I of the Affordable Care Act reorganized, amended and added to the provisions of Part A of the Public Health Service Act (PHS Act) relating to health insurance issuers in the group and individual markets and to group health plans that are non-federal governmental plans. The PHS Act provisions include section 2701 (fair health insurance premiums), section 2702 (guaranteed availability of coverage), section 2703 (guaranteed renewability of coverage), and section 2794 (ensuring consumers get value for their dollars). Subtitle D of title I of the Affordable Care Act includes section 1302(e) (catastrophic plans) and section 1312(c) (single risk pool). According to the Department of Health and Human Services, “[t]hese provisions will establish a federal floor that ensures individuals and employers in all states have certain basic protections with respect to availability and affordability of health insurance coverage.” Federal Register, Vol. 78, No. 39, February 27, 2013 On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the ACA's individual mandate as an exercise of Congress's taxing power in the case National Federation of Independent Business v. 2 Sebelius, 567 U.S. ___ (2012). However, the Court held that states cannot be forced to participate in the ACA's Medicaid expansion under penalty of losing their current Medicaid funding. Since the ruling, the law and its implementations continue to face challenges in Congress, federal courts and from certain state governments, advocacy groups and business organizations. But, for now, it is the law of the land. III. SUMMARY OF ACA ACA was enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding coverage options, and reducing the cost of healthcare for individuals in need through subsidies and premium tax credits. To that end, individuals are able, today, to obtain healthcare coverage through governmental on-line healthcare exchanges, now called Marketplaces. Although many provisions of ACA have already taken effect, the Department of Treasury, Department of Labor and Department of Health and Human Services are continuing to provide additional guidance and proposed rulemaking on a regular basis. According to recent searches of the Federal Registry, over 11,000 pages of regulations have been promulgated to date. There are three basic components of ACA: 1.The Individual Mandate; 2. Small Group Rules and 3. Employer Shared Responsibility Mandates. The core principle of ACA is to ensure that persons obtain healthcare coverage either individually or through their employers. Significant provisions which took effect in 2014 include: States shall either maintain Marketplaces (previously termed “Exchanges”) or, for states that choose not to run a Marketplace, the Federal government will set up and run a Federally Facilitated Marketplace. The Marketplace allows individuals and small group employers to obtain coverage and possibly qualify for premium tax credits/subsidies to assist with paying for the healthcare coverage. For purposes of healthcare reform only, fulltime employees are defined as those who average 30 hours or more a week of service hours1; 1 An employee’s hours of service include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and (2) each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. 29 CFR 2530.200b-2(a). The Affordable Care Act Overview Small group employers, in Texas defined as those with 50 or fewer employees pursuant to TX SB 1332, are not mandated to offer healthcare coverage to their employees. However, if small group employers do offer coverage, there are certain parameters, discussed below, they must follow to provide ACA compliant plans. In 2015, the Employer Shared Responsibility Mandates require Applicable Large Employers (ALEs) to offer affordable healthcare coverage which meets “minimum value” or face potential penalties for failing to do so.2 Non-exempt individuals without coverage by March 31, 2014, face penalties for failing to procure healthcare coverage. Depending on the individual’s income, a subsidy or premium tax credit may be available through the Marketplace to offset the cost of coverage. Significant reforms to the US Healthcare system, most of which took effect by January 1, 2014, include: 1. Lifetime and Annual limits are eliminated as to Essential Health Benefits (EHBs). 2. All persons who want insurance are guaranteed coverage (as long as these persons enroll in coverage in a timely manner). 3. Pre-existing condition limitations are eliminated. 4. Preventtive Care is paid by the policy at 100% (no out of pocket charge for individual). 5. Wait periods to be offered coverage cannot exceed 90 days.3 6. The maximum out-of-pocket cost limit for any individual Marketplace plan for 2014 can be no more than $6,350 for an individual plan and $12,700 for a family plan. A. No Lifetime or Annual Limits Starting in 2014, insurance carriers (as well as self-insured plans) may not limit the benefits paid out for Essential Health Benefits. Essential Health Benefits (“EHB”s) are defined as: Ambulatory patient services; emergency services; hospitalization; Chapter #10 maternity and newborn care; mental health and substance use disorder services (including behavioral health treatment); prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Lifetime limits and annual dollar limits can still be applied to non-EHB services. Federal Register, Vol. 78, No. 37, February 25, 2013, Final Rules. B. Guaranteed Eligibility Effective for plan years beginning on or after January 1, 2014, the insurance carriers are required to issue a health plan to any applicant – individual or group – regardless of the applicant’s health status or other factors. Prior to 2014, carriers could deny coverage based on health factors, pre-existing conditions or medical expenses in the previous year. Of course, there are limits. For example, an individual is not guaranteed a health plan on his or her way to the hospital after a car accident. Enrollment in coverage in the group market is restricted to open and special enrollment periods and is only available to eligible employees who work or reside in the service area of a network plan. For individuals seeking coverage through a Marketplace, open enrollment for 2014 extends through March 31, 2014. Open enrollment will be from Oct. 1, 2014 through Dec. 31, 2014 for coverage beginning on Jan. 1, 2015. C. Pre-Existing Condition Exclusions Effective for plan years beginning on or after January 1, 2014, ACA prohibits health plans from imposing pre-existing condition exclusions on any enrollees. This means that an individual cannot be denied coverage and coverage cannot be limited to exclude a medical condition the individual had before the plan was effective. D. Out of Pocket Maximums 2 Pursuant to Final Regulations issued on 2-12-14, only groups with 100+ FTEs must provide affordable/minimum value coverage in 2015. Those with 50+ FTEs have to provide affordable/minimum value coverage starting in 2016 or face potential penalties for failure to do so. 3 But see Final Regulations issued on 2-20-14 relating to orientation period possibly extending the 90 day rule. 3 In non-grandfathered plans, the most an individual shall pay during a policy period (usually one year) before your health insurance or plan starts to pay 100% for covered Essential Health Benefits is $6,350. The most a family is required to pay is $12,700. This limit must include deductibles, coinsurance, copayments, or similar charges and any other expenditure required of an individual which is a The Affordable Care Act Overview Chapter #10 qualified medical expense for the EHBs. This limit does not have to count premiums, balance billing amounts for non-network providers and other out-ofnetwork cost-sharing, or spending for non-essential health benefits. E. New Hire Wait Periods The Public Health Service Act § 2708 (“PHS Act”) provides that, for plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days. PHS Act § 2704(b)(4), ERISA § 701(b)(4), and Code § 9801(b)(4) define a waiting period to be the period that must pass with respect to an individual before the individual is eligible to be covered for benefits under the terms of the plan. Notice 2012-59, DOL Technical Release 2012-02 and HHS Bulletin titled Guidance on 90-Day Waiting Period Limitation under Public Health Service Act § 2708. The 90 days refers to calendar days, and not to days worked. The 90-day limit applies to both eligible employees and eligible dependents. Federal Register, Vol. 78, No. 55, March 21, 2013, Proposed Rules However, on February 10, 2014, the departments jointly issued final rules wherein they