Waiting Period Limits for California Small Group Early Renewals

As we posted a few days ago, some uncertainty remains for California employers regarding eligibility waiting period limits for “late renewal” insured group health plans that follow, most commonly, a December 1 through November 30 cycle.   Many small to mid-sized California employers switched from a calendar year policy cycle to a late renewal cycle in 2013, in an effort to postpone their exposure to increased health premiums resulting from ACA coverage mandates and insurance market reforms taking effect in 2014.

The ACA permits an eligibility waiting period of up to 90 days for plan years beginning on and after January 1, 2014.  California law governing insurers and HMOs restricted the waiting period to 60 days under legislation that very recently has been repealed effective January 1, 2015.  The repeal left open the issue of whether carriers would hold employers renewing late in 2014 to the 60-day waiting period limit.

At least with regard to small group coverage (2 to 50 employees), the answer to that question appears to be “yes” for two major carriers in the state whose approach may be a bellwether for other carriers.   They will not permit a 90-day eligibility waiting period on small group policies or HMO contracts that are renewed or first issued during the remainder of 2014.  The permissible waiting period choices will be first of month following date of hire, or first of the month following 30 days from the date of hire.

For small group policy renewals and new sales occurring on or after January 1, 2015, the carriers will permit waiting periods equal to 90 days from date of hire, first of month following date of hire, and first of month following 30 days from the date of hire.   One of the carriers may also offer first of month following 60 days, but this is not yet certain.  Another carrier will prorate premiums when the 91st day after hire falls in the middle of the month.

So far these carriers are silent on waiting periods for large group renewals and new sales occurring in the remainder of this year.  Employers in this category likely can establish their own waiting period limits within the overall ACA 90-day cap. 

The carriers are permitting the 90-day waiting period limit for individuals whose small group coverage takes effect on or after January 1, 2015.  Therefore, coverage for individuals whose waiting period bridges the end of 2014 and the beginning of 2015 should begin at the end of the waiting period that began in 2014, rather than after “tacking on” additional wait time permitted in 2015.  Although not expressly required by carriers, this would seem to be a logical strategy for large group employers to take with regard to employees whose waiting periods began to elapse at a time when the maximum limit was 60 days, but end after the point at which the employer increased the maximum limit to 90 days.   This would also have the advantage of meeting ACA requirements so long as the total waiting period does not exceed 90 days.

The final regulations on the maximum ACA waiting period state that carriers (technically, “health insurance issuers”) may rely on eligibility information reported by the employer or other plan sponsor, and will not be considered to have violated the ACA waiting period rule in instances where both of the following requirements are met:

  • the carrier requires the employer/plan sponsor to disclose the terms of any eligibility conditions or waiting period, and to provide notice of any changes to these rules; and
  • the carrier has no specific knowledge of the imposition of a waiting period that would exceed the maximum 90-day period.

Imposing eligibility waiting periods in excess of the ACA 90-day cap other than will trigger excise taxes equal to $100 per day, per impacted plan participant, up to a maximum of $500,000.  Employers and other plan sponsors must voluntarily disclose and pay the tax on IRS Form 8928, Section II.   The excise tax may be abated in whole or in part if the violation was due to reasonable cause and not willful neglect.

 

 

 

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Waiting Period Uncertainty Remains for Some California Employers

Recently enacted California Senate Bill 1034 prohibits California insurers and HMOs from imposing any waiting or affiliation period on group health coverage, other than that imposed by the employer sponsoring the group health plan.  As described in earlier posts, SB 1034 negates the effect of a prior law, AB 1083, that for 2014 imposed a maximum 60-day eligibility waiting period on California group health insurance policies and HMO contracts.   As a result, many California employers with insured group health plans have been foreclosed from using the maximum 90-day eligibility waiting period permitted under the ACA, which went into effect for plan years beginning on and after January 1, 2014.

