|Very large employers will be required to offer health care coverage to their full-time employees or pay a penalty to the federal government beginning January 1, 2015. Under the final regulations released by the U.S. Department of Treasury (Treasury Department) on February 10, 2014, however, employers with fewer than 100 full-time employees will have an extra year to plan for and implement the employer mandate.
For larger employers, enforcement in 2015 will apply only to employers who fail to offer coverage to at least 70 percent of their full-time workforce. The regulations also provide additional guidance for determining the status of full-time employees and counting hours of service. Otherwise, the final regulations retain most of the guidance issued in the proposed regulations and four earlier Internal Revenue Service notices on minimum value and reporting requirements and methods for determining employee status.
The shared responsibility provisions of the Patient Protection and Affordable Care Act (ACA) require large employers to offer full-time employees (and their dependents) the opportunity to enroll in adequate and affordable coverage under an employer-sponsored plan or pay a penalty. The rules are often referred to as the employer mandate or pay-or-play requirement. In July 2013, the Treasury Department announced that no penalties would apply for 2014 and delayed related informational reporting obligations for large employers and providers of their plans. With the issuance of these final regulations, employers subject to the mandate can now make employee coverage decisions and prepare for enforcement beginning as early as January 1, 2015.
Highlights of the final regulations include:
Delay of Employer Mandate
The final regulations reaffirm that the requirement to offer health coverage applies only to employers with an average of at least 50 full-time employees, based on the prior year’s data. To ensure a gradual phase-in of the employer mandate, however, the final regulations provide that only employers with 100 or more full-time employees will be subject to the employer mandate for 2015. Employers that are subject to the employer mandate provisions in 2015 must offer coverage to at least 70 percent (as opposed to 95 percent) of their full-time employees (and their dependents) to avoid a penalty.
Beginning in 2016, employers with 50 or more full-time employees will be subject to the employer mandate. Employers that are subject to the employer mandate provisions in 2016 must offer coverage to at least 95 percent of their full-time employees (and their dependents) in order to avoid a penalty.
Full-Time Employee Status Determinations
Like the proposed regulations, the final regulations allow employers to use an optional look-back measurement method to make it easier to determine whether employees with varying hours and seasonal employees are full-time employees (employees who average at least 30 hours of service per week). The final regulations clarify the application of this method (along with the associated administrative and stability periods) and the alternative monthly method of determining full-time employee status.
Hours of Service Guidance
The Treasury Department discusses the challenge of determining “hours of service” for employees of certain types or in certain occupations and identifies certain methodologies that will be accepted as reasonable until further guidance is issued, including:
The regulations exclude from “hours of service” certain workforce activities, including:
Notably, the final regulations do not include any special provisions that address short-term employees or employees in high-turnover positions.
Affordability Safe Harbors
The final regulations preserve several safe harbors that are designed to make it easier for employers to determine whether the coverage they offer is affordable to employees. These safe harbors permit employers to use the Form W-2 wages they pay, their employees’ hourly rates, or the federal poverty level in determining whether employer coverage is affordable under the ACA. The Treasury Department clarified a few outstanding questions on how these safe harbors should be administered.
2015 Transition Provisions
In addition to the 2015 transition relief provided regarding the employer mandate (addressed above), the final regulations extend 2015 transition relief to several other rules that originally applied only to 2014 under the proposed regulations, including:
As the federal health care reform effort gained steam, Ballard Spahr attorneys established the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. They also have launched the Health Care Reform Dashboard, an online resource center for news and analysis on developments under the Affordable Care Act.
If you have questions about the shared responsibility provisions of the ACA or any other implications of the law, contact Brian M. Pinheiro at 215.864.8511 or firstname.lastname@example.org, Jean C. Hemphill at 215.864.8539 or email@example.com, or Jonathan M. Calpas at 215.864.8385 or firstname.lastname@example.org.