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Healthcare Reform: Plan Eligibility Rules Need To Be In Writing

January 26 - Posted at 3:00 PM Tagged: , , , , , , ,

Healthcare Reform continues to roll on despite all of its opponents. While 2014 brought the implementation of the health insurance exchanges, the Individual Mandate, and a host of new rules relating to employer-provided health coverage, 2015 marks the start of yet another major component of the Affordable Care Act (ACA): the Employer Mandate.


In the a recent article written by Fisher & Phillips LLP attorney Steven Witt, he discusses the potential risks employers can face if they are not careful in how they implement (and document) their compliance strategies with regards to the Employer Mandate.


The Employer Mandate requires large employers to offer compliant group health coverage to their “full-time employees” and their dependents or face excise tax penalties. Say you are a large employer who has never offered health insurance (or perhaps only to a small subset of your employees). You do not want to bankrupt the company and offer health insurance to your entire workforce, nor do you want to face tax penalties. Instead, you opt for what the Employer Mandate calls for: you offer health insurance coverage to only your full-time employees.


If you decide to only offer coverage to your “full-time” employees, simply setting measurement period dates with your human resources department and running payroll reports to determine who is “full-time” will not sufficiently limit the risk of controversy and potential legal liability. You will be much better off to clearly define these eligibility rules in writing and make sure any old, conflicting eligibility rules are updated.


Leaving existing plan documents and other materials (e.g., employee handbooks) to define health insurance eligibility with something vague like “full-time employees: employees who regularly work 30 or more hours per week,” is only inviting trouble. You will no doubt have employees (with attorneys) who could make plausible arguments that they “regularly” work 30 or more hours a week and can point to your existing written documents as evidence they should have been offered health insurance. Without clearly setting out new eligibility rules, it will be a much steeper uphill battle for the employer to defend itself.


On the other hand, if such employees attempt to claim that they were unfairly denied health insurance coverage, an employer should be on much stronger footing to defend its position that those employees are not “full-time” if it can point to written documentation outlining items such as (a) date ranges used for measurement periods and stability periods; (b) waiting periods for newly-eligible employees; and © how to treat employees in special circumstances, such as those who are promoted from a part-time position to a full-time position, those on a leave of absence, or rehired employees.


If you have not already done this, it is not too late. Even employers subject to the Employer Mandate in 2015 can still timely revise their SPDs or perhaps draft stand-alone benefits eligibility documents or other “wrap” documents to fully outline new eligibility rules. Steven advises employers to pay close attention as additional regulations and agency guidance continues to roll out to ensure they stay in compliance with ERISA, the ACA, and other related federal and state health insurance-related laws.

U.S. House of Representatives Passes Bill to Change Definition of Full Time Employee under ACA

January 21 - Posted at 3:00 PM Tagged: , , , , , , , , , , , , , ,

Members of the U.S. House of Representatives voted on January 8, 2015 to redefine full-time employment under the Affordable Care Act (ACA) to employees who work at least 40 hours a week rather than 30 hours a week.


The Save American Workers Act, passed the House with a vote of 252-172 with full Republican support and 12 Democratic voters. The legislation would amend the Internal Revenue Code by changing the definition of full-time employee to cover individuals who work, on average, at least 40 hours per week for purposes of the employer mandate to provide minimum essential health care coverage under the ACA.  


Despite the bill’s passage in the House, the fate of the bill in the U.S. Senate remains uncertain. In addition, Republicans have not garnered enough support to override the veto promised by President Obama if the bill did pass Congress.  


According to Politico, “The House has cleared more than 50 assorted measures to repeal or roll back Obamacare, but this is the first time the House can propel legislation to a GOP-controlled Senate, potentially forcing President Barack Obama to either accept changes to his signature domestic achievement or use his veto power.”  


Some supporters of the change, including the U.S. Chamber of Commerce, argue that the current standard deviates from the widely accepted definition of full-time work. It is argued that it provides an incentive for employers to reduce hours, particularly for low-wage workers, to avoid offering healthcare coverage.


This month, employers with 100 or more employees will be required to offer health insurance to at least 70% of employees who works at least 30 hours a week or else pay a penalty.


The NY Times comments: 

By adjusting that threshold to 40 hours, Republicans — strongly backed by a number of business groups — said that they would re-establish the traditional 40-hour workweek and prevent businesses cutting costs from radically trimming worker hours to avoid mandatory insurance coverage. They contend that the most vulnerable workers are low-skilled and underpaid, working 30 to 35 hours a week, and now facing cuts to 29 hours or less so their employers do not have to insure them. With passage of the law, those workers would not have to get employer-sponsored health care, and their workweek would remain intact.



