On February 10, 2014, final regulations were published providing guidance to employers that are subject to the shared responsibility provisions regarding employee health coverage under the Affordable Care Act (ACA). Of the many issues addressed, the most significant is the additional one-year delay of the shared responsibility provisions for those employers with at least 50 but fewer than 100 full-time employees.
The shared responsibility provisions affect "applicable large employers"—generally defined as employers with 50 or more full-time employees [including full-time equivalent employees (FTEs)] during the prior year. Under the ACA, an applicable large employer that does not offer its full-time employees health coverage that is both affordable and provides minimum value may be subject to an assessable payment if a full-time employee enrolls in a qualified health plan for which the employee receives a premium tax credit.
While the ACA originally provided that these provisions would apply to months beginning after December 31, 2013, Notice 2013-45, issued on July 9, 2013, provided transition relief for 2014 so that no assessable payments would be due until January 1, 2015, at the earliest.
The final regulations provide guidance on a number of issues that were commented on at the time that proposed regulations were issued on December 28, 2012, including the treatment of seasonal employees and adjunct faculty as "full-time" employees. However, the most significant provisions of the final regulations are those that provide continued transition relief, namely for employers with at least 50 full-time employees but fewer than 100 full-time employees.
Transition Relief for Applicable Large Employers with Fewer than 100 Full-Time Employees
The final regulations acknowledge that the application of the shared responsibility provisions of the ACA will involve changes for applicable large employers that did not previously offer coverage, or that did not offer affordable minimum value coverage. The final regulations further note that a large percentage of those employers are in the smaller size range, such as those with fewer than 100 full-time employees (including FTEs). To assist these employers, transition relief is provided for all of 2015, plus in the case of any non-calendar year plan that begins in 2015, that portion of the 2015 plan year that falls in 2016. For these employers, no assessable penalty will apply if the following conditions are satisfied:
The employer employs on average at least 50 full-time employees (including FTEs) but fewer than 100 full-time employees (including FTEs).
The employer does not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition. However, a reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition.
During the coverage maintenance period (i.e., the period ending December 31, 2015, or the last day of the plan year that begins in 2015) the employer does not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014. The final regulations outline exceptions where an employer will not be treated as eliminating or materially reducing health coverage—namely where the employer continues to offer each eligible employee an employer contribution toward the cost of employee-only coverage; coverage provides minimum value after the change in benefits; and the employer does not alter the terms of its group health plans to narrow or reduce the class or classes of employees to whom coverage under those plans was offered on February 9, 2014.
The applicable large employer certifies that it meets the eligibility requirements set forth above. Such certification will be made on an as-yet-to-be published form.
This transition relief is not available for applicable large employers with 100 or more full-time employees (including FTEs). Such employers will be subject to potential assessable payments beginning as early as January 1, 2015.
Transition Guidance for 2015
Non-Calendar Year Plans
Employers with plan years that do not start on January 1 will be able to begin compliance with the shared responsibility provisions at the start of their plan years in 2015 rather than on January 1, 2015.
Shorter Measurement Periods Permitted for Stability Period Starting During 2015
On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period—the time during which an employee with variable hours must be offered coverage—of up to 12 months.
Shorter Period Permitted for Determining Applicable Large Employer Status for 2015
Employers can determine whether they had at least 100 full-time employees or FTEs in the previous year by reference to a period of at least six-consecutive months, instead of a full year. The final regulations state that this will help facilitate compliance for employers that are subject to the shared responsibility provisions for the first time.
Coverage for Dependents
An applicable large employer must offer coverage to its full-time employees and the full-time employees' dependents in order to avoid a potential assessable payment. To provide employers sufficient time to expand their health plans to add dependent coverage, any employer that takes steps toward satisfying such offering of coverage to full-time employees' dependents beginning in 2016 will not be liable for any assessable payment solely on account of a failure to offer coverage to the dependents for the 2015 plan year. The final regulations continue to define "dependent" to mean a child of an employee who has not attained age 26 and specifically excludes spouses from the definition of "dependent."
Additional Limited 2015 Transition Relief
Offers of Coverage to at Least 70 Percent of Full-Time Employees
The final regulations generally provide that an applicable large employer is treated as "offering coverage" to its full-time employees if it offers coverage to all but five percent of its full-time employees. However, as further transition relief, for each calendar month during 2015 and any calendar month during the 2015 plan year that falls in 2016, an applicable large employer that offers coverage to at least 70 percent (or that fails to offer to no more than 30 percent) of its full-time employees will not be subject to an assessable penalty. This transition relief is available to all applicable large employers—there is no cutoff at 100 full-time employees (including FTEs)—and is designed to help employers that may offer coverage to employees with 35 or more hours but not yet to those employees who work 30 to 34 hours per week.
Calculation of Assessable Payments for Applicable Large Employers with 100 or More Full-Time Employees for 2015
In general, an assessable payment is equal to the number of all full-time employees (excluding 30 full-time employees) multiplied by one-twelfth of $2,000 for each calendar month. However, for 2015 plus any calendar months of 2016 that fall within the employer's 2015 plan year, if an applicable large employer with 100 or more full-time employees (including FTEs) is subject to an assessable payment, the assessable payment will be calculated by reducing an applicable large employer member’s number of full-time employees by that member's allocable share of 80 rather than 30. This additional 50 full-time employee deductible will serve to reduce (or potentially eliminate entirely) an employer's assessable payment for 2015.
The final regulations provide significant transition relief through 2014 and 2015, and potentially impacted employers should review the impact of the final regulations on their obligations to offer health coverage to their employees. In particular, employers with between 50 and 100 full-time employees (including FTEs) have been granted another year during which no assessable payments will be due, regardless of whether coverage is offered or if such offered coverage is affordable.