The repeal under SB 1034 does not go into effect until January 1, 2015.  Employers with calendar year plans/policies that currently are subject to the 60-day limit can make a clean transition to the 90-day maximum waiting period effective January 1, 2015.  However, many employers who chose “early renewal” in 2013 in order to lock in pre-ACA rates for an additional 11 months will start new policy/plan years on December 1, 2014, raising the question of whether carriers will require compliance with the 60-day waiting period limit (a) for the balance of the 2014 calendar year; (b) for the entire 2014-2015 policy year; or (c) not at all, once the 2013-2014 policy year has come to a close.  Early renewal was most prevalent among small group plans, although it also was available to some large employers who were grandfathered into small group coverage. 

In the wake of the repeal measure, the major players in the California group coverage market are taking a cautious approach with regard to transition guidance.  Some carriers stopped enforcing the 60-day waiting period earlier this year when repeal of AB 1083 appeared certain, and logically these carriers would not hold employers to compliance through 2014.  Other carriers that followed the letter of California law in this regard will hopefully announce soon whether they will require compliance through December 31, 2014 or the end of 2014-2015 policy years.   We will post updates as further word from carriers becomes available.

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California Progresses Towards Parity with ACA Waiting Period Rule

Editor’s Note:  Governor Brown signed SB 1034 into law on August 15, 2014.

California Senate Bill 1034, which will remove the 60-day limit on eligibility waiting periods under California insurance and HMO group health contracts earlier mandated by Assembly Bill 1083, is in the late stages of legislative approval in Sacramento. Senate and Assembly Floor and committee votes have been unanimous in the bill’s favor. As discussed in an earlier post, once passed the bill will:
• permit California-licensed carriers and HMOs to administer employer-imposed eligibility waiting periods so long as they do not exceed the ACA’s 90-day limit, and
• prohibit such carriers and HMOs from imposing any separate, additional affiliation or waiting periods.

Pending passage of this bill, it appears that California carriers and HMOs are writing coverage without requiring that employers limit waiting periods to 60 days in accordance with AB 1083 as codified in the California Insurance and Health and Safety Codes. Those provisions went into effect on January 1, 2014 but almost immediately met resistance from brokers and benefit advisors and their clients.

Passage of SB 1034, which is slated to take effect on January 1, 2015, will permit employers with California-issued or renewed group health coverage to simply follow the ACA’s 90-day maximum limit on eligibility waiting periods (which apply to all employers, not just “applicable large employers” with 50 or more full-time employees, counting full-time equivalents). This will simplify these employers’ lives in number of ways:

• It will remove any doubts that they may impose “substantive” eligibility requirements such as licensure or attainment of a job level (e.g., assistant manager or higher), separate and apart from the 90-day waiting period, provided that the substantive requirement is not designed to avoid compliance with the 90-day limit. The federal waiting period regulations make it quite clear that this is permitted, but the separate California waiting period rules introduced a measure of uncertainty. That will no longer be the case.
• It will permit ALEs to use a “limited non-assessment period” of up to three full calendar months after hiring a full-time employee, such that an offer of coverage can be postponed until the first day of the fourth full calendar month after hire.

On this last point, the final ACA 90-day waiting period regulations state that a 3-month period cannot be substituted for 90-days. However, separate regulations were proposed, and finalized, that permit employers to impose a bona fide and employment-based orientation period of up to one month, beginning immediately after hire or after transfer to a new, benefitted job position. After the one month orientation period is up, the eligibility waiting period of up to 90 days would begin to elapse. Therefore, if properly administered, the orientation period may be combined with the 90-day waiting /limited non-assessment period to cover the entire period between the date of hire, and the first day of the fourth full month after hire.

Note in this regard that the orientation period cannot simply be an arbitrary stretch of time but instead must be used for the new hire/transfer and the employer to evaluate each other, and for the new hire/transfer to undergo orientation and training for his or her position. There are other implementation details to be aware of, and employers should get expert benefit advice in order to ensure compliance with these brand new rules.

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Filed under 90-Day Waiting Period, Affordable Care Act, Benefit Plan Design, California AB 1083, California Insurance Laws, Health Care Reform, PPACA

Summaries of Benefits and Coverage: Another Year of Eased Enforcement

In ACA Frequently Asked Questions Part XIX, issued on May 2, 2014, the Departments of Labor, Treasury and Health and Human Services (Departments) have extended transition relief with regard to Summaries of Benefits and Coverage (SBCs) for another year.  Specifically, relief that the Departments first issued in April 2013 (and which is summarized in this prior post) will continue to apply for plan years starting on or after January 1, 2015, and until such time as the Department of Labor issues further guidance.

