Patient Protection and Affordability Care Act (PPACA)
“Shared Responsibility for Employers Regarding Health Coverage”
On January 3, 2013, the Internal Revenue Service published proposed regulations in the Federal Register for “applicable large employers (ALEs)”, or, “any employer who employ 50 or more full-time employees” and who sponsor group health/medical plans. These regulations are related The Patients’ Protection and Affordable Care Act of 2010 (specifically, IRC §1531, IRC § 1411 and IRC § 1001), or now, using a more simple reference by the White House, as “ACA” or the Affordable Care Act. The regulations are posted in the internal revenue code as, IRC § 4980H. Correlated to § 4980H, IRS published Notice 2012-58, further guidance regarding these new regulations. Associated to this new “Shared Responsibility” for ALEs with regulations under § 4980H, the IRS regulations has published a new PPACA disclosure of return information (in the realm of IRS Form Series 5500) under Section 6103(l)(21).
IRC § 4980H is an addition to IRC § 1531 of the Patient Protection and Affordability Care Act and imposed requirements on employers regarding their responsibility in offering their health/medical plan to “full-time employees,” effective for months beginning December 31, 2013. This regulation is called, the “Employer Shared Responsibility.” § 4980H has re-defined the definition of who is a full-time employee? for agroup-sponsored medical insurance plan. As such, this provision has defined a full-time employee for medical insurance coverage as a common law employee who averages thirty (30) hours of service per week in any given month. Employers who employed fifty or more (50+) full-time employees (or 50+ full-time equivalents) during the preceding calendar year is defined as an “Applicable Large Employer” (or, ALE), subject to the penalties under § 4980H. Be aware that this new full-time definition is for group medical/health plans only; as such, IRS is not mandating employers who sponsor pension, retirement or other welfare benefit plans (i.e., group life insurance, disability income, long-term care, etc.) to use the 30-hour eligibility rule for these type of plans.
Since the ACA was passed in 2010, the term “pay or play” has been used to describe the dilemma employers may face when choosing to “play” (or, stay and adapt their plans to comply with ACA) or to “pay” (with the associated penalties by walking away from their plans).
Section 4980H prescribes two excise penalties on ALE’s for: (i) not offering coverage to all full-time employees; (ii) offering non-“affordable” coverage; or (iii) offering coverage that does not meet “minimum value.” Not complying with any of these three (3) criteria will trigger one of the penalties.
An ALE will incur penalty 4980H(a) when such ALE does not offer coverage to all its full-time employees. An ALE will incur penalty 4980H(b) when the coverage offered to all full-time employees was either “unaffordable” or did not meet “minimum value.”
Penalty 4980H(a) is calculated by multiplying $2,000 by the total number of full-time employees less thirty (30) employees. Penalty 4980H(b) is calculated by multiplying $3,000 by the total number of full-time employees receiving a premium tax credit or cost-sharing reduction through the Exchanges.
In order to comply with the January 1, 2014 effective date for this ACA provision, the IRS has applied a minimum six (6) month “initial measurement period” for employers to collect data on their on-going and newly hired employees for determining full-time or part-time status for purposes of offering coverage on the effective date of this regulation.
The IRS states that ALEs can use “measurement” and “stability” periods as administrative safe harbors. Since the regulations state a full-time employee is a “common law employee that average 30+ hours of service per week for any given month,” employers would need to calculate their employees’ hours of service every month. The IRS allows ALEs to use “measurement” and “stability” periods of up to twelve (12) months in order to ease this administrative burden. Using the rules for this safe harbor, an employer can use a “measurement period” of at least three (3) months and no longer than six (6) months to measure their employees’ hours of service for determining full-time or part-time status during the subsequent “stability period.” An employees’ status as determined during the “measurement period” would remain in effect for the duration of the “stability period.” The hours of service during the “stability period” does not change an employee’s part-time or full-time status during the “stability period” in which the employee remains employed by the employer. For example, an employee who average 30 hours of service during the “measurement period” and only average 25 hours of service during the subsequent “stability period” would not lose full-time status during the “stability period.”
ALEs who decide to “pay” the penalties, rather than amending their plans to comply with the requirements of ACA, are still left with burdensome reporting. ALEs will be responsible for federal informational return forms on their employees, for the purposes of applying tax credits and cost-sharing. Employers will be burdened with further reporting for employees determined to be eligible for tax credits.
Additionally, ALEs will need to provide a specific notice to employees regarding the availability of State or Federal Exchange, the potential premium tax credits and cost-sharing reductions available if the plan is not affordable or does not meet minimum values defined by ACA. The initial deadline for this notice was March 1, 2013; however, a delay for this notice was handed down due to the IRS not yet providing the information required in the notice. A new deadline has yet to be released; only a general timeframe of late summer or early fall of 2013.
This summary of the “Shared Responsibilities” under IRC § 4980H is a very basic explanation of this regulation with the “Play or Pay” provision under the Affordable Care Act. This brief article is meant for employers to be aware of the responsibilities and the penalties imposed with the law. The rules for identifying full-time employees are very complex with special rules for certain types of employees and employers, as well as separate rules for on-going and newly hired employees. Furthermore, employers will need to satisfy testing, reporting and administrative requirements imposed by this regulation.
DeHEY McANDREW has been following the ACA since it was passed in 2010. With the most crucial component of ACA (the “pay or play” provision) has became effective for the deadline of January 1, 2014, employers need to begin preparation no later than May 1, 2013 (for employers of + 1000 employees earlier than May 1) to gather necessary data, analyze the data and apply any changes to their plan, its rules and procedures in order to be in compliance. DeHEY McANDREW is prepared to assist your company in the compliance requirements of this ACA provision in order to circumvent any penalties and continue to utilize your group health plan as a tool for recruitment, employee satisfaction and retention. Most importantly, DeHEY McANDREW can assist in thwarting steep penalties that can financially hinder the growth of your business or your organization.