Author Archives | Dawn Kramer

About Dawn Kramer

Dawn is an attorney and Certified Employee Benefit Specialist (CEBS) in J.W. Terrill’s Consulting Services department. She advises clients on legal and regulatory issues affecting their employee benefit plans.

The Affordable Care Act and COBRA

December 23, 2014

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One of the most frustrating aspects of the Affordable Care Act (ACA) seems to be the fact that the law’s requirements involve so many other compliance responsibilities, many of which were complicated enough as it was.

One of the ripples in the pond is how the ACA relates to COBRA continuation coverage. Since COBRA was intended to provide an option for individuals losing coverage under a group health plan, especially those who may have had difficulty obtaining other coverage due to a pre-existing condition, it would then seem to follow that with the ACA’s restriction on pre-existing condition exclusions/limitations and the availability of coverage through the Marketplace, COBRA would no longer be required. Unfortunately however, the obligation remains.

So, how does the ACA affect COBRA? Well, practically it should lead to fewer elections, but that may not be true for many plans. Frustration with enrollment through the healthcare.gov website, increasing Marketplace premiums and uncertainty regarding coverage of specific services and prescription drugs may lead many COBRA qualified beneficiaries to stick with the “devil they know” and remain on employer plans. Marketplace plans may also offer limited provider networks, forcing enrollees to switch doctors, which can be another incentive to continue coverage with an employer plan. Many COBRA qualified beneficiaries may also be unaware of the specific options and potential subsidies that are available through the Marketplace. To help employers communicate that information, the DOL has updated the language in its model COBRA notices to briefly describe Marketplace opportunities and reference the 2014 elimination of pre-existing condition exclusions.

In conjunction with the prohibition of pre-existing condition exclusions, the requirement to issue HIPAA Certificates of Creditable Coverage has been eliminated effective December 31, 2014. As a reminder, HIPAA Certificates detail the amount of time employees and dependents have been covered under a group health plan and are used to reduce a pre-existing exclusion period upon subsequent enrollment in a new plan. These certificates are currently required to be issued upon request and automatically upon any termination of coverage (not just those terminations that trigger the obligation to offer COBRA). Note: HIPAA Certificates should not be confused with the Medicare Part D “Creditable Coverage” notices, which are still required to be distributed to all Medicare-eligible participants by October 15 of each year.

Aside from those changes noted above, the substance of COBRA has not been modified by the ACA. The basic concept remains the same—qualified beneficiaries who lose group health coverage under the terms of the Plan due to a qualifying event are entitled to continue coverage for up to 18, 29 or 36 months on a self-pay basis. For employees, those “qualifying events” are termination of employment (other than for gross misconduct) or a reduction of hours. Since the obligation to offer COBRA requires both a loss of eligibility for coverage and the occurrence of a qualifying event, things can get complicated for employers using a look-back measurement period since an employee’s reduction of hours will not generally cause eligibility to terminate until the end of the associated stability period. In that case, COBRA should be offered at the time eligibility for coverage is actually lost.

Example: Company ABC offers coverage under its group health plan only to full-time employees (those with 30+ hours of service per week). To determine plan eligibility, it uses a look-back period of November 1-October 31 and a stability period of January 1-December 31. From November 2014 to October 2015, Mary qualified as a full-time employee and would be thus be eligible for coverage from January 1, 2016 through December 31, 2016. Mary enrolls in ABC’s plan. In February of 2016, she begins working part-time (20 hours per week) and does not meet the hours requirement for full-time status during the November 2015-October 2016 measurement period.

Even though Mary’s COBRA qualifying event (reduction of work hours) occurs in February, her coverage will not terminate until December 31, 2016. Mary should be offered COBRA as of January 1, 2017.

Same basic facts as above, except that in February 2016, Mary decides to drop coverage under ABC’s plan and seek coverage through the Marketplace. In this situation, Mary’s coverage terminates due to a voluntary decision rather than a loss of plan eligibility; therefore there is no obligation to offer COBRA under the ABC plan. {Note: ABC has amended its cafeteria plan to permit a mid-year revocation of coverage due to reduced work hours.}

Other ACA provisions also have an indirect impact on COBRA. Coverage provided to COBRA qualified beneficiaries must be the same as that provided to other similarly situated individuals, so any ACA-required plan changes that apply to active employees will also apply to COBRA participants (e.g., the addition of no-cost preventive services). COBRA participants must also be included as “covered lives” for purposes of the Patient Centered Outcomes Research Institute (PCORI) and Transitional Reinsurance fee calculations.

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Employer Mandate – “Full-Time” Employee Determination

December 4, 2014

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By now, I think that most people are aware of the Affordable Care Act’s requirement for applicable large employers (ALEs) to offer coverage to full-time employees and their dependents beginning in 2015. Although this sounds simple enough, as always when the government is involved, determining how to identify which employees qualify as “full-time” for the purposes of the mandate can be easier said than done.

The basic rules regarding full-time employee determinations were issued in 2012 and have mostly remained unchanged, although the final regulations issued earlier this year did contain a few insights and clarifications. Here is a summary of the current rules for any employers who are still confused about their application.

Full-Time Employee Definition

In its simplest terms, a “full-time employee” is one who is employed an average of at least 30 hours of service per week (or a monthly equivalent of 130 hours per month). That 30-hour threshold is statutory, so any change in the number of hours an employer can require for full-time status will need to be made legislatively (i.e., not going to happen before the mandate goes into effect). “Hours of service” include all hours an employee actually works, as well as any hours of paid time off.

Measurement Periods—Look Back vs. Monthly

The final rule added a new option that can be used for the determination of “full-time” employment, so that employers now have a choice between the following two methods:

  • Look-Back Measurement Period (described in previous guidance)—Employees’ hours are averaged retroactively over an employer-designated period of 3-12 months; or
  • Monthly Measurement Period (new option)—Full-time employees are identified based on actual hours of service for each month rather than averaging hours over a longer period.

Although at first glance the monthly measurement method may seem easier to use than the look-back period, it will require looking at employee hours each month, which may be administratively burdensome and could cause practical difficulties with employees gaining/losing health plan eligibility on a monthly basis. Employers are permitted to use different measurement periods for different categories of employees, but that distinction cannot be based solely on whether employees are likely to be working varied hours and different periods may only be used for the following categories: salaried/hourly employees, employees whose primary places of employment are in different states, collectively bargained/non-collectively bargained employees, and each group of collectively bargained employees covered by a separate collective bargaining arrangement. The chosen measurement method must also be applied consistently to all employees within each category.

The employer’s chosen “standard” measurement period will apply to all employees on a continuing basis (e.g., once a year if using a 12-month look-back) and those who qualify as full-time will need to be offered coverage during a following “stability period” of that same length of time (e.g., 12 months). There is no requirement to offer coverage to any employee who does not average at least 30 hours of service per week during the applicable measurement period. Special rules apply to crediting hours during employment breaks and for newly hired employees based upon their status, as described below.