Plan sponsors (which include insurers and employers with self-funded group health plans) have been required to provide SBCs during open enrollments beginning on or after September 23, 2012, (and at other specified intervals) making 2013 the “first year of applicability” for SBC duties.  For 2015, the third such year, and until further notice, plan sponsors may continue to use the SBC and glossary templates published in April 2013 (with minor changes including deletion of a now obsolete reference to annual limits on essential health benefits (EHB)).

In addition, the Departments will maintain an overall emphasis on cooperation with plan sponsors over SBC duties, rather than penalty enforcement, provided that the plan sponsor has worked “diligently and in good faith” to fulfill SBC duties on its own.  (Penalties would apply only in the case of “willful” failure to provide required SBC information, in any event.)

Lastly the Departments will continue to apply previously issued enforcement and transition relief , including the following (not an exhaustive list):

  • Not requiring SBCs with regard to Medicare Advantage plans;
  • Not requiring SBCs with regard to expatriate health plans;
  • Not requiring SBCs for “carve out” benefit arrangements (such as through pharmacy benefit managers and behavioral health organizations) where the outside vendor has contracted to provide the SBCs, and where the sponsor or insurer monitors for vendor compliance and is either unaware of any noncompliance or identifies and corrects noncompliance);
  • Safe harbors for providing SBCs to participants and beneficiaries electronically, including in connection with online enrollment or online renewal of coverage, or in response to requests for copies made online.  Specifically:
    • SBCs may be provided electronically as part of online enrollment or online renewal of coverage under a group health plan, and in response to an online request for an SBC, provided that the individual has the option to receive a paper copy of the SBC upon request.  Similar rules apply to carriers in the individual market.

 

Transition relief of this type continues to be a welcome relief to employers and other plan sponsors.

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Unpacking the 1-Year Pay or Play Delay for Limited Workforce Employers

Most readers of this blog are aware that that the Internal Revenue Service and Treasury Department postponed the compliance deadline under the ACA’s employer shared responsibility rules from January 1, 2014 to January 1, 2015, via IRS Notice 2013-45. This was an across-the-board, 1-year extension under which no penalties under Internal Revenue Code (“Code”) Sections 4980H(a) or (b) would be imposed during 2014 on applicable large employers (“ALEs”) who failed to offer affordable, minimum value or higher group health coverage to its full-time employees, meaning those working 30 or more hours per week.

Many of you are also aware that the final employer shared responsibility regulations published in February of this year included an additional one-year extension – to 2016 – for ALEs with between 50 and 99 full-time employees, including full-time equivalents (referred to herein as the “limited workforce” extension). The limited workforce extension is also described in Questions 34 through 37 of a recently-posted IRS FAQ on employer shared responsibility provisions.

This second 1-year extension is not “across the board” like the earlier one; the limited workforce requirement is just one of several distinct requirements that ALEs must satisfy, before they can qualify for the transition relief. This post breaks down the requirements into their component parts:

Limited Workforce Size
To be eligible for the 1-year extension for 2015 an ALE must employ on average, on business days during the 2014 measurement period, at least 50 full-time employees, but fewer than 100 full-time employees, including, in either instance, full-time equivalents. This headcount must take into account full-time employees and full-time equivalent employees of separate businesses related by ownership to the ALE (controlled group rules). However, the ALE may make use of the seasonal worker exception in the headcount process, such that the additional 1-year extension would apply if the ALE employs more than 99 full-time employees, including full-time equivalents, for 120 days or fewer during a calendar year, and the employees over the 99 employee headcount are seasonal workers. Note that the seasonal worker exception is only available if employee hours are averaged over all 12 months of a calendar year. For simply determining employees’ full-time status for the 2015 plan year, transition relief in the final regulations permit the 2014 measurement period to be the entire calendar year, or a period of no less than six consecutive months in 2014, starting no later than July 1, 2014 and ending no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2015. Like the seasonal worker exception, the shortened measurement period may be used in connection with the 1-year extension for limited workforce employers.

