Affordable Care Act Guidance on Employers Shared Responsibility & Coverage Waiting Period

Transcription

1 Affordable Care Act Guidance on Employers Shared Responsibility & Coverage Waiting Period September 12, 2012 The Internal Revenue Service ( IRS ) and the Departments of the Treasury, Labor ( DOL ), and Health and Human Services ( HHS ) (the Departments ) have simultaneously issued two separate but related notices providing guidance on several provisions of the Patient Protection and Affordable Care Act (the Affordable Care Act ). Notice describes safe harbor methods that employers may use to determine which employees are treated as full-time employees for purposes of the Affordable Care Act s shared responsibility provisions. Specifically, the administrative guidance in Notice modifies and expands on previous guidance and includes a safe harbor method that employers may apply to specified newly-hired employees. Simultaneously with the issuance of Notice , the Departments are jointly providing administrative guidance through Notice to clarify how the Public Health Service Act s ( PHS Act ) section day waiting period limitation coordinates with the Affordable Care Act s employers shared responsibility provisions. Section 2708 applies to group health plans and group health insurance issuers and provides that any waiting period under a group health plan must not exceed 90 days. Notice : Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage I. Background A. Employers Shared Responsibility for offering Minimum Essential Coverage 1 The Affordable Care Act provides that as of 2014, any applicable large employer who fails to offer its full-time employees the opportunity to enroll in minimum essential coverage 1 Sections 1513, and of the Affordable Care Act, adding and amending Code Section 4980H, and Section 1003 of the Reconciliation Act of 2010, further amending Code Section 4980H. 98 North Washington Street Boston, MA (617) Constitution Avenue NE Washington DC (202)

2 through an employer-sponsored health plan, or who offers these employees the opportunity to enroll in such minimum essential coverage that is either: unaffordable because the employee s required contribution would exceed 9.5 percent of the employee s household income; and/or does not provide minimum value because the health plan s share of the total allowed cost of benefits is less than 60 percent is subject to financial penalties if any of these full-time employees purchases health insurance through a state-based American Health Benefit Exchange ( Exchange ) and receives a premium tax credit or cost sharing reduction. 1. Applicable Large Employer Under the Affordable Care Act, an applicable large employer is an employer who employed at least 50 full-time equivalent employees during the preceding calendar year. A fulltime employee is any employee working an average of at least 30 hours each week. If an employer s workforce exceeds this number for 120 days or fewer, however, and the employees causing the workforce to exceed the 50 employee threshold are seasonal workers, the employer is not treated as an applicable large employer. A seasonal worker is a worker who performs labor or services on a seasonal basis, such as over the summer or the winter holiday season. 2. Penalty for Employers Failing to Offer Opportunity to Enroll An applicable large employer failing to offer its full-time employees the opportunity to enroll in minimum essential coverage under an employer-sponsored health plan for any month is subject to a penalty if just one of its full-time employees purchases health insurance through an Exchange who also receives a premium tax credit or cost sharing reduction for purchasing this insurance. The penalty amount is calculated by multiplying the number of all of the full-time employees that exceed 30 during the month by $ (one-twelfth of $2,000), regardless of how many employees are receiving a premium tax credit or cost-sharing reduction. Page 2