Crediting Hours During Employment Breaks

As noted above, the term “hours of service” generally only includes hours worked or for which the employee is required to be paid (such as holidays, sick time and paid vacations). However, employers must also credit employees with hours of service for unpaid FMLA leave or military leave under USERRA, by computing the employee’s average hours of service disregarding the leave time and then using that average for the entire measurement period. Educational organizations must also credit hours of service for their employees during employment break periods of at least four weeks (up to 501 credited hours per calendar year).

New Employees

Full-Time

A new employee who is hired to work full-time, (i.e., identified as full-time by using the monthly measurement period or expected to average 30 or more hours of service per week with an employer that is using the “look-back” method) should be offered coverage by the 91st day of employment to ensure compliance with both the employer mandate and waiting period regulations.

Variable Hour /Seasonal/Part-Time Employees

If, at the time of hire, a new employee is not expected to average 30 or more hours of service during the measurement period, the employer may impose an initial measurement period to track employee hours during the first 12 months of employment to determine whether the new employee has qualified as full-time. (The “initial” measurement period will be different for each individual employee based on the date he or she begins work.) This rule applies to “variable hour”, “seasonal” and “part-time” employees.

The final regulations retain the variable hour and seasonal employee distinctions from previously issued guidance and also recognize the existence of “part-time employees.” In addition, the regulations include some insight into how employees may fall into each of those categories:

  • Variable Hour Employees—A variable hour employee is an employee whose hours of service can be expected to vary or are uncertain, so that the employer cannot determine whether the employee is reasonably expected to average 30 or more hours per week during the initial measurement period. There are several factors that can be taken into consideration in determining whether a new employee qualifies as a variable hour employee (such as the hours worked by the employee being replaced, advertisement/communication of hours required for the position, hours worked by employees in comparable positions), but such determination must be made based on the facts and circumstances surrounding the position and there is no single factor that will be considered determinative. Employers may not take into account the likelihood that the employee will terminate employment before the end of the initial measurement period in determining whether an employee qualifies as a “variable hour” employee.
  • Seasonal Employees—An employee will be considered seasonal if the customary annual employment period for his or her position is six months or less and that period begins each calendar year in approximately the same part of the year, such as summer or winter. (Note: Unusual circumstances may extend the period of employment beyond six months without necessarily disqualifying the employee’s “seasonal” status.)
  • Part-time employees—Part-time employees are those that the employer reasonably expects to be employed on average less than 30 hours of service per week during the initial measurement period; based on the facts and circumstances at the employee’s start date.

After a new variable hour, seasonal or part-time employee has been employed for one full “standard” measurement period, his or her hours will be tracked as for all other employees on an ongoing basis.

Change in Employment Status

Generally, if an employee experiences a change in employment status that results in an increase or decrease in hours of service during a look-back measurement period, any resulting eligibility change will be captured in the following stability period; so eligibility for health coverage will not be affected at the time of the status or hours change. However, during the initial measurement period, if an employee is moved to a new position or otherwise experiences a change in employment status to full-time, coverage should be offered to that employee by the first of the fourth month following that status change rather than at the end of the full initial look-back measurement period. Otherwise coverage must be offered during the stability period based on hours of service in prior measurement period regardless of any change in status or hours that occurs during the stability period.

Miscellaneous Other Employee Categories

The regulations also provided some clarification on calculating hours of service for the determination of full-time status of the following:

  • Volunteers—Government entities and tax-exempt organizations will not need to include hours of service for “bona fide volunteers” in any of their calculations. This exemption applies even if volunteers receive reimbursement for expenses or “reasonable benefits” such as length of service awards or payment of nominal fees. Although this rule was presented in response to concerns about volunteer firefighters and emergency medical providers, its application will not be limited to those groups of individuals.
  • Student employees—Educational institutions will not need to count hours of service for any students employed through a federal or state work-study program provided as financial aid. A paid internship/externship will be counted as hours of service for the outside employer (but not the educational institution).
  • Rehired Employees—If an employee has not been credited with any hours of service for a period of at least 13 weeks (26 weeks for educational organizations) he or she may be treated as a new hire upon resumption of services. An employee with a break in hours of service of less than 13 (or 26) weeks will be considered an “ongoing” employee and the full-time employment status he or she had previously earned will be reinstated for the remainder of the applicable stability period upon resumption of services.

Immediate Action Items

With the 2015 effective date the employer mandate quickly approaching, employers with 100 or more employees that have not already done so, should immediately begin to look at employee hours of service in order to make sure that coverage is offered to all employees qualifying for “full-time” status in order to avoid potential penalties. Employers with between 50 and 99 employees have until the beginning of the 2016 plan year before compliance is required, but will want to consider properly classifying employees and tracking hours well in advance of that date.

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Transitional Reinsurance Filing Deadline Extended

November 17, 2014

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The Centers for Medicare and Medicaid Services (CMS) have extended the deadline for the annual enrollment and contributions submission from November 15 until December 5, 2014. The payment deadlines of January 15, 2015 and November 15, 2015 have not been extended.

As a reminder, no action is required on the part of employers with fully insured medical plans as the carrier will be submitting the required forms and paying the fee.

Plan sponsors of self-funded plans are responsible for submitting their annual enrollment counts and supporting documentation through www.pay.gov (search reinsurance) no later than 11:59 pm on December 5, 2014. ACH payments of the fee should be also be scheduled prior to the December 5 deadline and CMS is advising that payments be scheduled for at least 30 days from the date of submission, but no later than the applicable payment due date. The total fee amount may be divided into payments, with first ($52.50 per covered life) due no later January 15, 2015 and the second ($10.50 per covered life) due no later than November 15, 2015. If the plan sponsor opts to combine both amounts into a single payment, the total amount of $63 per covered life must be paid by January 15, 2015.

Additional information on the Transitional Reinsurance Fee and the submissions process is available at http://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/The-Transitional-Reinsurance-Program/Reinsurance-Contributions.html.

Please contact a member of your J.W. Terrill account management team if you have questions or need assistance.

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IRS Permits Additional Cafeteria Plan Mid-Year Election Changes

October 14, 2014

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The IRS recently published Notice 2014-55, which expands the permitted Section 125 Cafeteria Plan mid-year “change in status” rules.  Employer health plans subject to those rules can now permit (but are not required to allow) employees to drop coverage in two situations: when enrolling in a Marketplace plan; or if hours of service have been reduced and  the employee subsequently enrolls in another plan providing minimum essential coverage.

Marketplace Enrollment

An individual who has elected coverage through an employer-sponsored health plan may be permitted to revoke that election when enrolling in a Marketplace plan during an open or special enrollment period, provided that any individuals for whom coverage is dropped actually enroll in a Marketplace plan immediately following the revocation of employer-sponsored coverage.  Employers may rely on the employee’s representation of enrollment in a Marketplace plan without requiring actual proof of enrollment.