Maintenance of Workforce and Aggregate Hours of Service
For the period beginning on February 9, 2014 through December 31, 2014, the ALE must not reduce the size of its workforce, or reduce the overall hours of service of its employees, in order to satisfy the limited workforce criterion. Reductions in workforce or schedules that are for “bona fide business reasons” are permitted, however. Examples given in the preamble to the final regulations include reduction in workforce size or aggregate hours because of business activity such as the sale of a division, changes in the economic marketplace in which the employer operates, terminations of employment for poor performance, or other similar changes unrelated to the extension criteria.

Maintenance of Previously Offered Health Coverage
The third requirement for the extension is that, during the applicable “coverage maintenance period” the ALE does not eliminate or materially reduce group health coverage that was in place as of February 9, 2014, which is the day before the final regulations were released to the public. The restrictions here are similar to those that apply to plans that are grandfathered under the ACA and generally apply to employee-only coverage. Specifically, the ALE must not reduce the dollar amount of the employer contribution towards employee-only coverage by more than 5% , it must maintain or increase the employer percentage towards such coverage in place as of February 9, 2014, it must not allow benefits to drop below “minimum value” or “bronze” level, and it may not narrow or reduce the class or classes of employees (or employees’ dependents) who were offered coverage as of February 9, 2014. The coverage maintenance period or “CMP” over which the ALE must continue to meet these conditions is, for plans following a calendar year cycle, the period from February 9, 2014, through December 31, 2015. For non-calendar year plans, the CMP is the period from February 9, 2014 through the last day of the plan year that begins in 2015.

Certification by Applicable Large Employer
ALEs that qualify for the limited workforce exception do not have pay or play duties in 2015 but must nonetheless comply with ALE reporting duties under Code Section 6056 that go into effect for 2015, with initial reporting due in early 2016. For this initial reporting year ALEs must certify that they met the requirements for the additional 1-year delay. Certification will be made on IRS Form 1094-C (not yet released by the IRS).

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Agencies Release Exchange-Related COBRA Guidance

Recent weeks have seen the publication of several pieces of agency guidance that reflect the increasing prominence of individual coverage on the health exchanges as an alternative to continuation of group coverage under COBRA. The new guidance consists of:

  • updated model COBRA notices from the Department of Labor (both the initial or “general” notice, and the qualifying event notice) which describe exchange coverage as a COBRA alternative and mention the possible availability of exchange subsidies (both notices are available here);
  • DOL proposed regulations that streamline issuance of future model COBRA notices;
  • an announcement of, and links to, the new model COBRA notices and proposed regulations, in Affordable Care Act FAQ XIX, together with guidance on other ACA issues; and
  • announcement, in a Department of Health and Human Services bulletin, of a limited special enrollment period permitting those who elected COBRA coverage under outdated election forms to drop it, between now and July 1, 2014, and enroll in coverage on a federally facilitated exchange (FFE); and
  • an FAQ published by the Centers for Medicare and Medicaid Services (CMS) Centers clarifying the circumstances under which COBRA qualified beneficiaries may switch to exchange coverage.

Each development is discussed in turn, below.

Updated COBRA Notices

On May 2, 2014, the Department of Labor, the agency responsible for COBRA notice and disclosure duties, published online updated versions of both the “general” notice (given upon initial plan eligibility), and the “election” notice (triggered by a qualifying event). The election notice now expressly identifies the availability of exchange coverage, including access to premium tax credits for those eligible, as an alternative to COBRA coverage. The model notices currently are posted online at the DOL website in English, and Spanish language versions will soon follow.

