Employer Shared Responsibility Effective Dates

Transcription

1 Employer Shared Responsibility Effective Dates Large employers as defined by the federal Patient Protection and Affordable Care Act (ACA) are required to offer health insurance coverage to full-time employees and their dependents, and that insurance must be affordable and provide minimum value. The requirements are collectively referred to as employer shared responsibility. The employer shared responsibility requirements take effect on January 1, Transition relief: With the release of final regulations on employer shared responsibility in February 2014, the IRS announced opportunities to delay the full implementation of the requirements for non-calendar year plans and smaller employers. To qualify, employers must meet detailed requirements. KEY POINTS Employer shared responsibility requirements, which apply to large employers, take effect January 1, 2015 Workforce size is calculated at the beginning of each calendar year, based on previous year s data Institutions may be eligible for transition relief based on workforce size o Institutions with 100 or more employees: requirement to offer coverage is delayed to beginning of 2015 plan year, but the institution must offer coverage to at least 70% of full-time employees o Institutions with 50 to 99 employees: if certain criteria met, eligible for a delay of both shared responsibility requirements to first day of 2016 plan year. The institution must file certification with IRS. Reporting requirements still apply as of January 2015 Institutions with 49 or fewer employees: shared responsibility does not apply Employers with 100 or more full-time and full-time equivalent employees: Two forms of transition relief apply to institutions of higher education in this group: (1) offer of coverage to at least 70 percent full-time and full-time equivalent employees and (2) relief for non-calendar year plans. Neither form of transition relief will protect institutions from the affordability penalty, and all large employers are subject to IRS reporting requirements as of January For the first year of the shared responsibility requirement, an employer that offers coverage to at least 70 percent of its full-time employees will not be subject to a penalty for failure to offer coverage. 1 For a calendar year plan, the employer must satisfy the 70 percent test for each month of For a non-calendar year plan, the employer must 1 79 Fed. Reg (Feb. 12, 2014).

2 Page 2 satisfy the 70 percent test for each month of 2015 plus any months of the 2015 plan year that fall in For example, an institution that participates in the Employees Retirement System of Texas (ERS) Texas Employee Group Benefits Program (GBP) may use the 70 percent rule for the following time periods: Each month from January 1, 2015 to August 31, 2015 (the months of 2015 before the 2015 plan year begins); and Each month September 1, 2015 to August 31, 2016 (the entire 2015 plan year) This transition relief provides a significant margin of error. Example Star of Texas College offers affordable insurance to all 1,000 of its regular, fulltime employees as of September 1, 2015, the beginning of its plan year. The college did not offer insurance to its temporary employees. In November 2015, the college is hit with a pandemic and is forced to use 425 temporary employees to replace regular, full-time employees who are out sick. 1, = 1,425 (total full-time employees for November) 1,425 x 70% = 997 (substantial compliance target) 1,000 (full-time employees offered insurance) > 997 (substantial compliance target) Note that this transition relief does not apply to the affordability penalty: An employer that offers insurance to at least 70 percent of its full-time employees continues to be subject to the affordability penalty. 3 The second form of transition relief delays the shared responsibility penalties to the first day of the 2015 plan year for non-calendar year plans, but with significant qualifications. If an employee is offered affordable coverage no later than the first day of the 2015 plan year, an employer is not subject to either penalty with respect to that employee for the period before the first day of the 2015 plan year. 4 Example Mr. Jones is an adjunct professor at Star of Texas College. He works enough hours to be considered full-time in each month from January to May The college offers Mr. Jones a full-time faculty position for the academic 2 79 Fed. Reg (Feb. 12, 2014) Fed. Reg (Feb. 12, 2014) Fed. Reg (Feb. 12, 2014).