Since the Marketplace annual open enrollment period is operated on a calendar year basis, allowing employees to make changes due to Marketplace enrollment will likely have a greater impact on non-calendar year plans.  However, employers with calendar year plans may still want to implement this change to allow employees to drop group coverage upon the occurrence of a special enrollment event (such as the birth of a child).  Under the current rules, an employee obtaining a new dependent would be allowed to add individuals to the group coverage, but revocation of coverage would not be allowed since dropping coverage would not satisfy the consistency rule.  Since a special enrollment event may affect an employee’s eligibility for Marketplace subsidies, an employee may want to drop coverage through the employer’s plan in such a situation.

Although this permitted change option was presented in previous proposed regulations for the employer shared responsibility mandate, it was classified as a temporary provision limited to the 2013 plan year and was not incorporated into the final regulations.

Reduction of Hours of Service

Under the employer shared responsibility (pay or play) rules, an employer using a look-back measurement period would determine an employee’s full-time employment status by looking at hours of service during previous period of time.  Health coverage would then be offered during an entire following “stability period” regardless of the number of hours that employee actually works during that period.  Since an employee who experiences a reduction in hours during the stability period would not immediately lose health coverage eligibility, the change in status would not allow the employee to drop coverage under the current rules.   The new rules would allow an employee to revoke coverage in this situation; however the employee and any other individuals for whom coverage is dropped must enroll in another health plan by the beginning of the second month following the revocation of coverage.  The other plan does not necessarily have to be provided through the Marketplace, but it must qualify as minimum essential coverage.  As with revocation due to Marketplace enrollment, an employer is entitled to rely on the employee’s representation of enrollment in another health plan without requiring verification.

Change Rules Do Not Apply to Health FSA Election Changes

It is important to note that the permitted election change rules only apply to salary reductions for health plan premiums and have not been extended to allow a mid-year change to an employee’s health flexible spending account (FSA) salary reduction election amount.

Plan Changes are Optional

The permitted election changes are optional for employers, but those wishing to implement either or both of the changes will need to amend their plans.  Amendments for the 2014 plan year need to be executed by the end of the 2015 plan year.  Even though a plan amendment may be retroactive to the beginning of the plan year, all participant election changes must be prospective.

Any plan changes should be clearly communicated to employees and this information may be included with open enrollment materials.

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Employer Mandate—2015 Transition Rules

June 18, 2014

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Earlier this year, the IRS and Treasury Department issued final regulations and an FAQ on the employer portion of the shared responsibility (“pay-or-play”) mandate under the Affordable Care Act (“ACA”).  The final regulations adopt many of the concepts that were described in previously published guidance, however they also contain several significant modifications as well as a few explanations intended to give employers more concrete direction for their compliance efforts.

At over 200 pages, the volume and complexity of the information contained in the regulations can be overwhelming, so we are going to attempt to break down what employers need to know about the mandate into bite-size chucks with a series of articles.  First up, who does the mandate apply to and when does it go into effect?

Applicable Large Employer (ALE)

Among the final regulation’s hidden gems is a new acronym—“ALE.” (Perhaps an acknowledgement that the current deluge of regulations is enough to make a person want to seek solace in an alcoholic beverage?)  In IRS nomenclature, “ALE” means “applicable large employer” and although the acronym is new, the concept of which employers are subject to the shared responsibility requirements is basically unchanged from previous guidance—public and private sector employers with 50 or more full-time employees, including full-time equivalent employees (FTEs).

Transition Relief

Although the employer mandate was originally intended to go into effect on January 1, 2014, it was previously delayed until 2015 and the final regulations contain further additional changes to the applicability dates based on an employer’s workforce size and health plan year as well as other transitional provisions designed to make the first year’s compliance a bit easier (at least in theory).

Recognizing that it may take more than a bit of effort for employers to get up to speed on all of the mandate’s requirements, the final regulations contain several transitional rules:

“Smaller” ALEs—Employers with 50-99 full-time/equivalent employees on business days during 2014 have been given an additional year, until the beginning of their 2016 plan year, before they will be subject to potential penalties.  This relief is not absolute or automatic however. An eligible ALE will still have to file the required Section 6056 return form in early 2016 and certify that during the 2014 calendar year it had:

  • between 50 and 99 full-time employees (including full-time equivalents);
  • not reduced its workforce or employees’ hours of service in order to qualify for the mandate’s delayed enforcement (although reductions due to bona fide business reasons are permitted); and
  • not altered the health coverage it offered as of February 9, 2014.

ALEs taking advantage of this delay may not be eligible for some of the other transition relief offered for 2015, including shortened measurement periods and dependent coverage (described below).

Non-Calendar Year Plans—An ALE with a non-calendar year health plan or policy year will generally not be subject to potential penalties for failing to offer minimum essential coverage until the first day of its 2015 plan year, provided that the plan year has not been changed after December 27, 2012 to begin on a later calendar date.  The employer will not be subject to a potential penalty until the first day of its 2015 plan year for any employees who are eligible for affordable, minimum value coverage (whether or not they take the coverage) as of that date, under the eligibility terms of the plan as of February 9, 2014.  This relief may be extended to those employees that have not been previously eligible to participate in the plan, provided that at least one quarter of the ALE’s employees were covered under the plan as of any date in the 12 months ending on February 9, 2014 or at least one-third of employees were offered coverage at the most recent open enrollment period prior to February 9, 2014.

Please note that employers failing to offer “affordable” or “minimum value coverage” to all full-time employees may still be subject to potential penalties for those employees who obtain subsidized Exchange coverage.

Even an employer that qualifies for transition relief until the beginning of its 2015 plan year, will be required to file the required returns including information for the entire 2015 calendar year.

Calendar-Year Plans—ALEs with calendar year plans will need to comply with the mandate by January 1, 2015, however they will be considered in compliance for the month of January if coverage is offered no later than the first day of the first payroll period that begins in January 2015.

Shortened Determination/Measurement Periods for 2014

ALE status—An employer’s status as an “applicable large employer” subject to the mandate for any calendar year is generally made based on whether the employer had at least 50 full-time and equivalent employees during the preceding calendar year.  For 2015, an employer may choose a period of at least six consecutive calendar months during 2014 which to make the determination of its number of full-time/equivalent employees.

Full-time employees are still defined as those with an average of 30 or more hours of service (including hours worked and any paid time off) per week or 130 hours per month.  Full-time equivalent employees are calculated by totaling number of hours of service (up to 120) for all non-full-time employees and dividing that number by 120.  {I presume that the number 120 used for equivalency is based on 4 weeks at 30 hours per week, whereas the 130-hour number for monthly full-time status is based on 52 weeks at 30 hours divided by 12 months, but no explanation is given for the usage of the different numbers.}

2014 Measurement Periods—For stability (coverage) periods beginning in 2015, ALEs may use a shortened measurement period to calculate employee hours of service used for determination of full-time status.  This measurement period must be at least six consecutive (but no more than twelve) months, must begin no later than July 1, 2014 and end no earlier than 90 days before the first day of the 2015 plan year.