discussed the use of a “reasonable and bona fide” orientation period. Proposed rules were subsequently issued on February 20, 2014, wherein the departments suggested that a “reasonable and bona fide orientation period” could not exceed one month. This orientation period must be completed before the 90 day wait period begins. http://www.dol.gov/opa/media/press/ebsa/20140220redfeg2.pdf 1. Penalties for Failure to Offer Coverage within 90 Days If a non-governmental group health plan (regardless of size) fails to comply with the 90-day waiting period limitation in 2014, Code Section 4980D imposes a penalty of $100 for each day of the failure as to each individual to whom the failure relates. Such a penalty is payable by the employer sponsoring a single-employer plan and by the plan itself in the case of a multiemployer plan. Additionally, under PHSA Section 2723, for nonfederal governmental plans, a civil penalty of up to $100 per day is payable as to each individual for whom a failure to comply with the 90-day limitation occurs. Finally, for a plan subject to ERISA, a plan participant or the Department of Labor may bring suit under ERISA Section 502 to enjoin the failure of the plan or its insurer to comply with the 90-day limitation or for other appropriate equitable relief. This penalty is IN ADDITION to the penalties assessed by the governmental regulators for failure to 4 provide health insurance to eligible employees and/or providing coverage that does not meet the Affordability and/or Minimum Value Standards. 2. Use of Measurement Periods/Stability Period Safe Harbors Applicable Large Employers may have a category of employees who works variable hours. At the time of hire, the employer may not know if these employees will be considered full-time. Therefore, ALEs are permitted a reasonable amount of time to determine if these specific employees should be considered fulltime. The employer must follow the shared responsibility rules discussed below in the Measurement Period/Stability Period section. IRS Notice 2012-58. 3. Other Substantive Eligibility Conditions As long as the eligibility for health insurance is not based solely on a wait period of longer than 90 days, an employer may use other substantive eligibility conditions which employees must meet before an offer of coverage is made and will be considered to be in compliance with the PHS Act. For example: Some plans require an employee to work a specific number of hours in order to become eligible for health plan coverage. As long as the cumulative hours of service do not exceed 1,200, the plan would not be considered designed to avoid compliance. Please note that the regulations do not allow plans to apply cumulative hours of service to the same individual each year which means that once a person has met the parameters, an employer may not require the person to meet the parameters again on an annual basis. Plans may have eligibility requirements that tie to the job itself, and not to an interval of time. These conditions are permitted. For example, an employee may be required to meet specific licensing requirements to be eligible for the health plan. Coverage must be offered by the 91st day after meeting the specific licensing requirement. A “reasonable and bona fide” orientation period may be imposed which cannot exceed one month of employment. Please note, however, employers should be careful with these requirements. “ While a substantive eligibility condition that denies coverage for employees may be permissible under PHS Act section 2708, an applicable large employer’s denial of coverage to a full-time employee may, nonetheless, give rise to an assessable payment under section 4980H of the Code and its The Affordable Care Act Overview implementing regulations.” Federal Register Vol. 78, No. 55, p. 17315, Ftnt. 7, March 21, 2013 Proposed Rules. The regulations include a number of examples to assist employers in understanding the new hire waiting period limits: A group health plan provides coverage for full-time employees. The plan year is January 1 through December 31. Employee A begins work on January 19, 2014. The employer must offer coverage to Employee A by April 19, 2014. Employee B is hired full-time to be a data entry clerk as of January 30, 2014. Company does not cover data entry clerks under their group health plan. On April 11, Employee B is promoted to a computer programmer. Computer Programmers are eligible for coverage under Company’s health plan. The waiting period for Employee B would begin on April 11, 2014. Coverage must be offered by July 10, 2014. Since Employee B works full-time, Company will be penalized for failing to offer coverage as of May 1, 2014. Company provides that only employees who have completed specified training and achieved specified certifications are eligible for coverage under the plan. Employee C is hired on May 3 and meets the plan’s eligibility criteria on September 22. This triggers the beginning of C’s eligibility period for benefits and and may not exceed 90 days. Coverage under the plan must become effective no later than December 21. Internal Revenue Bulletin: 2013-19; May 6, 2013; REG-122706-12. One month would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is otherwise eligible for coverage. For example, if an employee’s start date in an otherwise eligible position, is May 3, the last permitted day of the orientation period is June 2. https://www.federalregister.gov/articles/20 14/02/24/2014-03811/ninety-day-waitingperiod-limitation IV. INDIVIDUAL MANDATE Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and 5 Chapter #10 affordability of health insurance in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. This Mandate applies to individuals of all ages, including children. The adult or married couple who claims a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption. Exemptions are as follows: 1. Religious conscience. A person is a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law. 2. Health care sharing ministry. A Person is a member of a recognized health care sharing ministry. 3. Indian tribes. A Person is a member of a federally recognized Indian tribe. 4. No filing requirement. A person’s income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on that person’s filing status, age and types and amounts of income. To find out if a person is required to file a federal tax return, use the IRS Interactive Tax Assistant (ITA). 5. Short coverage gap. A person went without coverage for less than three consecutive months during the year. For more information, see question 22. 6. Hardship. The Health Insurance Marketplace, also known as the Affordable Insurance Exchange, has certified that a person has suffered a hardship that makes you unable to obtain coverage. 7. Unaffordable coverage options. A person can’t afford coverage because the minimum amount he must pay for the premiums is more than eight percent of your household income. 8. Incarceration. A person is in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you. 9. Not lawfully present. A Person is not a U.S. citizen, a U.S. national or an alien lawfully present in the U.S. Federal Register, Vol. 78, No. 169, August 30, 2013, Rules and Regulations; See also The Affordable Care Act Overview Chapter #10 http://www.irs.gov/uac/Questions-and-Answers-onthe-Individual-Shared-Responsibility-Provision For, those individuals who do not qualify for an exemption and who do not have coverage by March 31, 2014, the fee for not having insurance in 2014 is $95 per adult and $47.50 per child or 1% of taxable family income (up to $285 for a family), whichever is greater. In 2015, the fee increases to $325 per adult ($162.50 per child) or 2% of family income, whichever is greater. In 2016, the fee increases to $695 per individual or 2.5% of family income. Thereafter, the Tax Penalty will increase by the rate of inflation going forward, or 2.5% of family income. For additional information, see: http://obamacarefacts.com/obamacare-individualmandate.php. (FTE) employees in 2015, the employer must offer healthcare coverage or face potential fines. If the employer has between 50 and 99 FTEs, the employer is not required to offer coverage in 2015 but must prepare a certification to be submitted to the IRS indicating the number of FTEs in 2014. For purposes of determining if the employer is an ALE, the formula requires the following steps: 1. Determine the total number of full-time employees (including any full-time seasonal workers) for each calendar month in the preceding calendar year; 2. Take the total number of part-time hours worked each month, regardless