Health Care Reform Bulletin

Transcription

1 Health Care Reform Bulletin January 18, 2013 (This communication contains updates based upon the Proposed Regulations issued 12/29/12. All changes in red.) GUIDANCE ON DETERMINING FULL-TIME EMPLOYEE EQUIVALENT STATUS FOR PURPOSES OF THE EMPLOYER MANDATE ( PAY OR PLAY ) and the 90-DAY MAXIMUM WAITING PERIOD The IRS, and the Departments of Health and Human Services and Labor (the Agencies ) have issued guidance to assist employers in determining and identifying full-time employees, and full time equivalent employees, who must be offered group health coverage under the employer shared responsibility provisions ( Pay or Play ) of the Affordable Care Act ( ACA or Health Care Reform ). These methods are also coordinated with new guidance pertaining to the 90 day maximum waiting period for group health insurance coverage established under the ACA. This communication will address both pieces of new guidance, as well as additional guidance released on the Pay or Play Mandate on December 29, Part I: Determining Full-Time Employee / Full-Time Employee Equivalent Status under Health Care Reform s Employer Shared Responsibility Rules (Pay or Play) Background: Beginning January 1, 2014, (or in some cases the first plan year after January 1, 2014),Health Care Reform requires an applicable large employer to offer affordable and comprehensive health coverage to all of its full time employees or be subject to a penalty. This provision is widely referred to as the Employer Mandate section of Health Care Reform or the Pay or Play Mandate. In short, the Pay or Play Mandate applies to employers that employ 50 or more full time or full time equivalent employees. Under Health Care Reform, a full-time employee is generally considered an employee that regularly works 30+ hours per week. These rules become much more complex when attempting to count part-time employees, variable hour employees and seasonal employees. This communication contains a series of FAQs in an

2 attempt to somewhat break-down the counting process for different types of employees. One must keep in mind that even though some part-time employees will be included to determine whether an employer is a large employer, those employees will still not be subject to the Pay or Play Mandate. In other words, only large employers will need to offer coverage to full-time employees to avoid a penalty. Such employers will not have to offer coverage to parttime employees. However, the guidance will require employers to cover some variable hour or seasonal employees that will fall into the category of full time equivalent employees based on a formula. FAQ#1: What is considered a large employer under Health Care Reform so as to be subject to the Pay or Play Mandate? Under Health Care Reform, a large employer is an employer with at least fifty (50) full-time or full-time equivalent employees. FAQ #2: Who is a full-time employee under Health Care Reform? Under the employer responsibility provisions / Pay or Play Mandate of Health Care Reform one who works, or is reasonably expected to work, an average of at least 30 hours per week is a fulltime employee. FAQ #3: Who is a full-time equivalent employee under Health Care Reform? In order to determine the number of full-time equivalent employees, an employer will take the total monthly hours of all of its regular part time employees divided by 120. Total Monthly Part Time Hours / 120 = # of Full-Time Equivalent Employees Note: These employees, while included in the determination of whether an employer is a large employer subject to Pay or Play, will not have to be offered coverage as they are not full-time employees. FAQ #4: Do Part-Time Employees have to be offered health insurance under the Pay or Play Mandate? No. (See FAQ #3) FAQ #5: When does group health coverage begin for a newly-hired full-time employee? If the employee is expected to work full-time (an average of at least 30 hours per week) on an

3 annual basis and does so during the first ninety (90) days of employment, the employer must offer the employee group health coverage no later than at the end of the employee s first ninety (90) days of employment. FAQ #6: What is a variable hour employee? If, at the time of the employee s start date, it cannot be determined that the employee will work an average of at least thirty (30) hours per week, or if the employee will work an average of at least thirty (30) hours per week but only for a limited duration then the employee is a variable hour employee. FAQ #7: What is a seasonal employee? A seasonal employee generally works for an employer for one hundred twenty (120) days or less during a calendar year. Generally, if an employer s full-time workforce exceeds fifty (50) employees but the excess employees are seasonal employees then the employer would not be considered an applicable large employer for Pay or Play purposes. Employers are permitted to use a reasonable good faith interpretation of the term seasonal for purposes of these rules. In general, the IRS will likely consider the definition to include holiday retail workers, various agricultural workers, and ski instructors. FAQ #8: Will coverage be required for variable hour or seasonal employees under Pay or Play? It depends. The employer will have to perform analysis, consistent with the safe-harbor procedures outlined in this communication, to determine whether the employee in question meets the full-time employee ( FTE ) requirements in order to be considered a full-time employee entitled to coverage under the Pay or Play Mandate. The safe harbor methods used by the employer to determine FTE status of variable hour and seasonal employees is identical. Note: These types of employees are treated differently from regular part-time employees. These types of employees can be considered full-time employees beyond just for counting purposes. (See FAQ #3)

4 FAQ #9: What is the safe harbor method for determining whether a seasonal or variable hour employee is a full-time employee for Pay or Play purposes? An employer will use up to three (3) periods of time to determine whether an employee is a fulltime employee: (1) The standard or initial measurement period a. An employer is not required to offer health coverage, in order to avoid the Pay or Play penalty, unless the employee actually works, on average, at least 30 hours per week. b. The employer can choose the measurement period of between three (3) and twelve (12) months to determine the average hours worked by an employee and to determine if those hours exceed thirty (30). (2) The stability period a. If a variable hours or seasonal employee works the required number of hours during the measurement period, then the worker must be treated as a fulltime equivalent employee during a subsequent stability period. b. The stability period must be a period of at least six (6) months c. The stability period cannot be shorter than the initial measurement period. d. If the variable hours or seasonal employee does not work enough hours to satisfy the FTE requirements, during the initial measurement period, then his or her stability period cannot be more than one (1) month longer than the initial measurement period. e. During the stability period, an employer will not be subject to the Pay or Play penalty if such worker is not provided with health coverage, even if the individual works, on average, at least thirty (30) hours or more per week. (3) The administrative period a. An employer may adopt an administrative period of up to ninety (90) days in between the measurement period and the stability period to give employers time to determine which of the eligible employees will be eligible for coverage and to notify and enroll employees. b. EXAMPLE: i. An employer adopts a 12 month measurement period, which begins on October 15 of Year One and ends on October 14 of Year 2. Then,