Dependent Coverage

In order to avoid the penalty for failing to offer minimum essential coverage, an ALE must offer coverage to full-time employees and their dependent children.  Spouses, stepchildren and foster children are not included in the definition of “dependent” for purposes of the employer mandate.  An ALE that does not currently provide coverage to a full-time employee’s natural and adopted children will not be subject to penalties for this failure during the 2015 plan year, provided it is taking steps during that year to offer required dependent coverage by the beginning of its 2016 plan year.

Penalties

Failure to offer health coverage or offering covering coverage that does not meet certain standards will subject an ALE to one of two penalties if one of its full-time employees receives an Exchange (Marketplace) subsidy.  Here is a brief rundown of those penalties, including the transitional relief for 2015:

(a) For each month an ALE fails to offer health coverage to “substantially all” of its full-time employees and their dependents, it is subject to a potential penalty of 1/12 of $2,000* multiplied by the ALE’s total number of full-time employees (less 80 in 2015 and 30 in 2016 and beyond).  In order to avoid this penalty, coverage must be offered to at least 70% of full-time employees in 2015 and 95% in 2016 and subsequent years).

(b) Even ALEs who offer coverage to the required percentage of their full-time employees/dependents to avoid the (a) penalty can still be subject to a penalty under the mandate’s subsection (b).  This penalty is 1/12 of $3,000* per month for each full-time employee who receives an Exchange subsidy if that employee was not offered health coverage that is “affordable” (i.e., employee cost for single coverage is less than 9.5% of the employee’s household income) and has “minimum value” (i.e., covers at least 60% of benefit costs).

An ALE may be subject to a penalty under subsection (a) or (b), but not both during the same month.

*The annual penalty amounts were statutorily defined and will be adjusted for inflation in calendar years after 2014, so penalties assessed in 2015 will be slightly higher.

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PCORI Fee Reminder

June 10, 2014

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Just a friendly reminder that PCORI fee payments are due no later than July 31, 2014. This fee was implemented as part of the Affordable Care Act and will be used to fund the Patient-Centered Outcomes Research Institute (PCORI) to provide research and information to assist patients and health care providers.

Although many plans were subject to the fee last year, 2014 marks the beginning of its applicability to nearly all employer-sponsored medical plans regardless of plan year.

The fee applies to policy and plan years ending after September 30, 2012 and before October 1, 2019. Just to confuse things, the applicability date for the fee is based on the date the plan or policy year ends (rather than the first day of the plan year that we use for almost everything else).  So, this will be first year plans with February 1 –October 1 plan years or renewal dates will need to pay the fee.  Plans with a November 1, December 1 or January 1 plan/policy year should have paid the fee last year and need to report and pay the second year fee this July.

What plans are subject to the fee?

Major medical, retiree plans, COBRA and HRAs are all generally required to pay the fee, but not HSAs, stop-loss coverage, specified illness benefits and EAPs that do not provide significant benefits in the nature of medical care or treatment.  Please note that a self-funded HRA (e.g., deductible reimbursement) plan is subject to a separate fee assessment even if it is provided under a fully insured medical plan.  A comprehensive chart of plans to which the fee applies can found here.

Who is required to pay the fee?

Health insurance issuers and plan sponsors (typically the employer) of self-insured plans described above.  The insurance carrier is responsible for reporting and payment of fees due for fully insured health insurance plans.  Self-insured plan sponsors will need to calculate the applicable amount due and pay the fee themselves.

How much is the fee?

The fee amount is calculated based upon the average number of covered lives under the plan during the policy or plan year:

  • Multiplied by $1 for the first year (February 1—October 1 plan or policy years)
  • Multiplied by $2 the second year (November 1—January 1 plan or policy years)

In later years the fee will be adjusted for inflation in health care spending (as determined by the Secretary of Health and Human Services).

How is the average number of lives covered under the plan calculated?

The number of covered lives includes all employees, former employees (such as COBRA beneficiaries and retirees), spouses and dependents covered under the plan.  All individuals covered under the plan must be counted even if they are also covered under another insurance policy or self-funded plan.

Self-insured HRA and applicable FSA plans are subject to a separate fee if they are provided in connection with a fully insured medical plan.  HRA and FSA plans may consider each participant as a single life and do not need to include spouses and dependents in calculating the number of covered lives.

For ease of administration, J.W. Terrill is recommending that employers use an average of the number of participants/covered lives from quarterly billing statements or eligibility reports, however a plan sponsor may also use one of the following methods to determine the average number of lives covered during the plan year:

  • Actual count (adding the totals of lives covered on each day of plan year and dividing by the number of days in the plan year)
  • Snapshot (adding totals of lives covered on at least one consistent date during each quarter of the plan year and dividing by the number of dates used)
  • 5500 Method (sum of total participants covered at the beginning and end of the plan year, as reported on Form 5500 filed for the plan or that sum divided by 2 for a plan that only offers self-only coverage)

Please note that the 5500 method may only be used if a Form 5500 for the plan year has actually been filed by the fee’s due date and may not apply if the plan receives an extension for 5500 filing.

How is the fee reported and paid?

Fee amounts should be reported and paid using IRS Form 720 (Part II on page 2), the Quarterly Federal Excise Tax Return.  Detailed instructions for completing the form are available on the IRS website.

If you have any questions or need help in calculating the PCORI fee amounts, please contact your Account Manager immediately.

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DOL Updates Model CHIP Notice

November 7, 2013

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The DOL has updated its model CHIP Notice. The notice is required to be provided annually by any group health plan with covered individuals residing in any of the 38 states that provide Medicaid or CHIP premium assistance.  The applicable states are listed on the notice.

The Children’s Health Insurance Program provides comprehensive benefits to children. Since states have flexibility to design their own program within Federal guidelines, benefits vary by state and by the type of CHIP program.

The “CHIP Notice” informs employees of possible premium assistance opportunities. It must be distributed to all employees annually before the start of each plan year. The CHIP Notice has certain content requirements and must be written in a manner that is easily understood. It may be distributed by mail or electronically (if federal electronic distribution requirements are followed).

The Department of Labor regularly updates information that must be included in the CHIP Notice, so employers should be sure to use the most recent information available. http://www.dol.gov/

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PCORI Fee Due Beginning July 31, 2013

July 8, 2013

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Update July 25, 2013:

The time remaining to file Form 720 and pay the PCORI fee is now 4.5 days and closing fast!

Please note that the due date for payment of the fee is based on the date your plan or policy year ends. The fee must be paid by July 31 of next calendar year following the year in which the plan ended. Plans that ended from October 1, 2012 through December 31, 2012 will need to pay the fee by July 31, 2013. This includes plans with a November, December and January 1 plan year or renewal date. (Plans with February-October 1 plan years will need to start paying the fee by July 31, 2014.)

