Health Care Reform’s Employer Mandate – What Has Changed?
Under the Affordable Care Act, all but the smallest employers must offer affordable qualifying health coverage to their employees, or face penalties. However, the details and effective date of this mandate have been shifting. The employer shared responsibility requirements, also known as the “employer mandate,” was originally scheduled to take effect on or after 1/1/14. In July 2013, it was announced that enforcement had been delayed to 1/1/15, and, now, full enforcement has been delayed again. The final rules are complex. The information provided here is just an overview.
On February 10, 2014, the Internal Revenue Service (IRS) and the Department of the Treasury issued a final rule implementing the employer shared responsibility requirements. As part of the final rule, it was announced that medium-sized employers (i.e., those with 50 to 99 full-time or full-time equivalent employees) are now given more time to comply, and large employers (i.e., those with 100 or more full-time or full-time equivalents) can phase in coverage to their entire full-time population over a period of time. Small employers (i.e., those with fewer than 50 full-time or full-time equivalent employees) are generally exempt from this requirement.
Here’s what the final rule means for employers:
– Employers with 50 to 99 full-time or full-time equivalent employees: The requirement now won’t be enforced until plan years with effective dates on or after 1/1/16, if certain conditions are met.
– Employers with 100 or more full-time or full-time equivalent employees: Transitional relief is now available. These employers will need to offer coverage to at least 70 percent of full-time employees in 2015 and at least 95 percent in 2016 and beyond for the penalty not to come into play.
For example, what happens if a large employer(50 or more employees fulltime and /or full time equivalent employees) fails to offer full-time employees (and their dependent children, unless transition relief applies) access to health care coverage?
If coverage is not offered, and only one of the employer’s full-time employees enrolls in subsidized coverage on a public exchange, the employer may be subject to a penalty. This penalty is equal to the total number of full-time employees employed for the preceding year (minus 80 in 2015, and minus 30 in 2016 and thereafter) multiplied by $2,000. (also known as the 4980H(a) penalty)
What will happen if a large employer offers coverage but that coverage is not affordable or does not meet Minimum Value (MV)?
If coverage is not affordable or does not meet MV, and only one of the employer’s full-time employees enrolls in subsidized coverage on the public exchange, the employer may be subject to a penalty. This penalty is equal to $3,000 for each full-time employee that obtains subsidized coverage on the public exchange. It is capped at the amount that could be assessed for failing to offer coverage. (also known as the 4980H(b) penalty)
Following is more detail on the final rule, and links to additional resources. Coventry Health Care encourages you to become familiar with information below and prepare to comply with these complex regulatory requirements.
Medium-size employers given more time to comply
Under the final rules, employers with 50 to 99 full-time or full-time equivalent employees will now generally have until plan years beginning on or after 1/1/16 before enforcement of the employer mandate begins. The administration described this additional extension as a form of “transition relief” to help these employers adjust to and comply with these complex requirements.
To be eligible for this relief, employers will be required to provide a certification that they have not reduced their workforce or overall hours of service in order to avoid having to comply with the employer mandate, and that they have not eliminated or materially reduced health coverage.
Gradual enforcement for larger employers
The final rules also provided for transition relief for employers with 100 or more full-time or full-time equivalent employees with regard to the offer of coverage penalties (under 4980H(a)). Employers in this category will need to offer coverage to 70 percent of full-time employees (and their dependents, unless the dependent transition relief is applicable) in 2015 and 95 percent in 2016, and beyond, or they will be subject to potential tax penalties under 4980H(a). Note: that 4980H(b) penalties related to affordable/minimum value coverage may still be applicable.
Additional highlights from the final rule:
– Additional transitional provisions:
— Employers can use a shorter measurement period (i.e., 6 months in 2014 rather than a full calendar year) to determine large employer status for 2015.
— Employers with non-calendar year plans are provided an extension until their first plan year after 1/1/15 to comply with the employer mandate as long as the employer offers affordable coverage that provides minimum value by the first day of the 2015 plan year. Similar relief applies for employers with non-calendar year plans that have provided a significant percentage of their employees’ coverage. The penalty for not offering affordable coverage or coverage that meets minimum value (i.e., the 4980H (b) penalty) is based on the number of full-time and full-time equivalent employees minus the first 80 in 2015, minus the first 30 in 2016 and beyond.
— The requirement that employers offer minimum essential coverage to their full-time employees’ dependent children will not apply in 2015 to employers that are taking steps to arrange for this coverage to begin in 2016. This relief does not apply to the extent an employer offered dependents coverage in either 2013 or 2014 and then dropped that coverage.
— A new measurement method, the monthly measurement method, is now offered as an alternative to the look-back measurement method. Under the measurement method, employers would identify full-time employees based on the hours of service each month rather than over a longer period of time.
— For purposes of the look back measurement period to determine whether an employee is a full-time employee, on a one-time basis, in 2014 preparing for 2015, plans may use a shorter measurement period of no less than six months, and that begins no later than 7/1/14 and ends no earlier than 90 days before the first day of the 2015 plan year.
– Certain categories of types of occupations are clarified in terms of whether they would be considered full-time, including:
— Seasonal employees: Defined in the final rule as those in positions for which the customary annual employment is six months or less generally treated the same as variable hour employees.
— Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
— Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees.
— Staffing firm employees: Sets forth additional factors relevant for determining whether a new employee of a temporary staffing firm is a variable hour employee.
– Dependent children definition: The definition is clarified to cover dependent children up to age 26, but excludes foster children, stepchildren, and certain non-U.S. citizen children.
– Break in coverage rule: Shortens the 26 break in service rule generally to 13 weeks, allowing employers to treat an employee that has such a break in coverage as a new employee rather than an ongoing employee. Under the final rule, an employer is generally not subject to penalties under the employer mandate with respect to the first three months an employee is first eligible for coverage but this rule can only apply once per period of employment of an employee.
– Transfers of foreign employees; in cases where the applicable large employer has US and foreign entities – the final rule allows such employers to treat a transfer of employment from a domestic employer member to a foreign employer member as a termination of employment. And, similarly allows employers to treat a transfer of employment from a foreign employer member to a domestic employer member as a newly hired employee.
– MEWAs/Taft-Hartley/PEO Offer of Coverage: Clarifies that an offer of coverage includes an offer of coverage made on behalf of an employer, including an offer made by a MEWA or Taft-Hartley plan on behalf of a contributing employer. This would also apply for coverage offered to employees performing services for an employer that is a client of a PEO or a staffing firm, except in that case its only treated as an offer of coverage if the fee paid by the client employer to the PEO is higher for an employee enrolled in health coverage than if same employee did not enroll in coverage.
Summary of government clarifications
– For plans effective on or after January 1, 2014, SBCs must include a statement about whether the plan or coverage provides minimum essential coverage (MEC).* It must also note if the coverage meets minimum value (MV) requirements.**
– Employers are responsible for making MEC and MV determinations.
This summary is provided for informational purposes only. This summary should not be construed as, or relied upon, as legal or any other advice. Employers should consult their own legal counsel for a comprehensive evaluation of the rules and the proper application of these rules to their particular situation.