As employment and labor attorneys in South Carolina, some of our clients have asked us about the changes in the Affordable Care Act (ACA) will bring to employers in this state. While we are still waiting on some regulatory guidance and legislative tweaks, the basic structure of the law appears here to stay. For employers, this means dealing with new rules that went into effect on January 1 and also planning for the employer mandate that takes effect January 1, 2015.
This January 1st ushered in many of the ACA’s reforms: the end of pre-existing condition exclusions, a limit on waiting periods for new enrollees, the end of annual benefit limits, limits on cost-sharing (deductibles, co-pays, and co-insurance), and the requirement that individuals have qualifying insurance. For fully-insured plans, in particular, many of these changes got handled behind the scenes and, for many employers, the real work begins now: Planning for the employer mandate.
Large Employer Measurement Period Starts Now
Unless the IRS or Congress provides for transition relief and a shorter measurement period, the time for determining whether your organization is a “large employer” – and subject to the tax penalties for failure to comply with the employer mandate – began on January 1, 2014. To be considered a large employer, you must employ 50 or more full-time employees and full-time equivalents on average over the calendar year. Full-time equivalents take into account the number of part-time employees an employer has, converting them into an “equivalent” number of full-timers. While most employers consider “full-time” to be 40 hours per week, the ACA requires employees who work 30 hours per week or more to be counted as full-time.
Variable-Hour Employee Measurement Period May Already be Underway
The ACA requires employers to offer qualifying health coverage to employees who work 30 or more hours per week on average. For many employees, it will be obvious that they meet the 30-hour threshold. For others who work varying hours, however, it is not as simple. To determine whether those employees must also be covered, the IRS has established a “safe harbor” set of measurement, administrative and stability periods for measuring the employees’ average hours, determining if they are eligible, then offering them coverage (or de-enrolling them, as the case may be). Within the rules set by the IRS – which are often complex – employers must determine the lengths of these periods and then use them to determine coverage for variable hour employees. Insurance companies typically will not handle this for you.
Depending on whether your health plan operates on a calendar year – and assuming the IRS or Congress does not provide transition relief and a shorter first-time measurement period – many employees may have been working hours since late 2013 that will count toward being eligible for coverage in 2015. It is important that employers be aware of the hours these employees are averaging because the penalties for non-compliance can be steep – $2000 per employee who works 30 or more hours per week. The first step is to set up the safe harbor periods and start testing them. Without the safe harbor periods, you may be in the dark as to whether and how many “part-time” employees are “full-time” for ACA purposes.
Just Offering Health Coverage Isn’t Enough
Even if an employer offers coverage that avoids the $2000/employee penalty, it may not be enough. The coverage offered must also meet the “minimum value” and “affordability” tests. If it doesn’t, the employer may incur a penalty of $3000 per employee who buys subsidized coverage in the online exchanges. Minimum value means that the plan must spend at least 60% of premiums on health benefits. The affordability test looks at whether the employee-only premium for the least expensive qualifying plan costs no more than 9.5% of the employee’s W-2 income. (There are other affordability tests, but this is the most common.) Many employers may be surprised to find that, when they offer coverage to lower-wage “part-time” employees who average 30 or more hours per week to comply with the mandate, the coverage may still fail the affordability test. By getting an idea of which employees they may need to offer coverage before the January 1, 2015 deadline, employers can start planning for how to handle the affordability issue.
Start Planning Now
The take away is to start planning now. With the deadline for compliance for many employers less than a year away, it is important that employers start planning now. Employers should also expect to have to tweak and fine-tune as the deadline approaches and as the IRS and other agencies issue regulatory guidance.