If your company sponsors an HRA (Health Reimbursement Arrangement; aka deductible reimbursement or supplemental medical plan) with a benefit of at least $500, you will be responsible for payment of the PCORI fee for that plan unless it is fully insured. Although there was previously some ambiguity surrounding fee liability for those plans, the final regulations have clarified that these plans are considered a separate self-insured arrangement and are subject to payment of the fee for each participant in addition to the fee paid by the insurer of a related medical plan.

Although the rules specify three methods for determining the average number of lives covered under a plan, plan sponsors responsible for payment of the fee by July 31, 2013 are entitled to use any reasonable method to make that determination. J.W. Terrill is recommending that employers use an average of the number of participants/covered lives from quarterly billing statements or eligibility reports.

If you have any questions or need help in calculating the PCORI fee amounts, please contact your Account Manager immediately.

The Patient Protection and Affordable Care Act of 2010 created the Patient-Centered Outcomes Research Institute (PCORI) to provide research and information to assist patients and health care providers. This organization will be funded in part by a PCORI fee assessed on health insurance plans.

When does the PCORI fee go into effect?

The fee applies to policy and plan years ending after September 30, 2012 and before October 1, 2019.

Who is required to pay the fee?

  • Health insurance issuers and plan sponsors (typically the employer) of self-insured plans including, but not limited to:
  • Health insurance plans, but NOT dental and vision plans
  • Retiree-only plans
  • FSA plans, if the employer contributes more than $500
  • HRA, even if provided under a fully insured plan (Note: HRA’s of $500 or less in general are considered a HIPAA excepted benefit and not subject to PCORI fees based on current guidance)

The fee due for fully insured health insurance plans will be reported and paid directly by the insurance carriers. Self-insured plan sponsors will need to calculate the applicable amount due and file IRS Form 720 along with the payment.

How much is the fee?

The fee amount is calculated based upon the average number of covered lives under the plan during the policy or plan year:

  • Multiplied by $1 for the first year (plan or policy year ending after Sept. 30, 2012, and before Oct. 1, 2013)
  • Multiplied by $2 the second year (plan or policy year ending after Sept. 30, 2013, and before Oct. 1, 2014)

In later years the fee will be adjusted for inflation in health care spending (as determined by the Secretary of Health and Human Services)

How is the average number of lives covered under the plan calculated?

The number of covered lives includes all employees, former employees (such as COBRA beneficiaries and retirees), spouses and dependents covered under the plan. All individuals covered under the plan must be counted even if they are also covered under another insurance policy or self-funded plan.

Self-insured HRA and applicable FSA plans are subject to a separate fee if they are provided in connection with a fully insured medical plan. HRA and FSA plans may consider each participant as a single life and do not need to include spouses and dependents in calculating the number of covered lives.

To determine the average number of lives covered during the plan year, a plan sponsor must use one of the following methods:

  • Actual count (adding the totals of lives covered on each day of plan year and dividing by the number of days in the plan year)
  • Snapshot (adding totals of lives covered on at least one consistent date during each quarter of the plan year and dividing by the number of dates used)
  • 5500 Method (sum of total participants covered at the beginning and end of the plan year, as reported on Form 5500 filed for the plan or that sum divided by 2 for a plan that only offers self-only coverage)
  • Please note that the 5500 method may only be used if a Form 5500 for the plan year has actually been filed by the fee’s due date and may not apply if the plan receives an extension for 5500 filing.

How is the fee amount reported and paid?

Fee amounts should be reported and paid using IRS Form 720 (Part II), the Quarterly Federal Excise Tax Return. Detailed instructions for completing the form are available on the IRS’ website.

When is the fee due?

Form 720 is due annually by July 31 for plan years ending during the preceding calendar year.

For calendar year plans (and other plans ending October 1, 2012—December 31, 2012), returns along with payment must be postmarked by July 31, 2013. For plans and polices with years ending January 1, 2013—September 30, 2013, the first fee deadline is July 31, 2014.

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90-Day Waiting Period Limitation

April 10, 2013

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For plan years beginning on or after January 1, 2014, the Affordable Care Act limits the length of the waiting period for group health plans and health insurance issuers to a maximum of 90 days.

Simple enough, right? (If you said “yes”, I envy your wide-eyed innocence in the ways of health care reform regulation.) Although this provision of the ACA and the recently issued proposed regulations are not as convoluted as much of the previous guidance has been, some additional explanation may be useful to help employer plans determine exactly what it means for them…

Applicability
•All group health plans and health insurance issuers (insurance companies).
•Large and small groups.
•Grandfathered and non-grandfathered plans.

Waiting Period
The term 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 a group health plan can become effective.” So, an employee (or dependent) who has met the plan’s substantive eligibility conditions may not be required to wait more than 90 days before plan coverage becomes effective.

Plan Eligibility Conditions“Substantive eligibility conditions” are basically any requirements that an employee/dependent must meet in order to be eligible for coverage under the plan; examples include working “full-time,” being in an eligible job classification, achieving job related licensure requirements, etc.

Plan eligibility conditions based solely on the lapse of time are permissible for no more than 90 days. Other eligibility conditions that are designed to avoid compliance with the 90-day waiting period limitation are generally prohibited, although a plan may impose a cumulative hours-of-service requirement of no more than 1,200 hours.

A plan may require an employee to work a certain number of hours prior to becoming eligible, provided that the number of hours required does not exceed 1,200. The employee would then need to become covered within 90 days of satisfying that hour requirement. The cumulative hours-of-service requirement is designed to be applied only to determine initial eligibility and a plan may not apply a new cumulative hours requirement (and 90-day waiting period) to the same individual for eligibility during each subsequent year.

Variable-Hour Employees
If a plan requires employees to work a certain number of hours in a specified period (e.g., 30 hours a week) in order to be eligible for plan coverage, but cannot determine whether a newly-hired employee is reasonably expected to work that number of hours, that employee may be considered a “variable-hour employee.” For such an employee, the plan may take a reasonable period of time to determine whether he or she is eligible under the terms of the plan. Consistent with the proposed shared responsibility regulations, the plan may use a measurement period of no more than 12 months beginning on any date between the employee’s start date and the first day of next calendar month. If that employee is determined to have met the eligibility requirements during that measurement period, coverage must be made effective no later than the first of the month following the 13-month anniversary of the employee’s start date. (For example, if a variable hour employee begins work on June 15, 2014, the plan may use June 15, 2014-June 14, 2015 as the measurement period. If the employee averaged the requisite number of hours of service during that period, coverage would need to be effective no later than August 1, 2015.)

90-Day Limit
90 days is the absolute maximum length for a health plan’s waiting period. “90 days” means 90 days, counting all calendar days beginning on the enrollment date (first day of the waiting period), including weekends and holidays. The proposed regulations make it clear that three months will not be considered the same as 90 days. If a plan chooses to use the full 90-day waiting period, coverage must be effective on the 91st day (although if that date falls on a weekend or holiday, coverage may be effective earlier for administrative convenience). Plans preferring coverage to become effective on the first of the month following completion of the waiting period should consider using a waiting period of no more than 60 days to ensure compliance.