3 Page 3 year. In August 2015, Star of Texas College offers insurance to Mr. Jones, including a premium contribution, for the academic year. The college is not subject to a penalty as to Mr. Jones for January through May 2015 because it offered Mr. Jones affordable insurance as of the beginning of the 2015 plan year. Note that both shared responsibility requirements must be met for this transition relief to apply: the employer must offer coverage to the employee and the coverage must be affordable. If an employee is offered coverage as of the first day of the 2015 plan year but the coverage is not affordable, the employer is subject to the affordability penalty for each month of 2015 that the employee is full-time. In addition, the employer is subject to the failure to offer penalty if the employer does not satisfy the 70 percent rule discussed above. 5 Example Ms. Smith is a temporary employee at Star of Texas College. She works enough hours to be considered full-time in February, April, and May The college intends to assign work to Ms. Smith during the academic year. In August 2015, the college offers insurance to Ms. Smith. The college specifies that it will not pay the premium contribution. Ms. Smith declines the insurance and instead obtains insurance through the Marketplace. She qualifies for a premium tax credit because the insurance offered by the college was not affordable for her. The college is subject to the affordability penalty as to Ms. Smith for February, April, and May 2015 as well as for any other months in the academic year that Ms. Smith works enough hours to be full-time. In addition, if Star of Texas College failed to offer insurance to at least 70% of its fulltime employees as of the beginning of the 2015 plan year, the college is subject to the failure to offer penalty for all of 2015 and any months of the 2015 plan year that fall in This transition relief also applies with respect to an employee who would have been eligible for coverage on the first day of the 2015 plan year but who separated from employment and was not rehired before the first day of the 2015 plan year Fed. Reg (Feb. 12, 2014). 6 Questions and Answers on Employer Shared Responsibility (Question 37), Under-the-Affordable-Care-Act Fed. Reg (Feb. 12, 2014).

4 Page 4 Shared Responsibility Effective Date: January 1, 2015 Workforce Size Available Delay Conditions for Delay 49 or fewer Shared Responsibility Not applicable does not apply 50 to 99 First day of 2016 plan year Certification to IRS: Size of workforce Coverage provides minimum value 100 or more First day of 2015 plan year Premium contribution not reduced Failure to offer: employer must offer coverage to at least 70% of full-time employees Affordability: only as to employees who are offered affordable coverage as of the first day of the 2015 plan year Employers with 50 to 99 full-time and full-time equivalent employees: The transition relief for smaller employers is more generous than that described above. However, this relief comes with significant conditions and a certification requirement. The transition relief for this group applies to both the failure to offer penalty and the affordability penalty, and it applies for each month of 2015 plus any months of the 2015 plan year that fall in Thus, an institution that participates in the GBP and that has between 50 and 99 full-time and full-time equivalent employees may be able to delay the shared responsibility penalties until the beginning of the 2016 plan year September 1, To take advantage of this delay, an institution must satisfy three conditions: 9 Limited workforce size: The institution must have an average monthly workforce of 50 to 99 employees on business days in In other words, eligibility for the delay to September 1, 2016, is based on the average workforce size in For this purpose, the determination of the number of employees is made in accordance with the otherwise applicable rules for determining whether an institution is a large employer under the ACA. Maintenance of workforce and aggregate hours of service: From February 9 to December 31, 2014, the institution may not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition. 11 A reduction in workforce size or overall hours of service for bona fide business reasons is permissible. For example, an institution may reduce its

5 Page 5 workforce size or overall hours of service due to changes in economic conditions, termination of employment for poor performance, and similar reasons. Note that the time period for this requirement runs from the day before the final regulations were announced through the end of the 2014 calendar year. At the beginning of the 2015 calendar year, an institution should calculate its monthly average workforce size for 2014 to determine whether it qualifies for the delay. Maintenance of previously offered health coverage: From February 9, 2014 through the end of the 2015 plan year, the institution may not eliminate or materially reduce the health coverage offered on February 9, This requirement perhaps the most complex of the three is addressed in more detail below. Note that the time period for this requirement runs from the day before the final regulations were announced through the end of the 2015 plan year, referred to as the coverage maintenance period. For calendar year plans, this period ends December 31, For non-calendar year plans, such as the GBP, this period ends with the plan year on August 31, A key condition of the delay to the first day of the 2016 plan year is that the employer not eliminate or materially reduce health coverage from that offered on February 9, Whether an employer satisfies this condition is based on three factors: (1) cost of coverage; (2) substantive coverage; and (3) class of covered employees. The cost of coverage condition requires that the employer continue to offer each employee who is eligible for coverage during the coverage maintenance period an employer contribution toward the cost of employee-only coverage that is: 13 At least 95% of the dollar amount of the contribution offered as of February 9, 2014; or The same or a higher percentage of the cost of coverage offered as of February 9, What if an institution of higher education did not make any contribution toward the premiums for a specific employee? The rules and commentary emphasize maintenance of the status quo, or at least not reducing benefits from the current level. Accordingly, it does not appear that an employer must begin making premium contributions to any group so long as the employer does not reduce contributions made as of February 9, The substantive coverage condition requires that the plan continue to offer minimum value. 14 All of the GBP plans provide minimum value, and it is unlikely that this will change