Proposed DOL Regulations re: COBRA Notices 

Also on May 2, 2014, the Department of Labor issued an advance copy of proposed regulations (technically, a “Notice of Proposed Rulemaking”) pursuant to which future model COBRA notices may appear in written agency guidance, including through online posting, rather than as “appendices” to proposed and final regulations published in the Federal Register. One of the stated reasons for this approach is to “eliminate confusion that may result from multiple versions of the model notices being available at different locations.” And in fact, if view the online version of DOL Technical Release 2013-02, which in May of last year announced earlier exchange-related revisions to the model COBRA election notice, the link to the model notice link now clicks through to the most recent update posted last week, rather than to the version that originally was issued with the Technical Release.

 Summary of COBRA Developments in ACA FAQ Part XIX

May 2, 2014 also saw publication online of Affordable Care Act FAQs Part XIX, of which Q&A 1 summarizes the above developments and directs readers to the new model COBRA notices and the proposed regulation.

FAQ Part XIX contains additional guidance on a number of ACA issues including cost-sharing limitations, coverage of preventive services, and Summaries of Benefits and Coverage. I will cover this new guidance soon in a separate post.

Special Enrollment Period to Transfer from COBRA to FFE Coverage

Generally, an individual may enroll him or herself in exchange coverage upon first becoming eligible for COBRA, during an exchange open enrollment period, or upon exhausting COBRA coverage. However, persons currently enrolled in COBRA may have elected to do on the basis of COBRA notices that did not identify exchange coverage as a COBRA alternative in these situations. Accordingly, on May 2, 2014 the Department of Health and Human Services issued a bulletin announcing a limited special enrollment period, lasting until July 1, 2014, during which COBRA qualified beneficiaries in states that use the Federally Facilitated Exchange or Marketplace may drop COBRA coverage and enroll on the FFE. The guidance does not mandate that state-run exchanges extend the same special enrollment period.

CMS FAQ re: Transition from COBRA to Exchange Coverage

Lastly, on April 21, 2014 the Centers for Medicare and Medicaid Services (CMS) posted an online FAQ https://www.regtap.info/faq_printe.php?id=1496 asking whether someone who voluntarily drops COBRA coverage during an exchange open enrollment period may enroll in the exchange (and, if eligible, qualify for premium tax credits). CMS made clear that this transition is possible even for someone whose COBRA has not expired, and that enrollment on the exchange is permitted any time during the year for someone whose COBRA coverage has expired. The FAQ made it clear that a qualified beneficiary whose COBRA coverage had not yet expired could not enroll in exchange coverage outside the annual exchange open enrollment period. (The next exchange open enrollment period is from November 14, 2014 to February 15, 2015.)

 Speculation as to COBRA’s Future

Against that background, some speculation as to COBRA’s future is warranted. COBRA continuation coverage, enacted in 1985, was in essence a legislative response to pricing and underwriting barriers to individual coverage that the Affordable Care Act has either eliminated (for instance, by banning pre-existing condition exclusions) or made less burdensome (for instance, through access to premium tax credits and cost sharing on the exchanges).   Without question, the health exchanges are a “disruptive technology” to the COBRA model, but COBRA continuation coverage likely will remain in some demand until such time as individual exchange coverage is comparable, in terms of provider networks and in other respects, to current group coverage.  That tipping point may not occur for some years, or even at all.      What is likely in the short term is that COBRA’s already steep adverse selection rate will continue to climb, as continuation of group coverage becomes more and more about retaining access to a broad network of healthcare providers.

 

 

 

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Stacking Transition Relief under the Final Employer Shared Responsibility Regulations

As we have recounted on this blog, employer shared responsibility rules under the Affordable Care Act originally were meant to go into effect on January 1, 2014, but have been put on hold two times.  The first time was in early July 2013 pursuant to IRS and White House bulletins later set forth more formally in IRS Notice 2013-45, and the stated purpose was to allow carriers and employers more time to understand and prepare for minimum essential coverage (MEC) and applicable large employer (ALE) reporting duties otherwise slated to begin in 2014.

The IRS Notice simply provided that both the employer shared responsibility provisions for applicable large employers (and information reporting related to same) would not apply in 2014 but would be “fully effective for 2015.”  It was silent on transition guidance contained in proposed regulations issued in December 2012, and thus left employers who had planned to rely on the transition guidance (including delayed start dates for non-calendar year plans) in temporary limbo.