Employee Election of Coverage
An employer plan will be considered to be in compliance with the waiting period limitation if it does not require an otherwise eligible employee or dependent to wait more 90 days before coverage becomes effective. Accordingly, if an employee may elect coverage that would begin no later than the 91st day after becoming eligible, the plan will not be in violation of the waiting period limitation solely because employees takes additional time to elect coverage (i.e., complete paperwork) beyond the end of the 90-day waiting period.

Requirement to Provide Coverage
Nothing in the waiting period limitation or proposed regulations requires an employer to offer coverage to any particular employee or class of employees, although the length of the waiting period is limited to 90 days for any individuals who are eligible under the terms of the group health plan.

Please note: The ACA’s waiting period limitation is separate from its shared responsibility requirements—so employers with 50 or more employees will still need to offer coverage to all of their full-time employees to avoid potential penalties.

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2013 Health Care Reform Compliance Update

March 4, 2013

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PCORI/COMPARATIVE EFFECTIVENESS RESEARCH FEE

What?
Fee of $1 for each covered individual for the first plan year. This fee will increase to $2 per covered life for the second year and thereafter will be determined based on national health expenditures.

The fee will to be used to fund research by the newly created Patient Centered Outcomes Research Institute (PCORI) to determine which of two or more treatments works best when applied to actual patients in the “real world,” comparing different types of therapy against each other; say for example, different asthma drugs.

Who?
Insurance companies and self-funded plan sponsors of the following:

Medical plans;

  • Prescription drug plans;
  • Health Reimbursement Arrangements (HRAs);
  • Retiree-only plans;
  • Self-funded dental or vision plans (without separate election or premium).

When?
The fee applies to plan years ending on or after 10/1/2012 and before 10/1/2019.

Fees are due by July 31 of the calendar year following the end of the policy year. So, for a calendar year plan (ending 12/31/2012), the first payment would be due on 7/31/2013.

How?
The fee should be reported and paid on an annual basis using IRS Form 720. The amount due is based on the average number of lives covered during the plan year. Covered life calculations should include all individuals covered under the plan by virtue of active employment or continuation coverage (retirees, COBRA participants, etc.).

For the purpose of calculating fees due, multiple plans with the same plan year that are sponsored or insured by the same entity may be aggregated. For example, for a fully insured high deductible medical plan with an HRA insured by the same carrier, the insurance company would be responsible for a single fee for each covered individual even if that individual were enrolled in both plans. In contrast, for an insured medical plan with a self-funded HRA, both the insurance company and employer would be responsible for payment of the fee for individuals covered under their respective plans, even though this would mean that fees are paid twice for the same individual.

An employer sponsoring a self-funded plan must pay the fee from its own assets, although the fee may be paid from plan assets for a multiemployer plan where the sponsor is a trustee or board of trustees that exists solely for the purpose of sponsoring and administering the plan and that has no source of funding independent of plan assets.

ADDITIONAL MEDICARE TAX

What?
0.9% additional Medicare tax on wages, Railroad Retirement Tax Act compensation and self-employment income over $250,000 for married filing jointly, $125,000 for married filing separately and $200,000 for all other taxpayers.

Who?
Employers with employees earning over $200,000

When?
Tax will apply on wages earned during the calendar year, beginning January 1, 2013

How?
Employers are responsible for withholding the additional Medicare tax from wages or other compensation paid to employees in excess of $200,000 in a calendar year without regard to individual’s filing status or wages paid by another employer. No employer match applies to the additional tax. Withholding on taxable fringe benefits, tips and other wages should be calculated in the same way wages are calculated for the existing Medicare tax.

Additional details are available from the IRS.

MEDICAL DEVICE TAX

What?
2.3% excise tax on the sale of certain medical devices. The definition of medical device is fairly broad, but the law does contain specific exemptions for eyeglasses, contact lenses and devices of a type generally purchased by the public at retail for individual use.

Who?
Manufacturers and importers of medical devices.

When?
Beginning January 1, 2013.

How?
Tax will be paid by medical device manufacturers/importers on IRS Form 720. There are no direct compliance activities required for health plans or employers.

EXCHANGE NOTICE

What?
Written notice must be provided to all employees regarding the existence of government-run health care exchanges and including a description of services and possible subsidies that may be available.

Who?
All employers covered by the Fair Labor Standards Act (FLSA).

When?
Originally required to be provided by March 1, 2013, the notice requirement has been delayed until additional regulations are issued and is expected to be due late summer or fall 2013.

How?
Guidance is pending.

OTHER

The following provisions went into effect on January 1, 2013 for calendar year plans, however plans operated on a fiscal year may need to comply with the following during 2013—

Women’s Preventive Services—Non-grandfathered plans are required to cover additional preventive services for women with no cost-sharing as of the plan year beginning August 1, 2012. Required services include: well-woman visits, FDA-approved contraceptive methods including sterilization (although religious employers and non-profit religious organizations may be exempt from this) and breastfeeding support and supplies.

Summary of Benefits and Coverage (SBC)—A summary of the benefits that are available under the employer’s health plan to assist participants in understanding the plan and comparing coverage options must be provided to participants by the first open enrollment period beginning on or after 9/23/2012. Individuals who become eligible for coverage other than through open enrollment must be provided an SBC upon enrollment in the plan as of the first plan year beginning on or after 9/23/2012. Details are available here.

Health Flexible Spending Account (FSA) Limits—Employee salary contributions to a health FSA are limited to an annual maximum of $2,500 as of the first plan year beginning on or after 1/1/2013. This limit does not include carry-over amounts from 2012 under plans with a grace period. Employer FSA contributions, dependent care reimbursement and salary reductions used to pay employee health premiums are also not counted towards the maximum. Plans may adopt required amendments to reflect the limit at any time through the end of 2014.

Annual Plan Maximum—For plan years beginning on or after 9/23/2012 and before 1/1/2014, group health plans may not have an annual dollar maximum for essential health benefits that is less than $2,000,000. No plan may impose a lifetime or annual dollar limit on any essential health benefits as of the 2014 plan year. This limitation applies to both grandfathered and non-grandfathered plans.

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Employer Shared Responsibility for Health Coverage Under the Affordable Care Act

February 7, 2013

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The Treasury Department and IRS have recently issued proposed regulations and questions-and-answers on “Shared Responsibility for Employers Regarding Health Coverage.” If you are not fluent in government-speak, you’ve probably heard of this as the “employer mandate” or “pay or play” provision of the Affordable Care Act. Under this provision, beginning in 2014, employers with 50 or more full-time employees must offer affordable health coverage that provides minimum value to their full-time employees or pay a penalty.