3 3. Penalty for Employers Offering Coverage that is Unaffordable or lacking Minimum Value An applicable large employer offering its full-time employees the opportunity to enroll in minimum essential coverage under an employer-sponsored health plan that is unaffordable or without minimum value for any month is likewise subject to a penalty if at least one of its full-time employees purchases health insurance through an Exchange while also receiving a premium tax credit or cost sharing reduction for doing so. The penalty amount is calculated by multiplying only the number of full-time employees receiving a premium tax credit or cost-sharing reduction during the month by $ (one-twelfth of $3,000) Eligibility for Premium Tax Credits and Cost Sharing Reductions Under the Affordable Care Act, and also beginning in 2014, taxpayers with household income falling between 100 percent and 400 percent of the federal poverty level who purchase qualified health plans through state-operated Exchanges can qualify for a health insurance premium tax credit. These low to moderate income individuals purchasing such coverage through an Exchange may also qualify for cost-sharing subsidies to help pay for deductibles, copayments, etc. These cost-sharing reductions are limited to coverage months for which a premium tax credit is allowed to the insured. 3 2 The penalty for both non-offering and offering employers for any month, however, is capped at the amount calculated by multiplying the number of full-time employees during the month that exceed 30 by $ (one-twelfth of $2,000), regardless of how many employees are receiving a premium tax credit or cost-sharing reduction. In other words, the maximum amount that an employer could pay is capped at the penalty it would be assessed for failing to offer the opportunity to enroll in minimum essential coverage. Thus, the penalty imposed on an "offering" employer can never exceed the penalty imposed on a non-offering employer with the same number of employees. 3 Cost-sharing includes deductibles, copayments, or coinsurance, but does not include premiums or spending for non-covered services. Page 3

4 5. Minimum Essential Coverage, Affordable and Minimum Value Defined Interestingly, the term minimum essential coverage does not require the employer to provide certain types of coverage, such as would apply to an essential health benefits plan eligible for certification by an Exchange as a qualified health plan. But the Affordable Care Act does require such minimum essential coverage to be a group health plan offered by an employer that is affordable and that provides minimum value. 4 As a general matter, if an employee is offered affordable minimum essential coverage under an employer-sponsored plan, the individual is ineligible for a premium tax credit and cost sharing reduction for health insurance purchased through an Exchange. If an employee is offered employer-sponsored minimum essential coverage that is not affordable or that fails to provide minimum value, then the employee would be eligible for a premium tax credit and cost sharing reduction if his or her income falls between 100 percent and 400 percent of the federal poverty level. But neither of these exceptions applies if the employee nevertheless chooses to enroll in the employer-sponsored plan. The employee is only eligible for the premium tax credit and cost sharing reduction if he or she declines to enroll in such an employer-sponsored plan and instead purchases coverage through the Exchange. An employer-sponsored plan is not affordable if the employee s required contribution would exceed 9.5 percent of the employee s household income. The employee must seek an affordability waiver from the state Exchange and provide information as to family income and the lowest cost employer option offered to them. The state Exchange then provides the 4 Minimum essential coverage is defined in section5000a(f) of the Internal Revenue Code, as added by the Affordable Care Act, subject to the special rule contained in Code Section 36B(c)(2)(C)(i)and (ii) concerning affordable and providing minimum value. The statutory language actually sets out a special rule for employer-sponsored minimum essential coverage, providing that employees are ineligible for such coverage that is not affordable or that fails to provide minimum value as described. The definition of eligible employer sponsored plan in section 5000A(f)(2)applies for purposes of section 4980H. Page 4

5 waiver to the employee. The employer penalty applies for any employee(s) receiving an affordability waiver. An employer-sponsored plan under which the plan s (or employer s) share of the total allowed cost of the benefits (actuarial value) provided under the plan is less than 60 percent does not provide minimum value. 5 A plan s actuarial value is a summary measure of a health plan s benefit generosity. It is expressed as the percentage of medical expenses estimated to be paid by the insurer for a standard population and set of allowed charges. Definitive guidance on how to make this determination has not yet been issued, although early indications from the Departments seem to suggest that some sort of calculator will be available for purposes of making this determination. The Departments have also suggested that specific safe-harbor checklists will eventually be issued to allow employer-sponsored plans to confirm that they provide minimum value without having to perform such calculations. B. No Financial Penalty Assessed Employers should note that even though they may meet the full-time employee threshold to be a "large employer," they will not be considered such under these penalty provisions unless they have at least one full-time employee who is enrolled in a health plan through an Exchange who also receives a premium assistance tax credit or cost-sharing reduction. In other words, even though a company may meet the full-time employee threshold to be a "large employer," it will not be penalized for failing to offer its employees affordable health insurance unless it has at least one full-time employee who is enrolled in a health plan through an insurance Exchange who also receives a premium assistance tax credit or cost-sharing reduction. And as previously discussed, individuals who are eligible for employer-sponsored coverage can only obtain premium credits for Exchange plans if their income is between 100 to 400 percent of the federal poverty level and (1) if the employee s required contribution exceeds 9.5 percent of the employee s household income or (2) if the plan offered by the employer pays for less than 60 percent of covered healthcare expenses. 5 Failing to provide minimum value, defined in Code Section 36B(c)(2)(C)(ii), as added by the Affordable Care Act. Page 5