of the number of persons working these hours and divide this number by 120. Perform this formula monthly; 3. Add the number of full-time employees and full-time equivalents described in Steps 1 and 2 above for each month of the calendar year4: a. Add up the 12 monthly numbers; b. Divide by 12 and round down. V. THE IMPORTANCE OF COUNTING EMPLOYEES Key to knowing the rules to follow under ACA is determining the size of the employer. For ACA purposes, the size of the employer rests on its workforce numbers from the previous calendar year. Those employers with at least 50 Full-Time and full-time Equivalent employees (FTEs) are subject to the 26 USC section 4980H (ACA) “pay or play” employer shared liability penalties for failing to offer affordable, minimum value health coverage in 2016. For 2015, those employers with 100 or more FTEs are obligated to offer benefits or potentially face penalties for the failure to do so. These employers are termed Applicable Large Employers or ALEs. An ALE is defined under Section 4980H(c)(2) as an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year. Generally, for purposes of determining applicable large employer status, a fulltime employee includes any employee who was employed on average at least 30 hours a week and, in order to determine if the employer is an ALE, fulltime equivalent employees (formula of part-time hours worked) must be included in the formula. Employers with fewer than 50 full-time and FTEs are not mandated to offer coverage and will not face penalties but, if these employers do offer coverage, there are restrictions as to the ACA Compliant Plans which must be offered and how the premiums for the coverage will be calculated which ALEs do not face. Those mandates are discussed in more detail herein. A. Formula to Calculate Employer Status For 2015, the formula is based on the employer’s size for a 6 consecutive month period in 2014. If an employer has 100 or more Full-Time Equivalent 6 If the average per month is 50 (100 or more for 2014) or more, the employer is an Applicable Large Employer and must comply with offering coverage or face potential 4980H penalties. Example: During each month of 2015, an employer has 35 full-time employees, each of whom averages 32 hours of service per week, and 40 part-time employees, each of whom averages 90 hours of service per month. In this example, each of the 35 employees who average 32 hours of service per week count as one full-time employee for each month. To determine the average number of full-time equivalent employees for each month, take the total hours of service of the part-time employees (up to 120 hours of service per employee) and divide by 120. The result is that the employer has 30 full-time equivalent employees each month (40 × 90 ÷ 120 = 30). By adding the two categories of employees together, the employer would have 65 full-time and full-time equivalent employees. Therefore, the employer is an applicable large employer for 2016. B. Common Law Employees For purposes of determining if an entity employs at least 50 full-time employees, employees are defined as those common law employees who work on average 4 For 2014, the employer only has to use a consecutive 6 month period for this analysis. If the employer is unsure if it has over 100 ALEs, the employer may use the last 6 months of 2014 for this analysis and will not be subject to the 4980H penalties until April 1, 2015. The Affordable Care Act Overview Chapter #10 at least 30 hours per week. A common law employee/employer relationship exists when the employer for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is not an employee. IRS Notice of Proposed Rulemaking; December 28, 2012; [REG-138006-12]; p.14. Conversely, a leased employee (as defined in section 414(n)(2)), a sole proprietor, a partner in a partnership, or a 2-percent S corporation shareholder are not common-law employees. Federal Register, Vol. 78, No. 1, p. 241, January 2, 2013 Proposed Rules. C. Common Ownership and Control Group Issues The ACA requires employers that are “related entities” to count employees as if they are employed by a single entity. The ACA rules are similar to the rules applicable to qualified employee pension plans in this regard and are found in Sections 414(b), (c), (m) and (o) of the Internal Revenue Code. Therefore, all entities and organizations treated as a single employer under the rules contained in Code §414 are combined in determining if an employer is an “applicable large employer.” Consequently, a number of smaller organizations (that may not each have 50 FTEs) could be subject to 4980(H) liability if they are considered under common control according to §414 rules. However, once the “control group” or “common ownership” analysis is completed for purposes of determining whether the employer is an ALE, these rules no longer apply to healthcare coverage. This means that each entity in the control group has the ability to choose its own health plan and any penalties assessed for non-compliance are entity specific. 7 Federal Register, Vol. 78, No. 1, p. 221, January 2, 2013. Also, in calculating the 4980H(a) liability, the “not counting the first 30 rule” would apply proportionality to each member entity. For example, a member entity that accounts for 50% of the total fulltime employees in the control group would pay a penalty of $2000 per year times the number of fulltime employees in that specific entity not counting the first 15 (50% of 30). D. Limited Exception for Seasonal Workers Seasonal worker's hours are included when determining applicable large employer status; however, an employer will not be an applicable large employer if it employed 50 or more full-time employees for no more than 120 days in the preceding calendar year, and the employees causing it to reach or exceed the 50 full-time employee threshold were seasonal employees employed no more than 120 days during the preceding calendar year. For these purposes, four calendar months may be treated as the equivalent of 120 days. The four calendar months and the 120 days are not required to be consecutive. Until further guidance is issued, an employer may use a reasonable, good faith interpretation of existing U.S. Department of Labor guidance on the definition of seasonal employees. Federal Registry, Vol. 78, No. 1, p. 222, January 2, 2013. Example: An employer employs 40 full-time employees for all of 2014. In addition, the employer also has 80 seasonal full-time workers who work from September through December 2014. The employer has 40 full-time employees during each of eight calendar months of 2014, and 120 full-time employees during each of four calendar months of 2014, resulting in an average of 66 full-time employees (rounding fractions down). However, the employer's workforce equaled or exceeded 50 full-time employees (including seasonal workers) for no more than four calendar months in 2014, and the number of full-time employees would be less than 50 during those months if seasonal workers were disregarded. Accordingly, the employer is not an applicable large employer for 2015. E. Seasonal Employees In the Final Rules published on 2-12-14, the regulators finally addressed what is meant by “seasonal employees’. The final regulations provide that a seasonal employee means an employee in a position for which the customary annual employment is six months or less. The reference to customary means that by the nature of the position an employee in this position typically The Affordable Care Act Overview Chapter #10 works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter. In certain unusual instances, the employee can still be considered a seasonal employee even if the seasonal employment is extended in a particular year beyond its customary duration (regardless of whether the customary duration is six months or is less than six months). For example, if ski instructors at a resort have a customary period of annual employment of six months, but are asked in a particular year to work an additional month because of an unusually long or heavy snow season, they would still be considered seasonal employees. VI. SMALL GROUP RULES Small employer groups, in Texas those with 50 or fewer employees, are not required to offer eligible employees healthcare coverage. However, if these employers do offer coverage, beginning on January 1, 2014 or the first date of the plan year, whichever is later, there are several applicable ACA mandates to which these plans must adhere. A. Essential Health Benefits While a small group employer will not face penalties/fines for not offering healthcare coverage to its employees, if