With 2015 just a few weeks away, employers with 100 or more full-time and full-time equivalent employees should be gearing up for the implementation of the Affordable Care Act (“ACA”) employer mandate, which subjects employers to a tax for:
Failing to offer any health care coverage to 95% (for 2015 only, 70%) of their full-time employees (and their dependents); or
Failing to offer minimum essential coverage that is affordable and that provides an actuarial value of at least 60% of the employee’s likely health care costs.
Employers with between 50 to 99 full-time and full-time equivalent employees received a one year reprieve and are not subject to the employer mandate until January 1, 2016.
Identify “Full-time Employees”
First, employers should be identifying the employees who will be treated as “full-time employees” under the ACA. While employers may choose to just count hours on a month-by-month basis, this approach does not provide much certainty as the identity of “full-time employees” could vary from month to month. A more stable approach is to adopt a look-back method where it’s determined who worked an average of 30 hours per week (the ACA’s definition of “full-time”) over a standard measurement period of between six months to a year. Bear in mind, that if there are employees whose hours will vary and it is not clear if they are full-time or not, employers are allowed to measure their hours when they start work (and not provide insurance during that time period) for a standard measurement period. The key rule here is that the employer must live with the calculation (i.e., the stability period) for at least as long as it was measured and at least six months.
Update Plan Documents & Employee Handbooks
Most of the critical calculations likely already have been done. And, employers likely have been working diligently with their carriers and third-party administrators on revisions to their benefits plans and summary plan descriptions. But, an equally important step is ensuring applicable employee handbook language reflects these changes.
Because the ACA provides that employees working 30 or more hours per week qualify for coverage, employers should revise their employee handbooks where applicable to ensure compliance with this mandate. In particular, for at least health benefits purposes, employers should ensure their employee handbooks properly define full-time employees as those working 30 hours or more per week, as opposed to the historic 40-hour requirement for all purposes. If an employer previously chose to exclude “part-time” employees (those who work less than 30 hours a week) from its health plan, they should ensure that this exclusion is stated clearly in the handbook, with the proper distinction of full-time versus part-time employees.
The ACA only governs health insurance, however, so an employer is free to establish different eligibility standards for other benefits (paid time off, bonuses, etc.). For example, an employer can maintain a different definition of “full-time” (other than those who work 30 or more hours per week) for the purpose of identifying which employees are eligible to accrue vacation time, provided the distinction is clear in the employee handbook.
The ACA also permits orientation periods for purposes of health care coverage eligibility to be capped at one month (which is determined by adding one calendar month and subtracting one calendar day from the employee’s start date). While orientation periods may be established for other purposes, it is best to revise handbooks now to make clear that for health insurance purposes there is no more than a one-month orientation period. Additionally, as of January 1, 2015, a group health plan may not apply a waiting period that exceeds 90 days for an individual (full-time and part-time, if applicable) to receive benefits coverage under employer-shared responsibility plans.
Enrollment forms used in open enrollment for mid-year hires and for changes in status should be updated to reflect any changes in plan eligibility, and should include a request for taxpayer identification numbers (TIN) for each dependent. New informational reporting requirements under Internal Revenue Code Sections 6055 and 6056 will require a TIN.
Setting Employee Premiums
When setting employee premiums for 2015 and subsequent years, remember the three affordability safe harbor provisions offered by the IRS. Doing so will ensure the business avoids the $3,000 per year “play-or-pay” penalty for those full-time employees to whom it offers coverage. These three safe harbors are:
The rate of pay safe harbor,
The Form W-2 wages safe harbor, and
The federal poverty line safe harbor.
Depending on the safe harbor provision used, coverage is considered affordable if the premium does not exceed 9.5% of:
The employee’s monthly salary, or in the case of an hourly employee, the employee’s hourly rate multiplied by 130, or
The employee’s box 1 Form W-2 wages for the year, divided by 12, or
The federal poverty line for a single individual for the applicable year, divided by 12.
In order to make a reasonable calculation of the likely limits of the employee’s premium, employers would be wise to look at their lowest-paid employee and calculate from there. (Remember that for 2015 only, the obligation is to provide affordable coverage for 70% of the eligible workforce.) With the effective date of the employer mandate quickly approaching, employers should be actively working with their benefits provider now to be certain the coverage options available to the employees are affordable by ACA standards.
The ACA and its regulations are highly complex and each employer should seek the guidance of a qualified professional prior to making any decisions on benefits programs and business objectives related to health care reform.