6 1. Employer Notification An employer must be notified if one of its employees is determined to be eligible for a premium assistance credit or a cost-sharing reduction because the employer does not provide minimal essential coverage through an employer-sponsored plan, or the employer does offer such coverage but it is not affordable or the plan's share of the total allowed cost of benefits is less than 60 percent. The notice must include information about the employer's potential liability for payments under section 4980H. The employer must also receive notification of the appeals process established for employers notified of potential liability for payments under section 4980H. II. Notice and Guidance A. Summary The Notice provides guidance that 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 financial penalty under the Affordable care Act s employers shared responsibility provisions; to protect employees from unnecessary cost, confusion, and disruption of coverage; and to minimize administrative burdens on the state Exchanges. The Affordable Care Act in general defines a full time employee as any employee working on average at least 30 hours a week. Notice clarifies that this definition not only includes those individuals who can be reasonably expected to work on average at least 30 hours a week, but may also encompass certain variable-hour employees. Notice provides a safe harbor for determining if an employee is full time that allows employers some relief from the need to monitor employee status on a monthly basis. Specifically, the guidance allows an employer to monitor the hours of a variable-hour employee over a three to twelve month measurement or look-back period to determine if the employee averaged 30 or more hours per week during that period. The employer can then rely on those results for purposes of determining whether coverage should be offered to that Page 6

7 employee during a subsequent six-to twelve- month stability period to avoid the no coverage penalty. Notice also introduces the concept of an administrative period between a measurement period and its corresponding stability period to allow employers to enroll employees determined to be full time based on the prior measurement period. 1. Safe Harbor Method The safe harbor method described in Notice provides employers the option to use a look-back measurement period of up to 12 months to determine whether new variable-hour employees or seasonal employees are full-time employees, without being subject to a financial penalty for this period for failing to offer coverage to those employees. An employee is a variable-hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week. In addition, the safe harbor: gives employers the option to use specified administrative periods (in conjunction with specified measurement periods) for ongoing employees (generally an employee who has been employed by the employer for at least one complete standard measurement period, a defined time period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer) and certain newly hired employees; facilitates a transition for new employees from the determination method the employer chooses to use for them to the determination method the employer chooses to use for ongoing employees; and provides employers reliance, at least through the end of 2014, on the guidance in Notice and on the following approaches described in prior notices: Page 7

8 i. for ongoing employees, an employer will be permitted to use measurement and stability periods of up to 12 months; ii. for new employees who are reasonably expected to work full-time, an employer that maintains a group health plan that meets certain requirements will not be subject to financial penalty for failing to offer coverage to the employee for the initial three months of employment; and iii. for all employees, an employer will not be subject to financial penalty for an employee if the coverage offered to that employee was affordable based on the employee s Form W-2 wages reported in Box 1 (often referred to as the affordability safe harbor). 2. Seasonal Employees The Affordable Care Act Code generally provides that if an employer s workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period (of no more than 120 days) were seasonal employees, the employer would not be an applicable large employer. A seasonal worker is a worker who performs labor or services on a seasonal basis, such as during the summer or the winter holiday season. The Affordable Care Act does not address how the term seasonal employee might be defined for purposes other than the determination of applicable large employer status, such as the determination of whether a new employee of an applicable large employer is reasonably expected to work full time for purposes of determining the amount of any financial penalty under Code Section 4980H, the employers shared responsibility provisions. The guidance provides that employers are permitted to use a reasonable, good faith interpretation of the term seasonal employee for purposes of this notice at least through Page 8