the small group employer chooses to offer ACA compliant healthcare coverage, it must offer a plan that includes Essential Health Benefits (“EHB”s). EHBs are: Ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services ( including behavioral health treatment); prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Federal Register, Vol. 77, No. 227, November 26, 2012, Proposed Rules; see also Federal Register, Vol. 78, No. 37, February 25, 2013, Final Rules. B. Modified Community Rating Beginning in 2014, carriers are prohibited from basing the premium rate charged on small group 8 employer plans on anything except for the following factors: 1. Whether the plan or coverage covers an individual or family; 2. Location (Rating area or community in which the employer is located5); 3. Age (within a 3:1 ratio for adults) 4. Tobacco use (within 1.5:1) Federal Register, Vol. 78, No. 39, February 27, 2013 What this rating system means in reality is that carriers may no longer obtain medical data from small employer groups nor may the carriers take into consideration the health of the group when determining the premiums to be charged. VII. APPLICABLE LARGE EMPLOYER RULES The Employer Shared Responsibility Provisions are found in Pension Excise Tax Regulations (26 CFR part 54) Section 4980H. Section 4980H was added to the Code by section 1513 of the Patient Protection and Affordable Care Act, enacted March 23, 2010, Public Law 111–148, and amended by section 1003 of the Health Care and Education Reconciliation Act of 2010, enacted March 30, 2010, Public Law 111–152, and further amended by the Department. This is referred to collectively as the “Employer Mandate”. In accordance with the Employer Mandate and for purposes of the Section 4980H Employer Shared Responsibility Rules, Applicable Large Employers or ALEs, (generally, employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year)6 must either offer Minimum Essential Coverage (“MEC”), which is affordable and meets minimum value, to substantially all eligible employees or face potential fines for failing to do so. IRS Notice 2012-58. Originally, coverage was required to be offered or penalties were to be assessed in 2014. However, on July 2, 2013, the IRS issued a notice delaying the Employer Mandate until 2015. IRS Notice 2013-45. A. Employer Mandate In g eneral, Section 4980H provides that an applicable large employer (ALE) is subject to an 5 Section 2701(a)(2) of the Act directs each state to establish one or more rating areas and charges the Secretary of Health and Human Services (HHS) with reviewing the adequacy of the state-established rating areas. 6 For 2015, these rules apply to Large ALEs who have an FTE count of 100 or more for 6 consecutive months in 2014. In 2016, this rule applies to all ALEs. The Affordable Care Act Overview Chapter #10 assessable payment if either (1) the employer fails to offer to its full-time employees (and their dependents7) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan and any full-time employee is certified to the employer as having received an applicable premium tax credit or costsharing reduction (section 4980H(a) liability), or (2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer-sponsored plan and one or more full-time employees is certified to the employer as having received an applicable premium tax credit or cost-sharing reduction (section 4980H(b) liability). An employer may be liable for an assessable payment under section 4980H(a) or (b) only if one or more full-time employees are certified to the employer as having received an applicable premium tax credit or costsharing reduction. The assessable payment under section 4980H(a) is based on all (excluding the first 80 in 2015 and then first 30 starting in 2016) full-time employees, while the assessable payment under section 4980H(b) is based on the number of fulltime employees who are certified to the employer as having received an applicable premium tax credit or cost-sharing reduction with respect to that employee’s purchase of health insurance for himself or herself on an Exchange. In contrast, an employee’s receipt of a premium tax credit or cost sharing reduction with respect to coverage for a dependent will not result in liability for the employer under section 4980H. Under section 4980H(b), liability is contingent on whether the employer offers minimum essential coverage (MEC) under an eligible employer- sponsored plan, and whether that coverage is affordable and provides minimum value, as determined by reference to the cost and characteristics of employee-only coverage offered to the employee. Section 4980H(c)(4) provides that a full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week. B. What Coverage Must Be Offered? 7 The term dependent means a child (as defined in section 152(f)(1)) of an employee who has not attained age 26. A child attains age 26 on the 26th anniversary of the date the child was born. Dependent does not include the spouse of an employee. However, state law may define spouses as dependents. Federal Registry, Vol. 78, No. 1, p. 241, January 2, 2013. Pursuant to 2-10-14 Regulations, foster children and stepchildren are also excluded from being dependents. 9 ALEs are not required to offer all Essential Health benefits to be compliant with ACA. They are simply required to offer MEC coverage which is defined as: Employer-sponsored coverage (including COBRA coverage and retiree coverage) Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace (also known as an Affordable Insurance Exchange) Medicare Part A coverage and Medicare Advantage plans Most Medicaid coverage Children's Health Insurance Program (CHIP) coverage Certain types of veterans health coverage administered by the Veterans Administration TRICARE Coverage provided to Peace Corps volunteers Coverage under the Nonappropriated Fund Health Benefit Program Refugee Medical Assistance supported by the Administration for Children and Families Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage) State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage) Minimum essential coverage is defined in § 5000A(f) of the Internal Revenue Code8. C. 4980H(a) Penalties for Failure to Offer Coverage The penalty amount for not offering health coverage to “substantially all” of the eligible employees (defined by the IRS as all but 5% or 5 employees, whichever number is greater) is $2,000 per annum for each full-time employee, excluding the first 30 full-time employees. Federal Registry, Vol. 78, No. 1, January 2, 2013. In 2015, the Final Regulations issued on 2-10-14 advise that only 70% of the eligible employees need be offered coverage for 4980H(a) penalties, however the employer may still be subject to other fines, penalties and damage claims which are applicable 8 Minimum essential coverage does not include coverage providing only limited benefits, such as coverage only for vision care or dental care, and Medicaid covering only certain benefits such as family planning, workers' compensation, or disability policies. The Affordable Care Act Overview Chapter #10 including $100 a day ERISA violation for failing to offer coverage to eligible employees, 4980H(b) $3,000 penalties and discrimination lawsuits for the failure to offer coverage to 30% of the eligible employees. Section 4980H(c)(2)(D)(i) provides that the number of individuals employed by an ALE as full-time employees shall be reduced by 309 solely for purposes of calculating the Pay or Play penalty under section 4980H(a). Federal Registry, Vol. 78, No. 1, p.231 January 2, 2013. For example, an employer has 35 full-time employees, and 40 part-time employees, each of whom averages 90 hours of service per month. Using the formula discussed in Section V. A of this Article, the employer would have 65 full-time and full-time equivalent employees. Therefore, the employer is an applicable large employer for 2015. If the ALE did not offer coverage to its eligible employees in 2015, and one eligible employee sought coverage through the Marketplace and received premium tax credits/subsidies, the penalty would be as follows: [35 (Full-time eligible employees) – 30 = 5] X $2,000 = $10,000. This penalty is not tax deductible and is calculated on a monthly basis which equates to $167 a month. The Final Rules of 2-12-14 advise that “[t]he number 80 applies for purposes of the 2015 transition rule in lieu of the number 30 that applies under the general rule because this maintains the same 20-fulltime-employee difference between the applicable threshold number (50 under the general rule; 100 under the 2015 transition rule) and the number of