5 instead of immediately beginning the stability period on October 15 of Year 2, the employer could adopt an administrative period and begin the stability period on January 1 of Year 3. c. Any administrative period between the standard measurement period and the stability period may neither reduce nor lengthen the measurement period or stability period. d. To prevent any administrative period from creating gaps in coverage, it must overlap with the prior stability period, so that, for ongoing employees, during any such administrative period applicable following a standard measurement period, those employees who are enrolled in coverage because of their status as full-time employees based on a prior measurement period will continue to be covered. e. The initial measurement period and the administrative period, combined, may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary date (totaling, at most 13 months and a fraction of a month). The safe harbor method can be different for ongoing employees and newly-hired employees. FAQ #10: What safe harbor method could an employer use to determine the fulltime status of ongoing employees? An employer could use a standard look-back measurement period. This would reflect the same procedures outlined in FAQ #8 except the employer-defined time period of six (6) to twelve (12) consecutive calendar months would be a look back period of time in which the employee has already worked. This would be followed by a stability period of at least six (6) months, whereby the employee s status would be locked in throughout the period. For instance, if an employee meets the definition of a full-time employee during the standard measurement period, then the employee is a FTE under Pay or Play and the employer would be required to offer that employee coverage or face a penalty throughout the subsequent stability period. Likewise, if an employee does not work full-time during the standard measurement period, the employer would be permitted to lock in the employee s status as NOT a FTE during the subsequent stability period that follows. This would alleviate the employer from any obligation to provide coverage for the employee during the stability period. Again, the subsequent stability period cannot be longer than the initial standard measurement period.

6 FAQ #11: What safe harbor method could an employer use to determine whether newly-hired variable hour and seasonal employees are full-time employees for health coverage purposes? The employer can use an initial measurement period (between three (3) and twelve (12) months) during which the employee s hours are tracked. The resulting classification (part-time or full-time) will then stay with the employee for a subsequent stability period, regardless of the hours worked by that employee during the stability period. In other words, the employee will be locked in to their status during the stability period. A stability period must be at least six (6) consecutive calendar months long, but cannot be shorter than the initial measurement period. FAQ #12: When is an employer required to offer health coverage to an employee who averaged 30+ hours per week during the standard or initial measurement period? The employer should offer coverage during the subsequent administrative period (up to 90 days), if any, or during the stability period. It is important to note that coverage does not need to be offered to employees in the measurement period. FAQ #13: Can an employer apply different measurement, stability and administrative periods for different employees? Generally, the standard measurement period and stability period selected by an applicable large employer must be uniform for all employees; however, the applicable large employer may apply different measurement, stability and administrative periods for the following categories of employees: (a) Each group of collectively bargained employees covered by a separate collective bargaining agreement; (b) Collectively and non-collectively bargained employees; (c) Salaried employees and hourly employees; and (d) Employees whose primary places of employment are in different states FAQ #14: Can an employer make adjustments to a measurement period to accommodate payroll periods? Yes. The proposed regulations allow employers to begin and end measurement periods with the beginning and ending of regular payroll periods if each of the payroll periods is one week, two weeks, or semi-monthly in duration.

7 For example, an employer using the calendar year as a measurement period could exclude the entire payroll period that included January 1 (the beginning of the year) if it included the entire payroll period that included December 31 (the end of the same calendar year), or, alternatively, could exclude the entire payroll period that included December 31 if it included the entire payroll period that included January 1. FAQ #15: Can an employee rehired after termination of employment be treated as a new employee? Yes, in some instances. If the period for which no hour of service is credited is at least 26 consecutive weeks, then the employer may treat an employee as a new employee. An employer may also apply a rule of parity for periods of less than 26 weeks. This would only apply to determining whether the employee is a full-time for employers using the look back method and not for any other purpose. Part II: Guidance Relating to the Application of the Maximum 90-Day Eligibility Waiting Period General Rule: Under Health Care Reform, if an employer chooses to offer health coverage the group health plan or insurance issuer cannot apply an eligibility waiting period that exceeds ninety (90) days, for plan years beginning on or after January 1, FAQ #16: How is eligibility waiting period defined? After the plan s substantive eligibility conditions are met, the eligibility 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 can become effective. FAQ #17: Can an employer exceed the ninety (90) day waiting period to determine an employee s eligibility under the plan? Yes. The employer can implement other conditions for eligibility under the terms of the plan, (example: determining FTE status) unless the conditions are designed to avoid compliance with the ninety (90) day waiting period limitation.

8 FAQ #18: How much time does an employer have to determine whether an employee will be full-time in situations in which the employee was initially hired to work part time or for seasonal work? Up to thirteen (13) months. If an employer uses a twelve (12) month measurement period and determines a variable hour or seasonal employee is a FTE, then coverage must be made effective no later than the first day of the first calendar month after the measurement period or no later than thirteen (13) months after the employee s start date. FAQ #19: What if an eligible employee completes the enrollment forms after the ninety (90) day waiting period is over? As long as the employee is permitted to enroll in the plan within ninety (90) days the employer is in compliance with the law. An employer will not be penalized for an employee s inaction. Benecon will continue to monitor the release of additional guidance regarding these specific issues, as well as all aspects of Health Care Reform. In the meantime, if you would like more information about Health Care Reform, please visit our website at