This limbo period ended with the release of the final employer shared responsibility regulations (“Final Regulations”), which were published in the Federal Register on February 12, 2014.  The Final Regulations carry forward the transition relief set forth in the proposed regulations and expand on it in several ways.  This post summarizes the transition relief and explains some ways in which applicable large employers can “stack” the relief by using more than one type of transition relief at a time.  As with all my posts, this is for readers’ general information and is not intended to be relied upon in any specific factual setting.

By way of introduction I am going to assume that readers are familiar with basic definitions under the ACA including “applicable large employer” or “ALE,” full-time employee,” and “full-time equivalent or FTE”.  I am also going to assume reader familiarity with “assessable payments” under Internal Revenue Code (“Code”) Section 4980H(a) and (b).  Readers who are not familiar with those terms and rules can find definitions in this helpful IRS Frequently Asked Questions list, or by searching in my blog.

Additional Delay to 2016 for Mid-Sized Applicable Large Employers

The final regulations describe an additional year’s enforcement delay – from 2015 to 2016 – for mid-sized applicable large employers – those who average between 50 and 99 full-time employees, including FTEs, over their chosen 2014 measurement period.  For the enforcement delay to apply, an ALE must meet the full-time employee size requirement and each of the following additional requirements:

  • They must not modify their plan year after February 9, 2014 to start at a later date.
  • They must also make two written certifications as part of their ALE reporting due in early 2016.  Specifically they must certify that:
    • between February 9, 2014 and December 31, 2015 they have not reduced the size of their workforce or overall hours of service other than for “bona fide” business reasons, which include sale of a division, changes in the economic marketplace in which the employer operates, or terminations for poor performance.
    • they did not “eliminate or materially reduce” group health coverage that was in place on February 9, 2014 over the “coverage maintenance period” which ends December 31, 2015 for calendar year plans, and on the last day of the 2015-2016 plan year for non-calendar year plans.  “Material” reduction means a 5% or greater reduction in the dollar amount of the employer contribution towards individual premiums, or any reduction in the percentage of the employer’s share.

Mid-sized employers that qualify for the relief and meet the necessary criteria will not be subject to employer shared responsibility taxes until January 1, 2016, or the first day of their non-calendar plan year beginning in 2016.

New Transition Relief for ALEs with 100+ Full-time Employees

In 2015, employers who on average employ 100 or more full-time employees, including FTEs, over their chosen 2014 measurement period will not be subject to the “no coverage” pay or play penalty (IRC § 4980H(a)) if they offer minimum essential coverage to at least 70% of their full-time employees.  The offer of coverage includes dependents, subject to transition relief outlined below.  The permitted percentage of excluded full-time employees (30%) shrinks back down to the “greater of 5% or 5 employees” in 2016 and subsequent; i.e. MEC must be offered to at least 95% of full-time employees.

Further, if the 4980H(a) tax does apply in 2015 (because the employer fails to offer MEC to at least 70% of full-time employees), the employer may calculate the tax after excluding the first 80 full-time employees.  The excluded group shrinks back town to 30 in 2016 and subsequent.

Note that the IRC § 4980H(b) “some coverage” penalty will still apply if the coverage that is offered to at least 70% of full-time employees is either unaffordable or less than minimum value.   However, the (b) penalty can never exceed what the (a) penalty would have been, had no coverage been offered.

This relief applies to the 2015 calendar year and to non-calendar year plans for their 2015-2016 plan year.

Non-Calendar Year Transition Relief

The proposed regulations provided that ALEs that maintained a non-calendar year group health plan as of December 27, 2012 (just prior to release of the advance copy of the proposed regulations) would not be subject to employer shared responsibility penalty taxes between the original employer shared responsibility start date of January 1, 2014 and the beginning of their 2014-2015 non-calendar year plan, provided that certain conditions were met.  So, for instance, an employer that maintained a July 1 – June 30 plan as of December 27, 2012 would not be subject to excise taxes for failing to offer its full-time employees affordable, minimum value coverage between January 1, 2014, and June 30, 2014.  It would be subject to them for July 1, 2014 onward.

