A Vignette of Lingering Affordable Care Act Considerations

by Spilman Thomas & Battle, PLLC

Despite the highly publicized announcement that enforcement of the “Pay-or-Play” mandate (which requires businesses to provide health insurance to all full-time employees or face yearly penalties of up to $3,000 per employee) has been delayed until 2015, important considerations remain for businesses and consumers about how they will ultimately be affected by the Affordable Care Act. Businesses may have additional time to comply, but given the volume of new rules and changes, a number of areas still require assessment and planning.

The Placement of Limitations on Out-of-Pocket Costs for Consumers has been Delayed

The limitation on out-of-pocket costs for insured consumers has been considered one of the primary merits of the ACA. However, a report recently covered by the New York Times and confirmed by department officials has revealed that the anticipated limit on out-of-pocket costs ($6,350 for individuals and $12,700 for families) has been stalled for one year to the benefit of many group health plans and the sponsoring employers. As a result, many group health plans will be able to charge additional amounts during 2014. Although not necessarily “new” (as the New York Times reported, this grace period has actually been contained within a “frequently asked questions” bulletin on the website for the Department of Labor since February 2013), this extension provides insurers and employers with more time to comply with the ACA. According to government officials, the delay has resulted primarily from technological shortcomings – the inability of separate health plan sponsors and carriers’ computer systems to communicate with one another so costs can be aggregated and limits on out-of-pocket costs can be calculated. Over the next year, employers who use separate vendors to manage their medical and drug coverage should ensure their plan administrators have a plan for guaranteeing their computer systems can manage this function. In the meantime, certain insurers will have the ability to set higher limits on out-of-pocket costs or no limits at all.

Contract Workers and the ACA

As employers consider strategies for addressing ACA compliance by the new 2015 timeline, some have undoubtedly considered ways to avoid the ACA altogether. As a brief refresher on this subject, the ACA requires businesses with at least 50 full-time equivalent employees to provide health insurance to those full-time employees; otherwise, the employer must pay a penalty. The ACA provides that “full-time employees” are those who work 30 (not 40) hours per week, and “full-time equivalent employees” are determined by calculating the total hours of service  for all non-full-time employees  (but not more than 120 hours for any one employee) in a month and then dividing that total by 120. If this total (actual full-time employees are also added to the mix) is 50 or more, the ACA applies to your business.

This has spurred some employers to reduce employee hours below the 30-hour full-time employee threshold to avoid ACA coverage; others have simply terminated employees to reduce their numbers below the 50 full-time equivalent base; and yet other employers have taken a second look at their employee classifications to ensure they are correctly characterized as “employees” (rather than contract workers or independent contractors). Some employers have taken the opposite approach, electing not to change anything and instead increase their employee benefits spending. For those employers reducing their headcount or employee hours, special considerations should be kept in mind.

The ACA expressly gives the term “employee” the same meaning as found under Section 3(6) of the Employment Retirement Income Security Act of 1974 (29 U.S.C. § 1002(6)) (ERISA). Under ERISA, an “employee” is defined as an individual employed by an employer; and an “employer” is any person acting as an employer in relation to an employee benefit plan. The Supreme Court has construed the meaning of an “employee” under ERISA to incorporate “traditional agency law principles” for identifying the “master-servant” nature of the relationship. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 319 (1992). Specifically, the Supreme Court has pointed to “the hiring party’s right to control the manner and means by which the product is accomplished,” as well as “the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.” Id. at 323-324. Alternatively, courts may ultimately focus on the similar, longstanding 20-factor control and direction test used by the Internal Revenue Service, which examines a number of analogous criteria like who sets the hours worked, where the work is performed, who directs or controls the sequence of the work performed, how expenses are reimbursed, who retains the right to terminate the services, among other factors. Until regulators or courts provide more guidance, it is this type of analysis that employers should be using to assess whether their workers are “employees” under the ACA.

This analysis should not be confused with the “variable hour” employee under the ACA. For new employees whose tenure is anticipated to be of a limited duration (e.g., 4-5 months from a staffing firm per examples set out in the applicable proposed regulations), whether or not those employees constitute “variable hour” employees is another consideration. Under the ACA, an employee is a “variable hour” employee if, based on the facts and circumstances available at the employment start date (and not the aggregate turnover of the entire workforce), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week. In this case, there is no obligation to provide these new “variable hour” employees with health insurance during the initial measurement and administrative periods in which their status is being determined, and there is likewise no ACA penalty that applies for these employees during those periods (as opposed to regular full-time employees who are obligated to receive an offer of coverage within 90 days of the start date).

As businesses struggle to predict and remediate issues associated with ACA compliance, it will be critical to consider these factors when examining employee/contractor classifications and the status of new employees. While appropriately characterized independent contractors do not fall within the confines of ACA coverage for the purpose of the employer mandate discussed above, misapplication of these factors resulting in a mischaracterization of your workforce could ultimately subject your business to a host of federal and state law violations in addition to ACA penalties.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Spilman Thomas & Battle, PLLC | Attorney Advertising

Written by:

Spilman Thomas & Battle, PLLC

Spilman Thomas & Battle, PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.