Penalties

There are actually two potential annual shared responsibility penalties:

  1. $2,000 for each of the employer’s full-time employees (minus 30), if the employer fails to offer minimum essential coverage to its full-time employees (and their dependents) and at least one of the employer’s full-time employees purchases coverage and receives a subsidy through a government-run health care Exchange; or
  2. $3,000 per full-time employee receiving an Exchange subsidy, if the coverage offered by the employer is unaffordable or fails to provide minimum value.

The penalty amounts shown above are for 2014 and will be adjusted for inflation in future years.

IRS Guidance

In order to attempt to clarify exactly how employers are supposed to comply with the law, the IRS had previously issued four Notices, which have now been distilled into one set of proposed regulations. Although this guidance is not yet final and does not provide all of the answers about how and to whom employers will have to provide health coverage, it does clarify several issues and allows for “reasonable, good faith interpretation” on those it doesn’t. Employers may rely on the proposed regulations until further guidance is issued.

New and Noteworthy

Here are some of the highlights of the proposed regulations’ new guidelines:

  • An employer offering minimum essential coverage to at least 95% of its full-time employees will be considered to satisfy the offer of coverage requirement (and thus will not be subject to the $2,000 penalty).
  • The term “dependents” for purpose of the offer of coverage, has been defined to include only employees’ children under age 26 and does not include employees’ spouses.
  • The determination of full-time employment status will be based on an employee’s “hours of service,” which includes all hours for which the employee is entitled to payment, including holidays, vacation, sick time and other paid leave.
  • Affordability under the mandate is based solely on the cost for employee-only coverage, so plans can require employees to pay the entire cost of dependent coverage.
  • An employer may be liable for either of the two penalties, but will not be subject to both in the same month.

What follows is a more detailed insight into the proposed regulations, which also summarize previously issued guidance.

Large Employers

The two potential shared responsibility penalties are only applicable to employers with an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the previous calendar year. For the 2013 calendar year however, an employer is permitted to designate any six-consecutive-month period during which to make that calculation. The definition of an “employee” is based on common law standards and does not include leased employees.

In order to determine the number of full-time equivalent employees for each calendar month, an employer must calculate the aggregate hours of service for all employees with fewer than 30 hours of service per week and divide that total number by 120. For example, an employer with 20 part-time employees with a total of 1,260 hours of service during the month would have 10.5 full-time equivalent employees. The number of full-time and equivalent employees for each calendar month is then averaged to get the yearly total. (Please note that fractional employees are disregarded in the yearly calculation. So, an employer with an average of 49.9 employees for the year may round down to 49 employees and will not be considered a large employer for that year.)

An employer will not be considered a “large employer” if its workforce exceeds 50 full-time employees for no more than 120 days (or four months) during a calendar year and the employees in excess of 50 who were employed during that period are seasonal employees.

Employees of entities that are members of a controlled group must be aggregated for purposes of determining large employer status. If the group as a whole qualifies as a large employer, each member of the group will be considered a large employer regardless of the number of employees that member entity employs.

Identifying Full-Time Employees

For the purpose of applying the shared responsibility penalties, a full-time employee is defined as one with an average of at least 30 hours of service per week (although employers may use an equivalency of 130 hours per month). Hours of service include all hours for which an employee is paid, including actual hours worked and paid time off such as vacation, holidays, sick days and other paid leave.

For employees paid hourly, the employer must calculate the employees’ actual hours of service. For employees not paid hourly, employers have three options to determine employees’ hours of service:

  1. counting actual hours of service, the same as for hourly employees;
  2. using a days-worked equivalency, in which the employee is credited with 8 hours of service for each day the employee would have at least one hour of service; or
  3. using a weeks-worked equivalency, crediting 40 hours per week that the employee would have at least one hour of service.

Please note that options 2 or 3 cannot be used to substantially underestimate hours of service so that an employee actually working 30 or more hours per week is not treated as a full-time employee. For example, if an employee’s normal workweek consists of three ten-hour days (30 hours per week), the employer cannot use the days-worked equivalency to only credit that employee with three eight-hour days (24 hours per week).

Employers may use different methods of calculating hours of service for different classes of non-hourly employees as long as the method used is reasonable and consistently applied. The employer may also change the method used each calendar year.

The proposed regulations acknowledge the difficulty in calculating hours of service for certain employees such as those working on commission, adjunct faculty, transportation workers, etc. Further guidance on full-time employment determination is expected to be issued for those employees; although in the interim employers may use a reasonable good faith method to determine hours of service, provided that method is designed to reflect actual work (e.g. including travel time to sales calls for a sales person or class preparation time for an adjunct faculty member).

Look Back Measurement Method for Determination of Full-Time Employees

Once the method for identifying full-time employees has been determined, the employer may then apply those criteria by looking back over a “measurement period” of 3-12 months in order to determine which employees are considered full-time and must thus be offered health coverage during a following “stability period.” If an employee qualified as full-time during the measurement period, he/she must remain eligible during the entire stability period regardless of the number of hours worked during that stability period. Conversely, if an employee does not work sufficient hours during the measurement period, he/she does not have to be offered coverage during the stability period.

To facilitate health plan eligibility determinations, notifications and the completion of enrollment materials, employers have the option to use an administrative period between the measurement and stability periods. For ongoing employees the administrative period may last for up to 90 days, although there is a limit on the combined length of the measurement and administrative periods for new employees.

Although the measurement, administrative and stability periods apply to all employees, the rules differ somewhat in their application to ongoing and new employees…

Ongoing Employees

For ongoing employees, each year the employer chooses a “standard” measurement period and at the conclusion of that period, looks back to determine whether the employee averaged at least 30 hours of service per week during that entire period. The employer may apply an administrative period of up to 90 days before offering health coverage to its full-time employees during the standard stability period.

New Employees

The look-back measurement period may also be used for newly hired employees, however in order to comply with the ACA’s 90-day waiting period restriction, if a new (non-seasonal) employee is reasonably expected to average 30 hours of service per week, that employee must be offered coverage before the conclusion of his/her initial three months of employment. Factors to consider in the determination of whether such employee is reasonably expected to have at least 30 hours of service include whether the employee is replacing a previous full-time employee or whether ongoing employees in the same or similar position are full-time.

If, at the employee’s start date, the employer is unable to determine whether the employee is reasonably expected to work an average of 30 hours per week over the entire measurement period, that employee may be considered a variable hour or seasonal employee. The employer may then wait until the conclusion of an initial measurement (and administrative) period to determine whether that employee qualifies as full-time before coverage is offered during an initial stability period.

The definition of “seasonal employee” for the purpose of determining full-time employment status has been reserved, but employers may use reasonable, good faith interpretation of the term. The designation of an employee as seasonal is not limited to agricultural or retail workers, but employees of educational organizations can’t be treated as seasonal workers if they are working during the active portions of the academic year.

The proposed regulations do allow for a transitional six-month measurement period for 2013 (for plan years beginning January 1, 2014). In any year, an adjustment of measurement periods that would begin or end in the middle of a pay period is permitted. For example if pay period straddles two calendar years, that entire pay period may be disregarded as part of the measurement period.

