ACA Biggest Challenges

Aug 25, 2015 12:10:00 PM
1. Using the Look-back Measurement Method for Employees in a Category

Under the final employer shared responsibility regulations, an employer must use the same method for all employees in the same category. The permitted categories are:

  • Salaried employees and hourly employees.
  • Employees whose primary places of employment are in different states.
  • Collectively bargained employees and non-collectively bargained employees.
  • Each group of collectively bargained employees covered by a separate collective bargaining agreement.

This suggests that employers cannot use different methods for hourly employees that it classifies as full-time and hourly employees that it classifies as part-time. Therefore, if an employer uses the look-back method for part-time, variable hour and seasonal hourly employees, it must use this method for all hourly employees (including full-time hourly employees). However, the employer may use a different method of tracking hours for salaried employees.

Many employers intend to use the look-back measurement method for any employee classified as part-time, variable hour or seasonal. This method involves averaging the numbers of hours worked by the employee over the measurement period. However, many employers would prefer not to track hours of employees classified as full-time or salaried employees.

The final regulations may technically require employers to:

  • Track hours of all full-time employees.
  • Use the same method for tracking the hours of all hourly employees, whether or not they are considered full-time.
2. Third-Party Offers of Coverage

Another issue relates to employees performing services for an employer that is a client of a professional employer organization (PEO) or other employer organization or staffing firm (third party). The final employer shared responsibility regulations include a rule for an offer of coverage to these employees made by the third party on the client employer’s behalf under a plan established or maintained by the third party. Such an offer is treated as an offer of coverage made by the client employer. The fee the client employer would pay to the third party for an employee enrolled in health coverage under the plan must be higher than the fee the client employer would pay to the third party for the same employee if the employee did not enroll in health coverage under the plan. This is consistent with the final regulations under the individual mandate, which treat coverage provided by a third party, such as a PEO or staffing firm, as minimum essential coverage under an eligible employer-sponsored plan.

Although it may be unlikely, it is possible that the IRS would, even in the absence of abuse, reclassify individuals who are working for a staffing firm as common law employees of the company that contracted with the staffing firm. Therefore, it would be prudent for employers to specify in staffing agreements that a portion of the fee being paid to the staffing firm is for health coverage.

3. Employee Orientation Period Permitted under Waiting Period Rules

A waiting period is "the period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of a group health plan can become effective." The final waiting period rules explain that being otherwise eligible to enroll under the terms of a group health plan means having met the plan’s substantive eligibility conditions. One of these conditions is satisfying a reasonable and bona fide employment-based orientation period, which lasts for a maximum of one month.

For example, consider a full-time employee that is hired on June 15. An employer could impose an employment-based orientation period from June 15 to July 14 (determined by adding one calendar month and subtracting one calendar day). Assuming that the employee has met the plan’s other substantive eligibility conditions, the plan would have no more than 90 days after the end of the employment-based orientation period to enroll the employee.

However, employers must also comply with the rule that coverage be effective by the first day of the calendar month following a period of three full calendar months in which the full-time employee began employment. In this example, that date is October 1, 2015, which is 79 days from the end of the employment-based orientation period, not 90 days. Accordingly, while the orientation period can be used to extend the waiting period maximum that would otherwise apply, it will still be necessary to offer minimum essential coverage (that has minimum value and is affordable) to full-time employees at the beginning of the fourth month following three full months of coverage to avoid a possible penalty under the employer shared responsibility regulations. Under proposed regulations addressing the length of a reasonable and bona fide orientation period, one month is the maximum allowed length of any reasonable and bona fide employment-based orientation period. During an orientation period, the Departments envision that:

  • An employer and employee could evaluate whether the employment situation was satisfactory for each party.
  • Standard orientation and training processes would begin.

An employer could create a formal orientation period for employees (no longer than one month) that would be established for the new hire to be set up in the employer’s administrative system and receive orientation and training for the job’s requirements. This orientation period can be created for one class of employees and, if necessary, a separate orientation period for another class of employees (if it does not exceed one month). Currently, no guidance specifies particular steps an employer must take to adopt an orientation period, but examples may include:

  • Referencing an orientation period in employee communications, handbooks, summary plan descriptions (SPDs) and plan documents.
  • Providing a training manual that an employee is given one month to read, and which the employee must certify he has read.
  • Providing an evaluation form that is completed by the employer after one month.
  • Providing one month for the employee to complete required forms.
  • Providing one month during which the employee must attend formal training sessions or meet with managers and department heads.
5. Fitting Within Safe Harbor for Simplified Employer Responsibility Reporting in 2015

The final regulations implementing the information reporting requirements contain two notable areas of transition relief, one that applies both to Sections 6055 and 6056 and another that applies only to Section 6056.

Good Faith Standard for 2015 Penalty Relief

The final regulations governing Sections 6055 and 6056 both provide for:

  • No reporting penalties for any optional 2014 reporting.
  • A good faith effort standard regarding 2015 reporting penalties for incorrect or incomplete filings.

Simplified Reporting for 2015

The Section 6056 final rules provide a simplified reporting method. For an employer that made a qualifying offer to at least 95% of its full-time employees and their spouses and dependents for 2015, the employer may report simplified Section 6056 return information for those employees.

Employers eligible for simplified reporting may report without identifying or specifying the number of full-time employees. However, simplified reporting is not available for minimum essential coverage reporting under Section 6055.

6. Determining who is Subject to Employer Responsibility and Minimum Essential Coverage Reporting

A large employer member who employs an average of 50 or more full-time employees or FTEs in the prior calendar year (that is, employers subject to the employer responsibility rules) must:

  • File the Section 6056 form.
  • Furnish a copy to each full-time employee.

In addition, all employers who sponsor self-funded group health plans, insurers, government agencies and others that provide minimum essential coverage (reporting entities) must:

  • File the Section 6055 form.
  • Furnish a copy to each "responsible individual," defined as a primary insured, employee, former employee, uniformed services sponsor, parent or other related person named on an application who enrolls one or more individuals, including him or herself, in minimum essential coverage.

For Section 6056 reporting purposes, a large employer member may hire a third-party agent (for example, a plan administrator) to file on its behalf, but the large employer member remains liable for the reporting. Special rules apply for governmental units and multiemployer plans.