fulltime employees (30 under the general rule; 80 under the 2015 transition rule) by which the applicable large employer’s number of full- time employees is reduced.” Federal Registry, Vol. 79, No. 29, p. 8576, February 12, 2014. The IRS has explained that “substantially all” means that if an employer offers coverage to all but 5% or, if greater, five of its full-time employees (provided that an employee is treated as having been offered coverage only if the employer also offered coverage to that employee’s dependents) the employer will be considered in compliance with the Employer Shared Responsibility Mandates. Federal Registry, Vol. 78, No. 1, p. 232, January 2, 2013.10 As further transition relief, for each calendar month during 2015 and any calendar months during the 2015 plan year that fall in 2016, an applicable large employer member that offers coverage to at least 70 percent (or that fails to offer to no more than 30 percent) of its full-time employees will not be subject to an assessable payment under section 4980H(a). Applicable large employer members qualifying for the transition relief continue to be subject to a potential assessable payment under section 4980H(b). Federal Registry, Vol. 79, No. 29, p. 8565, February 12, 2014. Section 4980H(c)(2)(D)(ii) also provides that in the case of persons treated as a single applicable large employer under the control group/common ownership rules, only one 30 (80 for 2015 only)-employee reduction is allowed with respect to those persons and the reduction is allocated among them ratably on the basis of the number of full-time employees employed by each. Federal Register, Vol. 78, No. 1, p. 231, January 2, 2013. D. 4980H(b) Penalties - Affordability and Minimum Value Section 4980H(b) liability may arise because, with respect to a full-time employee who has been certified to the employer as having received an applicable premium tax credit or cost-sharing reduction, the employer’s coverage is unaffordable within the meaning of section 36B(c)(2)(C)(i) or does not provide minimum value within the meaning of section 36B(c)(2)(C)(ii). Employers who offer coverage to at least 95% (70% for 2015 only) of their full-time employees, but whose employees receive tax credits/subsidies through the Marketplace because coverage is not affordable and/or does not meet minimum value, will be subject to a fine of up to $3,000 per annum for each eligible employee who receives a premium tax credit/subsidy. In 2016, if an ALE has at least 50 full-time employees and offers coverage to at least 95% of the eligible full-time employees, the ALE is still subject to a penalty starting in 2015 if: A full-time employee’s contribution for employee-only coverage exceeds 9.5% of the employee’s household income (Note: see below regarding a proposed affordability “safe harbor”) or the plan’s value is less than 9 Fines may be reduce by 80 full-time employees for 2015 only. The Final Rules of 2-10-14 advise that “The number 80 applies for purposes of the 2015 transition rule in lieu of the number 30 that applies under the general rule because this maintains the same 20-full-time-employee difference between the applicable threshold number (50 under the general rule; 100 under the 2015 transition rule) and the number of full-time employees (30 under the general rule; 80 under the 2015 transition rule) by which the applicable large employer’s number of full- time employees is reduced.” 10 Author’s Note: Remember, however, that the Substantially All Safe Harbor does not prevent an ERISA or discrimination lawsuit from being filed. As well, this Safe Harbor does not protect against fines assessed of $100 per day for failure to offer coverage to eligible employees. 10 The Affordable Care Act Overview Chapter #10 60%; and The employee’s household income is b e t w e e n 1 0 0 % a n d 400% of the federal poverty level; and The employee waives the ALE’s coverage and purchases coverage in t he Mar ket pl ace ( previ ousl y Exchan ge) and r ecei ves premium tax credits/subsidies. In 2015, this penalty only applies to ALEs with 100 or more FTEs. However, if anALE offers affordable minimum value coverage to 70% of its eligible workforce, the employer could be subject to this penalty as to the 30% to whom it failed to offer coverage. The penalty will be calculated separately for each month in which any of the above conditions apply. The amount of the penalty for a given month equals the number of full- time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000. 1. Affordability Safe Harbors Coverage is "unaffordable" if the employee's share of the premium is more than 9.5% of his or her annual household income. However, employers generally do not know their employees' household incomes. The proposed regulations provide the following affordability safe harbors that employers may use to determine if their coverage is affordable: W-2 safe harbor: If the employee's contribution for single coverage under the employer's lowest cost medical option does not exceed 9.5% of the employee's Box 1, W2 pay for that year, the affordability test is satisfied. Rate of pay safe harbor: If the employee's contribution for single coverage under the lowest cost medical option offered by the employer does not exceed 9.5% of the employee's monthly wage amount, the affordability test is satisfied. Please note however, that this method of calculation cannot be used for tipped or commission based employees. Federal Registry, Vol. 79, No. 29, p. 8564, February 12, 2014. Federal poverty line safe harbor: If the employee's contribution for single coverage under the employer's lowest cost medical option does not exceed 9.5% of the federal poverty level for a single individual, the affordability test is satisfied. The federal poverty guidelines are generally updated each year. The latest U.S. government figures available are for 2013. See https://www.federalregister.gov/articles/2013 11 /01/24/2013-01422/annual-update-of-thehhs-poverty-guidelines. 2. Determining if Coverage Provides Minimum Value In general, an employer's health coverage provides "minimum value" only if it covers at least 60% of the total allowed costs of benefits that are expected to be incurred under the plan. The HHS has provided a minimum value calculator available to help employers determine whether their coverage provides minimum value. The link to this calculator is found here:www.cms.gov/CCIIO/Resources/.../mvcalculator-final-4-11-2013.xlsm. Employers will input certain information about their plan (e.g., deductibles and co-pays) into the calculator and get a determination as to whether their coverage provides minimum value. E. Employer Shared Responsibility Penalty Trigger Neither the penalty for failing to offer any coverage or the failure to offer affordable minimum value coverage are triggered simply because a fulltime employee seeks coverage from the Marketplace. These penalties are only triggered if one full-time employee obtains subsidized Marketplace coverage. An employee can obtain subsidized Marketplace coverage only if: 1. his or her household income is between 100% and 400% of the federal poverty line (currently $11,490 - $45,960 for individual; $23,550-$94,200 for family of 4); 2. he or she enrolls in Marketplace coverage and is not eligible for Medicaid (or other government coverage); 3. and either no employer coverage is offered or the employer coverage offered fails to meet either a minimum value test or an affordability test. VIII. Employer Reporting/Notice Requirements Today, there are not many mandates placed on employers with respect to notifying employees and the federal government of the status, availability and contents of the employer’s health plan. However, there are two which you should know well: A. FLSA §218b Model Notice In accordance with FLSA § 218b, virtually all employers (those subject to the Fair Labor Standards Act) were required to provide a Marketplace Notice to ALL of their employees no later than October 1, 2013. As well, all employers subject to the FLSA are The Affordable Care Act Overview Chapter #10 required today and moving forward to provide newly hired employees with this Notice within 14 days of employment. The intended purpose of the Notice is to advise employees of their rights and responsibilities with respect to the Marketplace as well as information regarding the employer’s health plan (what it is, who is eligible and if it meets affordability and minimum value tests). While employers may create their own Notices (tracking the language required in FLSA §218b, the U.S. Department of Labor also provided Model Notices for use here: http://www.dol.gov/ebsa/healthreform/index.html. The Notices are available on the U.S. DOL website in English and Spanish. Please note that the expiration date of the DOL Notice was November 30, 2013. However, as there has not been an updated notice provided, employers are still allowed to use the expired notice. According to the U.S. Department of Labor, the notice provided by the employer, or its designated representative, must include: 1. Informing the employee of the existence of Exchanges (now known as “Marketplaces”) including a description of the services provided by the Exchanges, and the manner in which the employee may contact Exchanges to request assistance; 2. If the employer plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through an Exchange; and 3. If the employee purchases a qualified health plan through an Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes. U.S. DOL FAQs about Affordable Care Act Implementation Part XI; Part XVI. While there were no fines/penalties specifically associated with an employer’s failure to provide this Notice by October 1, 2013, ACA has a $100 a day general “noncompliance” penalty which may come into play should an employer fail to provide this notice. This general penalty requires employers to correct compliance failures within 30 days of discovery or self-report a $100 a day penalty for failing to comply on IRS Form 8928 for each day the employer failed to comply with a PPACA 12 mandate. U.S. DOL’s Technical Release No. 201302. B. IRS Form 6056 Under Section 6056 of the Internal Revenue Code (“IRC”), Applicable Large Employers must report to the IRS information about their compliance with the employer shared responsibility provisions of Section 4980H of the IRC and about the healthcare coverage they have offered employees. Originally, this reporting requirement was set to begin for the 2014 tax year. However, pursuant to Notice 2013-45 (2013-31 IRB 116), the Department of Treasury provided transitional relief for 2014 from the 6056 reporting requirements and postponed the requirement until the 2015 tax year. Section 6056 also requires those employers to furnish related statements to employees by January 31 of the calendar year following the calendar year for which the return must be filed so that the employees may use the statements to help determine whether, for each month of the calendar year, they can claim on their tax returns a premium tax credit under section 36B of the IRC. The IRS has advised that the information reported will be used to administer and ensure compliance with the eligibility requirements for the employer shared responsibility provisions and the premium tax credit. Source: Federal Register, Vol. 78, No. 174, September 9, 2013 Proposed Rules. C. Certification of Eligibility for Transition Relief (Fewer than 100 FTEs) In order not to be subject to the ALE rules in 2015, an employer with between 50 and 99 FTEs must certify on a prescribed form (expected to be the Form 6056) that it meets the eligibility requirements set forth in paragraphs (1) through (3) listed below. An employer is eligible for the transition relief if it satisfies the following conditions: (1) Limited Workforce Size. The employer employs on average at least 50 full-time employees (including FTEs) but fewer than 100 full-time employees (including FTEs) on business days during 2014. (2) Maintenance of Workforce and Aggregate Hours of Service. During the period beginning on February 9, 2014, and ending on December 31, 2014, the employer does not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition. A reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition. For example, reductions of workforce size or overall hours of service because of business activity such as the sale of a division, changes in the economic marketplace in which the employer operates, The Affordable Care Act Overview Chapter #10 terminations of employment for poor performance, or other similar changes unrelated to eligibility for the transition relief are for bona fide business reasons and will not affect eligibility for that transition relief. (3) Maintenance of Previously Offered Health Coverage. During the coverage maintenance period the employer does not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014. An employer will not be treated as eliminating or materially reducing health coverage if (i) it continues to offer each employee who is eligible for coverage during the coverage maintenance period an employer contribution toward the cost of employeeonly coverage that either (A) is at least 95 percent of the dollar amount of the contribution toward such coverage that the employer was offering on February 9, 2014, or (B) is the same (or a higher) percentage of the cost of coverage that the employer was offering to contribute toward coverage on February 9, 2014; (ii) in the event there is a change in benefits under the employee-only coverage offered, that coverage provides minimum value after the change; and (iii) the employer does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or the employees’ dependents) to whom coverage under those plans was offered on February 9, 2014. The term coverage maintenance period means (1) for an employer with a calendar year plan, the period beginning on February 9, 2014, and ending on December 31, 2015, and (2) for an employer with a non-calendar year plan, the period beginning on February 9, 2014, and ending on the last day of the plan year that begins in 2015. Internal Revenue Bulletin 2014-9, February 24, 2014. IX. Measurement Period Stability Period Safe Harbor The Department of Treasury has provided a safe harbor to allow Applicable Large Employers additional time to measure the hours worked by employees when it cannot be determined if the employee is reasonably expected to work on average at least 30 hours per week (“variable hour worker”). As explained in Notice 2011-36 and subsequent notices, determining full-time employee status on a monthly basis may cause practical difficulties for employers, employees, and Affordable Insurance Marketplaces (f/k/a Exchanges). For employers, these difficulties include uncertainty and inability to predictably identify which employees are full-time employees to whom coverage must be provided to avoid a potential section 4980H liability. According to the IRS “[t]his problem is particularly acute if employees have 13 varying hours or employment schedules (for example, employees whose hours vary from month to month). A month-by-month determination may also result in employees moving in and out of employer coverage (and potentially Exchange coverage) as frequently as monthly. This result would be undesirable from both the employee's and the employer's perspective, and would also create administrative challenges for the [Marketplaces].” IRS Notice of Proposed Rulemaking; December 28, 2012; [REG-13800612]; p.33. The stated purpose of this Safe Harbor is “intended to encourage employers to continue providing and potentially to expand group health plan coverage for their employees by permitting employers to adopt reasonable procedures to determine which employees are full-time employees without becoming liable for a payment under § 4980H, to protect employees from unnecessary cost, confusion, and disruption of coverage, and to minimize administrative burdens on the Affordable Insurance Exchanges [Marketplaces]”. IRS Notice 2012-58. There are two categories of employees and different rules apply to each. The first category is a new hire, which is a person who, upon hiring, it cannot be determined if the person will average 30 hours or more of service hours a week. The second category is an ongoing employee, one who has completed a full standard measurement period. Both types of employees must be “variable hour” workers which is defined as “[a]n employee… [for whom], based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week. (The 30 hours per week average reflects the statutory definition of full-time employee in § 4980H(c)(4) and is the definition of “full-time employee” as used in this notice.) IRS Notice 2012-58 A. New Hires Safe Harbor If an employer maintains a group health plan that would offer coverage to the employee only if the employee were determined to be a full-time employee, the employer may use both a measurement period of between three and 12 months (the same as allowed for ongoing employees) and an administrative period of up to 90 days for variable hour and seasonal employees. However, the measurement period and the The Affordable Care Act Overview administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date (totaling, at most, 13 months and a fraction of a month). Federal Register, Vol. 78, No. 1, p. 227, January 2, 2013. 