The non-calendar plan year transition relief offered under the proposed regulations has been extended to prevent application of penalties from January 1, 2015 to the first day of the 2015-2016 non-calendar plan year for certain qualifying applicable large employers.  The relief is only available if the employer maintained a non-calendar plan year as of December 27, 2012 and since that time has not changed the plan year to start as a later date.

This is not “across the board” transition relief for all employers with non-calendar plans.  Instead, it only applies with respect to full-time employees who would have joined the plan as of the first day of the 2015-2016 non-calendar year plan, or in instances where, prior to issuance of the regulations, a non-calendar year plan already covered a substantial percentage of its employees.   The specifics of these relief provisions are as follows:

  • Under “Eligible Employee” Relief, no pay or play penalty will be imposed with regard to full-time employees who, under plan rules that were in place on February 9, 2014, will be eligible on the first day of the 2015-2016 plan year.
  • Under “Substantial Percentage” Relief, no pay or play penalty will be imposed with regard to any full-time employees (whether or not they would become eligible in 2015 under current plan terms) if the employer:
    • actually covered at least 25% of its total employees under one or more non-calendar year plans as of any date during the 12 months ending February 9, 2014; or
    • offered coverage to at least 33.33% of its total employees during the most recent open enrollment period prior to February 9, 2014.

This transition relief is adapted from relief set forth in the preamble to the proposed shared responsibility regulations.  The final regulations add a variation on the theme of the “Substantial Percentage” Relief, measured only with regard to full-time employees, as follows:

  • No pay or play penalty will be imposed with regard to any full-time employees (whether or not they would become eligible in 2015 under current plan terms) if the employer:
    • actually covered at least 33.33% of its full-time employees under one or more non-calendar year plans as of any date during the 12 months ending February 9, 2014; or
    • offered coverage to at least half (50%) of its full-time employees during the most recent open enrollment period prior to February 9, 2014.

Non-calendar plan year transition relief is not available with regard to full-time employees eligible under a calendar year plan maintained by the same employer.

Other Transition Relief

Definition of ALE Status and Full-Time Employee Count

For the 2015 calendar year, an employer may measure its status as an ALE (and its full-time employee headcount) by counting full-time employees and FTEs over a period of at least 6 consecutive months in 2014, starting no later than July 1, 2014.  However, if the ALE is relying on the seasonal worker exception to ALE status, it must measure full-time and FTEs over all of 2014, not the shorter six-month period.  For 2016 and subsequent, ALE measurement and full-time employee headcounts must occur over an entire 12 month period.

Transitional Measurement Period

The proposed and final employer shared responsibility regulations contain special rules applicable to seasonal employees and “variable hour” employees, meaning employees who the employer cannot, at the time of hire, accurately class as full-time or part-time.  These rules are primarily of use in the retail and hospitality sectors.  They allow an ALE to measure a new employee’s working hours over a retroactive measurement period, and, based on hours worked during that time, lock in the employee as eligible or ineligible for group health coverage for a subsequent “stability period,” regardless of the hours he or she works during the stability period.

The rules generally do not allow a lock-in stability period to be significantly longer than the retroactive measurement period it is teamed with.  However, just for purposes of stability periods beginning in 2015, employers may adopt a transitional measurement period (“TMP”) in 2014 that is shorter than a year, but at least 6 consecutive months long, and still use a 12 month stability period in 2015.  Because the same rules require that there be a period of at least 90 days between the end of the TMP and the beginning of the stability period, employers who want the 2015 calendar year to serve as a stability period should begin their TMP no later than April 1, 2014.  (April 1 – September 30 TMP followed by October 1 – December 31 transition period, with stability period beginning January 1, 2015).  The TMP applies only to employees who were employed as of its start date.  Full-time status of art-time, variable hour and seasonal employees hired during the TMP will be measured over an initial measurement period of between 3 and 12 months.

Transition Relief re: First Payroll Period in 2015

Solely for January 2015, the final regulations provide that no pay or play penalty will apply between January 1, 2015 and the first day of the first payroll period in January 2015.  This will allow employers to start group health coverage on a payroll period cycle.  No comparable relief is offered for non-calendar year plans.