9 Notice : Guidance on 90-Day Waiting Period Limitation under Public Health Service Act Section 2708 I. Background A. Prohibition on Excessive Waiting Periods Section 2708, as amended by Section 1201 of the Affordable Care Act, provides that, for plan years beginning on or after January 1, 2014, a group health plan or health insurance issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days. In 2004 regulations, the Departments defined a waiting period to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective. This language does not require the employer to offer coverage to any particular employee or class of employees, including part-time employees. PHS Act section 2708 merely prevents an otherwise eligible employee (or dependent) from having to wait more than 90 days before coverage becomes effective. II. Notice and Guidance A. Summary Simultaneously with the issuance of Notice , the Departments issued Notice , through which The Departments provide temporary guidance concerning compliance with PHS Act section 2708 and the maximum period that may pass before an otherwise eligible individual s coverage becomes effective. The guidance coordinates to a certain extent with the safe harbors described above in Notice The guidance will remain in effect at least through the end of Limited Waiting Period A waiting period is defined as the period 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. For this purpose, being eligible for coverage means having met the plan s substantive Page 9

10 eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan s terms). If, under the terms of a plan, an employee may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation is considered satisfied. Accordingly, a plan or issuer will not be considered to have violated the PHS Act merely because employees take additional time to elect coverage. 2. Variable Hour Employees If under a group health plan an employee s eligibility is based on the employee regularly working a specified number of hours per period (or working full time), and it cannot be determined that a newly hired employee is reasonably expected to regularly work that number of hours per period (or work full time), the plan may take a reasonable period of time to determine whether the employee meets the plan s eligibility condition. The eligibility condition may include a measurement period that is consistent with the timeframe permitted for such determinations under Code Section 4980H (employer shared responsibility provision), whether or not the employer is an applicable large employer subject to Code Section 4980H. 6 Unless a waiting period that exceeds 90 days is imposed after a measurement period, the time period for determining whether such an employee meets the plan s eligibility condition will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective no later than 13 months from the employee s start date, plus, if the employee s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month. 6 IRS Notice provides guidance regarding the measurement period that may be used under Code section 4980H. That guidance provides a safe harbor method under which an applicable large employer may use a measurement period of up to 12 months to determine whether certain types of new employees are full-time employees, without being subject to a financial penalty under Code section 4980H for that period with respect to such employees. Page 10

11 3. Eligibility for Premium Tax Credits and Cost Sharing Reductions September 12, 2012 The Departments further stated that an employee is not eligible for minimum essential coverage under the plan - and therefore may be eligible for a premium tax credit or cost-sharing reduction - during any period when coverage is not offered, including any measurement period or administrative period prior to when coverage takes effect. Thus, all employees, whether full time, part-time, or variable, who are not offered the opportunity to enroll in health insurance by their employer will be eligible to receive premium tax credits and costsharing reductions for Exchange coverage if they meet other conditions for receipt of these credits. Nevertheless, whether a large employer offers health insurance to its employees or not, it will only be required to pay a financial penalty if at least one of its full-time employees receives a premium credit or cost-sharing reduction because that employee purchased health insurance through a state Exchange. If a large employer does not offer coverage, but no fulltime employee receives a premium credit or cost-sharing reduction, no penalty would be assessed. Employers, plans and issuers may rely on the compliance guidance in Notice through the end of * * * Comments on either Notice may be submitted by September 30 according to the instructions provided in each Notice. Notice is available at Notice is available at This Policy Update provides general information and not legal advice or opinions on specific facts Page 11