1. Initial Measurement Period For purposes of the Initial Measurement Period, the employer measures the hours of service completed by the new employee for a period of 3 to 12 months (employer choice) beginning either on the employee’s first day of service or the first of the month following first date of service. At the conclusion of this period, the employer determines whether the employee completed an average of 30 hours of service per week or more during this period. If the employee averaged 30 hours or more of service hours during the initial measurement period, and is still employed, the employer must offer coverage for the stability period which must be a period of at least six consecutive calendar months and no shorter than the initial measurement period. If a new variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period, the employer is permitted to treat the employee as not a full-time employee during the stability period that follows the initial measurement period. This stability period for such employees must not be more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends. Note: An employee or related individual is not considered eligible for minimum essential coverage under the plan and the employer is therefore not subject to the 4980H penalties during this period. However, the employee may be eligible for a premium tax credit or cost-sharing reduction through a Marketplace during any period when coverage is not offered, including any measurement period or administrative period prior to when coverage takes effect. 2. Administrative Period In addition to the initial measurement period, the employer is permitted to apply an administrative period before the start of the stability period. The purpose of this administrative period is to allow the employer the opportunity to assess whether coverage is owed and offer coverage, if owed. This administrative period must not exceed 90 days in total. For this purpose, the administrative period includes all periods between the start date of a new variable hour or seasonal employee and the date the employee is first offered coverage under the employer’s group 14 Chapter #10 health plan, other than the initial measurement period. Thus, for example, if the employer begins the initial measurement period on the first day of the first month following a new variable hour or seasonal employee’s start date, the period between the employee’s start date and the first day of the next month must be taken into account in applying the 90-day limit on the administrative period. Similarly, if there is a period between the end of the initial measurement period and the date the employee is first offered coverage under the plan, that period must be taken into account in applying the 90-day limit on the administrative period. Again, the combined length of the initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date (totaling, at most, 13 months and a fraction of a month). Example: 12-Month Initial Measurement Period Preceded by Partial Month Administrative Period and Followed by 2-Month Administrative Period:. For new variable hour employees, Employer B uses a 12-month initial measurement period that begins on the first day of the first month following the start date and applies an administrative period that runs from the end of the initial measurement period through the end of the second calendar month beginning on or after the end of the initial measurement period. Employer B hires Employee Y on May 10, 2014. Employee Y’s initial measurement period runs from June 1, 2014, through May 31, 2015. Employee Y works an average of 30 hours per week during this initial measurement period. Employer B offers coverage to Employee Y for a stability period that runs from August 1, 2015 through July 31, 2016. Conclusion. Employer B does not satisfy the standards for the safe harbor method because the combination of the initial partial month delay, the twelve-month initial measurement period, and the two month administrative period means that the coverage offered to Employee Y does not become effective until after the first day of the second calendar month following the first anniversary of Employee Y’s start date. Accordingly, employer B is potentially subject to a payment under §4980H and fails to comply with PHS Act § 2708. Notice 2012-58. 3. Stability Period For an employee determined to be full-time during the measurement period, the employee would be treated as full time during the subsequent stability period during which coverage must be offered as long as the employee remains employed and regardless of The Affordable Care Act Overview Chapter #10 the number of hours the employee works during the stability period. The stability period must be a period of at least six consecutive calendar months that follows the measurement period and is no shorter in duration than the measurement period. If the employee were determined not to be a full-time employee during the measurement period, the employer would be permitted to treat the employee as not a full-time employee during a stability period that followed the measurement period, but the stability period could not exceed the measurement period. IRS Notice 2012-58; IRS Notice 2011-36. Example: Company offers health coverage to full-time employees working 30 or more hours per week. Employee C is hired as a variable-hour employee, with hours expected to fluctuate between 20 and 45 per week. Employee C’s first day of work is October 25, 2014. On the date of hire, it is not known if Employee C will work 30 or more hours per week. Company has an 11-month measurement period, and their administrative period is one month measured from the first of the month following the end of the measurement period. Employee C works full-time during the measurement period, and must therefore be offered coverage by November 1, 2015. This arrangement satisfies the waiting period rules. IRS Notice 2012-58. B. Ongoing Employees For ongoing employees, employers generally will be permitted to use the safe harbor method based upon measurement and stability periods described in Notices 2011-36 and 2012-17. The measurement period the employer chooses to apply to ongoing employees is referred to in this notice as the “standard measurement period.” An “ongoing employee” is defined by the IRS as “generally an employee who has been employed by the employer for at least one complete standard measurement period”. IRS Notice 2012-58. 1. Transition from New Employee Rules to Ongoing Employee Rules Once a new employee, who has been employed for an initial measurement period, has been 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 other ongoing employees. Accordingly, for example, an employer with a calendar year standard measurement period that also uses a one-year initial measurement period beginning on the employee’s start date would test a new variable hour employee whose start date is 15 February 12 for full-time status first based on the initial measurement period (February 12 through February 11 of the following year) and again based on the calendar year standard measurement period (if the employee continues in employment for that entire standard measurement period) beginning on January 1 of the year after the start date. An employee determined to be a full-time employee during an initial measurement period or standard measurement period must be treated as a fulltime employee for the entire associated stability period. This is the case even if the employee is determined to be a full-time employee during the initial measurement period but determined not to be a full-time employee during the overlapping or immediately following standard measurement period. In that case, the employer may treat the employee as not a full-time employee only after the end of the stability period associated with the initial measurement period. Thereafter, the employee’s fulltime status would be determined in the same manner as that of the employer’s other ongoing employees. In contrast, if the employee is determined not to be a full-time employee during the initial measurement period, but is determined to be a full-time employee during the overlapping or immediately following standard measurement period, the employee must be treated as a full-time employee for the entire stability period that corresponds to that standard measurement period (even if that stability period begins before the end of the stability period associated with the initial measurement period). Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees. IRS Notice of Proposed Rulemaking; December 28, 2012; [REG-138006-12], p. 40. 2. Ongoing Employees: Safe Harbor Under the safe harbor method for ongoing employees, an employer determines each ongoing employee’s full-time status by looking back at the standard measurement period (a defined time period of not less than 3 but not more than 12 consecutive calendar months, as chosen by the employer). The employer has the flexibility to determine the months in which the standard measurement period starts and ends, provided that the determination must be made on a uniform and consistent basis for all employees in the same category. For example, if an employer chose a standard measurement period of 12 months, the employer could choose to make it the calendar year, a non-calendar plan year, or a different 12-month period, such as one that ends shortly before the start of the plan’s annual open enrollment season. If the employer determines that an employee averaged at least 30 hours per week during the standard The Affordable Care Act Overview measurement period, then the employer treats the employee as a full-time employee during a subsequent “stability period”, regardless of the employee’s number of hours of service during the stability period, so long as he or she remained an employee. IRS Notice 2012-58. For an employee whom the employer determines to be a full-time employee during the standard measurement period, the stability period would be a period of at least six consecutive calendar months that is no shorter in duration than the standard measurement period and that begins after the standard measurement period (and any applicable administrative period, as discussed below). If the employer determines that the employee did not work full-time during the standard measurement period, the employer would be permitted to treat the employee as not a full-time employee during the stability period that follows, but is not longer than, the standard measurement period. IRS Notice 2012-58 3. Use of Optional Administrative Period Because employers may need time between the standard measurement period and the associated stability period to determine which ongoing employees are eligible for coverage, and to notify and enroll employees, an employer may make time for these administrative steps by having its standard measurement period end before the associated stability period begins. IRS Notice 2012-58 The Optional Administrative Period: • • • • Cannot exceed 90 days. For ongoing employees must overlap previous stability period. May not extend either the measurement or coverage period. Must include all days between start date and when employee first enrolled in coverage (except the initial measurement period). C. Look-Back Period In order to use the Measurement Period/Stability Period Safe Harbor as to variable hour workers, employers must start tracking their employee hours now in order to know to whom coverage must be offered in 2015. Under the look-back/stability period safe harbor method, an employer would determine each employee’s full-time status by looking back at a defined period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer (the measurement period), to determine whether during the measurement period the employee averaged at least 30 hours of service per week. If the employee were determined to be a full-time employee during the measurement period, then the employee 16 Chapter #10 would be treated as a full-time employee during a subsequent “stability period,” regardless of the employee’s number of hours of service during the stability period, so long as he or she remained an employee. D. Different Measurement Periods/Stability Periods Employers may use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees: Collectively bargained employees and noncollectively bargained employees. Salaried employees and hourly employees. Employees of different entities. Employees located in different states. IRS Notice 2012-58. Generally, once a MP/SP has been chosen, the employer may only change its standard measurement period and stability period for subsequent years, but generally may not change the standard measurement period or stability period once the standard measurement period has begun. IRS Notice of Proposed Rulemaking; December 28, 2012; [REG138006-12]; p.35. X. OTHER LEGAL CONSIDERATAIONS It is imperative that we, as attorneys, keep in mind other legal and regulatory issues which may harm an unwitting employer. To that end, following is a brief summary of other regulations, regulatory initiatives and legal complications that may bear out in the wake of ACA: A. Make sure to keep ACCURATE track of hours worked and pay correctly: In fiscal year 2013, the U.S. Department of Labor Wage and Hour Division recovered nearly a quarter of a billion dollars in back wages for workers around the country whose employers improperly denied them pay they had earned. The cases processed during that 12month period benefited more than 269,250 workers who recouped $249,954,412 in back wages. Nearly a third of that money was secured for low-wage workers. "Employers who commit minimum wage, overtime and other wage violations deny workers their full hard-earned income, and we are committed to ensuring that the money is in the hands of those who worked for it," said Laura Fortman, principal deputy administrator for the Wage and Hour Division. "That's money that they will spend on the rent, on The Affordable Care Act Overview Chapter #10 transportation, to put food on the table, and to buy clothes for their kids." Since the beginning of 2009, the Wage and Hour Division has closed 145,884 cases nationwide, resulting in more than a billion dollars in back wages for 1,238,589 workers. U.S. DOL News Brief, December 12, 2013 Not only do these statistics clearly indicate that the U.S. Department of Labor is committed to ensuring workers are paid correctly, but this reinforces the need to accurately track hours worked to determine who in workforce will be eligible for benefits under ACA and when. B. Employees Misclassified as Independent Contractors Both the U.S. Department of Labor and the Internal Revenue Service have announced that addressing the issue of misclassified workers is a high priority for their audit and enforcement activities. http://www.dol.gov/whd/workers/misclassification/ Independent Contractors (1099 workers) are by definition NOT employees. Therefore, independent contractors are not counted for ALE purposes. Independent Contractors are also, generally, not eligible for healthcare coverage through the company. If a person is misclassified as an independent contractor, not only may the employer owe overtime for hours worked beyond 40 in a regular workweek, but the employer could be subject to fines and penalties for its failure to offer the misclassified employee health insurance benefits and/or depending on the makeup of the organization, the number of misclassified workers could cause an employer to be an ALE when otherwise, it would not be. Complying with the ACA’s provisions requiring employers to count their employees and identify which are “full-time,” as a foundational matter, begin with distinguishing employees from independent contractors. The financial stakes for errors in worker classification are high and will only increase once the ACA is fully effective. Non-employee status should be examined and documented. Now is the time to correct the misclassification of workers who are erroneously treated as independent contractors. However, this does not mean that workers who currently are employees should be reclassified as independent contractors to avoid the ACA’s mandates. XI. CONCLUSION There are many aspects of ACA still to be worked out and many unanswered questions lingering. However, with over 20,000 pages of regulations, notices and proposed regulations already promulgated, it is important that we advise our clients as to what 17 they need to do to avoid fines and penalties. Items you may want to discuss with your clients include: 1. Determination of whether the employer is a small group employer or an ALE; 2. Legal analysis of common ownership and control group issues to ensure that an employer does not think he/she is a small group employer when, in fact, the employer is an ALE. 3. Educate your ALEs on the importance of accurately tracking the workforce today to determine who may be eligible for coverage in 2015 and to set up appropriate measurement periods/stability periods. 4. Analyze your clients’ use of independent contractors to ensure these persons are not misclassified.