The rules for the application of measurement, administrative and stability periods, which employers may rely on through 2014, were described in the IRS Notice 2012-58 and are discussed in greater detail in a previous article.

Changes in Employment Status

When a new variable hour or seasonal employees employee moves to a new position in which he or she is expected to have 30 or more hours of service per week, coverage should be offered on the earlier of the 1st day of the 4th month after the start date of new position or the date the employee would have become eligible if he or she qualified as full-time using the look-back measurement period described above.

Employees Rehired After Termination of Employment or Resuming Service After Other Absence

If there is a period of at least 26 weeks during which an employee has no hours of service (either due to termination of employment or unpaid leave) then, upon resumption of service, that employee may be treated as a “new employee”. An employer may also use a rule of parity and treat an employee as a new hire if the period with no hours of service is at least four weeks and is longer than the period of employment immediately prior that break in service.

For employees on unpaid leave of 26 weeks or less, the employer may average the employee’s hours of service during measurement period excluding the unpaid leave period or may credit the employee for hours of service based on hours the employee was credited while not on unpaid leave.

Educational organizations are subject to special rules for academic break periods during which school is not in session. During such a break of at least four weeks, employers must use one of the methods described above for non-working weeks of the academic year.

Calculation of Penalties

The proposed regulations clarify that the receipt of an Exchange subsidy that triggers the penalties will be based on the employee’s purchase of coverage for himself and that subsidies received for the purchase of dependent coverage will not trigger an employer penalty.

Penalty for Failure to Offer Coverage

Employers are required to offer coverage to employees and dependent children; however employers will not be penalized for failure to offer coverage to their employees’ spouses. An employer not currently offering coverage to dependent children will not be penalized solely on that basis during the 2014 plan year provided that it takes steps to offer dependent coverage beginning in 2015.

Although members of a controlled group are aggregated to determine whether the employer qualifies as a “large employer,” for the determination of whether a mandate penalty is due and how much is to be paid, members of the group are treated individually. In order to calculate the penalty for not offering coverage, the 30-employee reduction must be allocated ratably among members of the group.

Penalty if Coverage is Unaffordable or Does Not Provide Minimum Value

If an employer is subject to a penalty because coverage is unaffordable or does not meet the minimum value standard, the amount of the penalty applied will not exceed the amount the employer would have had to pay for failure to offer coverage.

Affordability Safe Harbors

Employers may be subject to a penalty if the coverage offered to its employees is considered “unaffordable” because the employee portion of the self-only premium for coverage exceeds 9.5% of the employee’s household income. Since employers will not have knowledge of an employee’s “household income,” the IRS has issued three optional safe harbors to assist employers with this calculation. Under these safe harbors, an employer will not be subject to a penalty for unaffordable coverage if the employee cost for self-only coverage under the employer’s plan does not exceed 9.5% of the following:

  • Employee’s W-2 wages (as shown in Box 1);
  • Employee’s Rate of Pay—the employee’s monthly pay for salaried employees or the hourly rate multiplied by 130 for hourly employees; or
  • Federal Poverty Line for single individuals for the state in which the individual is employed.

An employer may choose to use one or more of the above safe harbor methods as long as the chosen method is applied on a uniform and consistent basis for all employees within a reasonable classification.

Minimum Value

An employer may also be subject to a penalty if its health care plan fails offer “minimum value,” which has been defined as payment of at least 60% of the total allowed cost of benefits under the plan. HHS will have a calculator available to assist employers in making this minimum value determination for their plans.

Transition Rules for Non Calendar Year Plans

Although the shared responsibility requirements technically go into effect on January 1 2014, the regulations offer transitional relief to employer plans operated on a fiscal rather than a calendar year basis. First, for employees eligible for plan coverage as of December 27, 2012 (whether or not enrolled), the employer will not be subject to a potential payment until the first day of the 2014 plan year. Second, if (a) the plan was offered to at least one-third of the employer’s full and part-time employees during the most recent open enrollment or (b) the plan covered at least one-fourth of the employer’s employees, then the employer will not be subject to a penalty with respect to any of its full-time employees until the first day of the 2014 plan year, provided that those full-time employees are offered affordable, minimum value coverage no later than that first day of the 2014 plan year.

What Do Employers Need to Do Now

Although the penalties for noncompliance will not go into effect until January 1, 2014 at the earliest, the factors that go into the determination of employer liability are generally based on eligibility and plan design during 2013. As such, employers will need to set up administrative practices and assign responsibilities for tracking employee hours and eligibility for health coverage. Employers should also begin to review current health care plan eligibility and contribution arrangements, redefining those rules in terms of updated full-time employee and affordability requirements if necessary. Employers may also want to consider the cost implications of offering health coverage to existing as well as newly eligible employees and dependents in light of the penalties that may apply for not offering coverage.

 

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DOL Delays Exchange Notice Deadline

January 25, 2013

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If you are one of the many employers who were beginning to panic about the upcoming Health Insurance Exchange Availability Notice, which the Affordable Care Act (ACA) required to be provided to all employees by March 1, 2013, you have a chance relax a bit. (And if you didn’t know enough to be panicked yet, you can wallow in blissful ignorance for a least a few more months.)

On January 24, the DOL issued another round of FAQs. This latest edition contains some much appreciated relief from the fast-approaching March deadline to issue notices about the availability of coverage through the Exchanges. To date there has been very little guidance issued as to the form or specific content of the required notices, although we do know that they are supposed to inform employees:

  • Of the existence of Exchanges;
  • What services are provided by the Exchanges and contact information to request assistance;
  • That they may be entitled to tax credit by purchasing coverage through an Exchange, if the employer plan’s share is less than 60 percent of the total allowed costs of benefits; and
  • That by purchasing coverage through an Exchange, they may lose the employer contribution (if any) to its group health plan, which may be excludable from income for Federal income tax purposes.

With so many of these topics yet to be fully defined, the DOL has stated that it expects the new deadline for issuance of the notices to be “late summer or fall of 2013” to coordinate with the Exchange open enrollment period. Look for a possible model notice from the DOL or HHS (as part of the Exchange application).

Of other potential interest to employers from the FAQs is clarification that:

  • The ACA’s lifetime and annual dollar restrictions will not apply to HRAs “integrated” with coverage under an employer group health plan that is in compliance with the applicable limits.
  • Self-insured employer prescription drug coverage supplementing Medicare Part D through Employer Group Waiver Plans covering retirees only are exempt from ACA’s health coverage requirements.
  • In order to qualify as “excepted benefits,” a fixed indemnity plan must pay a fixed dollar amount on a per-period basis (e.g., $100 per day for hospitalization).
  • The Patient Centered Outcomes Research Fee may be paid out of plan assets for a multi-employer plan sponsored by a board of trustees with no independent source of funding.
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