Transition Relief re: Dependent Coverage

Generally to avoid pay or play penalties, an ALE must offer coverage to a full-time employee’s dependents, although, unlike individual coverage, the dependent coverage on offer does not need to be “affordable.”  Extending earlier transition relief in the proposed regulations, the final regulations provide that an ALE that currently does not offer dependent coverage but that “takes steps” towards offering such coverage during its 2015 plan year will not be assessed a penalty related to dependent coverage.  This transition relief will not apply to the extent that employers offered dependent coverage either during the 2013 or 2014 plan year; in other words an ALE may not use the transition relief if it formerly offered, than terminated, dependent coverage.  As defined above, “dependents” for this purpose mean biological or adopted children to age 26.

Stacking Transitional Relief

The preamble to the final regulations specifically state that applicable large employers can combine or, as described here, “stack” different types of transitional relief under certain circumstances.   Note that ALEs who qualify for the mid-sized employer transition guidance, and who therefore have no pay or play responsibilities in 2015, will not need and cannot use transition relief for non-calendar year plans, or any of the “Other Transitional Relief” described above with the exception of the first listed – counting full-time employees over a period of at least 6 consecutive months.  This is described in example 2, below.  Non-calendar plan year relief may also apply.

The following examples illustrate potential stacking techniques:

  • Non-Calendar Year and 100+ ALE Relief

A graphic design firm with 100 full-time employees (including FTEs) has had an April 1- March 31 non-calendar plan year since December 27, 2012 and has not changed plan years to delay the starting date.

The firm offered coverage to 50% of its full-time employees between February 9, 2013 – February 9, 2014 so it qualifies for non-calendar year transition relief and will not be subject to a pay or play penalty from January 1, 2015 through March 31, 2015.

In addition, for the April 1, 2015 through March 31, 2016 plan year, the firm will not be subject to the “no coverage” penalty so long as it covers at least 70% of its full-time employees.  Penalties could still apply if the offered coverage is unaffordable or does not provide minimum value.

  • Mid-Sized Employer and ALE Measurement/Full-Time Headcount Relief

A company with three bakery locations has about 75 employees in total.  It believes it might qualify for the shared responsibility transition relief available in 2015 to mid-sized employers.  To determine its status as an applicable large employer, it counts full-time and full-time equivalent employees over a six-month period in 2014 (May to October).  During that time it averages 60 full-time employees, including full-time equivalents, per month.  Thus it is an ALE and eligible for the mid-sized employer transition relief. Between February 9, 2014 and December 31, 2014, the end of its plan year, it does not reduce its workforce other than for terminations due to poor performance and does not reduce employees’ overall hours of service.  Also during that time, it maintains group health coverage on the same terms that were in place as of February 9, 2014.   The bakery company will be exempt from assessable payments for the 2015 calendar year.  It must make attestations related to workforce and coverage maintenance, in its ALE reporting due early in 2016.

  • Mid-Sized Employer and Seasonal Worker Exception.

Same facts as above, but the employer is a vineyard with a single location.  It has a seasonal work flow so counts its full-time employees and FTEs over each month of 2014.  It finds that it exceeded 50 full-time employees, including FTEs, on fewer than 120 days in 2014 (mainly during harvest time) and, during that time, the employees that exceeded the 50 full-time limit were seasonal workers (harvesters).  The employer is not an ALE for 2015 and does not need the transitional relief for mid-sized employers.

  • 100+ ALE Relief and Dependent Coverage Relief

Same facts as the graphic designer example except the employer has a calendar year plan.  The firm offers coverage in 2015 to 75% of its full-time employees and the coverage is affordable and provides minimum value.  Therefore assessable payments would be due only with regard to dependent coverage.  The employer takes steps towards 2015 to provide dependent coverage, and did not earlier provide, then stop, dependent coverage.  The employer will not be subject to assessable payments in 2015.

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Filed under Affordable Care Act, Benefit Plan Design, Employer Shared Responsibility, Health Care Reform, Health Insurance Marketplace, Plan Reporting and Disclosure Duties, PPACA