6 Page 6 The class of covered employees condition requires that the employer not alter the terms of its group health plans to narrow or reduce the class or classes of employees to whom coverage was offered on February 9, The GBP did not reduce the class of employees who are eligible for coverage for the , and it is not expected that the program will reduce the class of eligible employees for the plan year, but institutions that participate in the GBP must verify that this condition is met in order to take advantage of the delay. An institution that wishes to take advantage of the delay to the end of the 2015 plan year must certify its eligibility to the IRS 17 using the transmittal form which the institution will submit with its 26 C.F.R report. 18 An institution with a calendar year plan will make the certification on its 6056 transmittal form for An institution with a non-calendar year plan, such as an institution that participates in the GBP, will make the certification twice: first on its 6056 transmittal form for 2015, for the months of the plan year that fall in 2015, then on its 6056 transmittal form for 2016, for the months of the plan year that fall in The delay of the shared responsibility requirements for this group of employers does not delay the 6056 reporting requirements. The first 6056 reports must be filed in early 2016 and will report on data for the entire 2015 calendar year. 21 Employers with 49 or fewer full-time and full-time equivalent employees: The shared responsibility requirements do not apply to an employer that had a monthly average workforce size of less than 50 for the previous calendar year. 22 Employers that may fall into this group must determine at the beginning of each calendar year starting in 2015, based on their average workforce over the previous calendar year, whether they will be considered a large employer for the current calendar year. 23 For example, an institution determines in January 2015 that it averaged 50 employees per month in 2014: The institution will be considered a large employer for At the beginning of 2016, the same institution would make the same determination, this time based on a monthly average for If an institution averaged 50 or more employees in 2015, the institution is a large employer for the entire 2016 calendar year. The institution would continue to Employees Retirement System of Texas, Affordable Care Act, Fed. Reg (Feb. 12, 2014). 23 U.S. IRS, Question 4, Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, Responsibility-Provisions-Under-the-Affordable-Care-Act.

7 Page 7 make this determination each calendar year unless and until the institution s population is either too small for even an outside a risk of coverage or too large to necessitate a calculation. Even if a smaller institution does not meet the definition of large employer, the institution may be subject to one other requirement. All employers, regardless of size, are required to give their employees notice of the Marketplace. See Health Insurance Marketplace and Employer Notice. Determining workforce size: As the above discussion demonstrates, the size of a institution s workforce can have a significant impact on the application of the employer shared responsibility requirements. Institutions with 49 or fewer employees in 2014 are not covered by the ACA for Institutions with 50 to 100 employees are covered by the reporting requirements starting in January 2015 but may be able to delay compliance with shared responsibility until the first day of the 2016 plan year. Calculation of workforce size for 2014 will be of special importance. Special and complicated rules apply to the calculation of workforce size. See What Texas Higher Education Officials Should Understand about the Affordable Care Act. For more information on this and other community college law topics, visit online at colleges.tasb.org. This document is provided for educational purposes only and contains information to facilitate a general understanding of the law. It is not an exhaustive treatment of the law on this subject nor is it intended to substitute for the advice of an attorney. Consult with your own attorneys to apply these legal principles to specific fact situations.