Analysis by the Congressional Budget Office found that the bill would increase the U.S. deficit by $53 billion over the course of a decade because fewer employers would pay penalties and one million employees would not have coverage through their job. Democrats cite these reasons as evidence that the bill is simply an attempt to dismantle the ACA.


A central issue of this bill is how far employers would go to avoid mandated coverage. A majority of employees already work 40 hours a week rather than 30. That being said, few employers would cut worker hours from 40 to 29, but many would be willing to cut hours from 40 to 39, the New York Times ventures, “That means raising the definition of a full-time worker under the health care law would put far more workers at risk.”

The Patient Protection and Affordable Care Act (the “ACA”) adds a new Section 4980H to the Internal Revenue Code of 1986 which requires employers to offer health coverage to their employees (aka the “Employer Mandate”). The following Q&As are designed to deal with commonly asked questions.  These Q&As are based on proposed regulations and final regulations, when issued, may change the requirements.

Question 1: What Is the Employer Mandate?

On January 1, 2014, the Employer Mandate will requiring large employers to offer health coverage to full-time employees and their children up to age 26 or risk paying a penalty. These employers will be forced to make a choice:


  • “play” by offering affordable health coverage that is  considered “minimum essential coverage”




  • pay” by potentially owing a penalty to the Internal Revenue Service if they fail to offer such coverage.


This “play or pay” system has become known as the Employer Mandate. The January 1, 2014 effective date is deferred for employers with fiscal year plans that meet certain requirements.


Only “large employers” are required to comply with this mandate. Generally speaking, “large employers” are those that had an average of 50 or more full-time or full-time equivalent employees on business days during the preceding year. “Full-time employees” include all employees who work at least 30 hours on average each week. The number of “full-time equivalent employees” is determined by combining the hours worked by all non-full-time employees.

To “play” under the Employer Mandate, a large employer must offer health coverage that is:

  1. “minimum essential coverage”
  2. “affordable”, and
  3. satisfies a “minimum value” requirement to its full-time employees and certain of their dependents.


This includes coverage under an employer-sponsored group health plan, whether it be fully insured or self-insured, but does not include stand-alone dental or vision coverage, or flexible spending accounts (FSA).


Coverage is considered “affordable” if an employee’s required contribution for the lowest-cost self-only coverage option does not exceed 9.5%  of the employee’s household income. Coverage provides “minimum value” if the plan’s share of the actuarially projected cost of covered benefits is at least 60%.

If a large employer does not “play” for some or all of its full-time employees, the employer will have to pay a penalty, as shown in following two scenarios.

Scenario #1- An employer does not offer health coverage to “substantially all” of its full-time employees and any one of its full-time employees both enrolls in health coverage offered through a State Insurance Exchange, which is also being called a Marketplace (aka an “Exchange”), and receives a premium tax credit or a cost-sharing subsidy (aka “Exchange subsidy”).


In this scenario, the employer will owe a “no coverage penalty.” The no coverage penalty is $2,000 per year (adjusted for inflation) for each of the employer’s full-time employees (excluding the first 30). This is the penalty that an employer should be prepared to pay if it is contemplating not offering group health coverage to its employees.

Scenario #2- An employer does provide health coverage to its employees, but such coverage is deemed inadequate for Employer Mandate purposes, either because it is not “affordable,” does not provide at least “minimum value,” or the employer offers coverage to substantially all (but not all) of its full-time employees and one or more of its full-time employees both enrolls in Exchange coverage and receives an Exchange subsidy.


In this second scenario, the employer will owe an “inadequate coverage penalty.” The inadequate coverage penalty is $3,000 per person and is calculated, based not on the employer’s total number of full-time employees, but only on each full-time employee who receives an Exchange subsidy. The penalty is capped each month by the maximum potential “no coverage penalty” discussed above.

Because Exchange subsidies are available only to individuals with household incomes of at least 100% and up to 400% of the federal poverty line (in 2013, a maximum of $44,680 for an individual and $92,200 for a family of four), employers that pay relatively high wages may not be at risk for the penalty, even if they fail to provide coverage that satisfies the affordability and minimum value requirements.


Exchange subsidies are also not available to individuals who are eligible for Medicaid, so some employers may be partially immune to the penalty with respect to their low-wage employees, particularly in states that elect the Medicaid expansion. Medicaid eligibility is based on household income. It may be difficult for an employer to assume its low-paid employees will be eligible for Medicaid and not eligible for Exchange subsidies as an employee’s household may have more income than just the wages they collect from the employer. But for employers with low-wage workforces, examination of the extent to which the workforce is Medicaid eligible may be worth exploring.

Exchange subsidies will also not be available to any employee whose employer offers the employee affordable coverage that provides minimum value. Thus, by “playing” for employees who would otherwise be eligible for an Exchange subsidy, employers can ensure they are not subject to any penalty, even if they don’t “play” for all employees.

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