Do the final regulations on the ACA employer mandate requirements provide special measuring rules for an employee returning after a leave of absence?
Yes, the final regulations include rehire and break in services rules under which an employee who returns after a 13 week (26 week for an educational organization employee) or more break in service is treated as a new employee instead of an ongoing employee. The final regulations also include optional rule of parity rules under which, for “no service” periods of less than 13 weeks (26 weeks for an educational organization employee), the employer may apply an optional rule of parity and treat the employee as a new employee if the “no service” period is at least four but less than 13 weeks long, and is longer than the period of employment.
The final regulations also include special averaging rules for special unpaid leaves of absence—defined as FMLA, military, and jury duty leave—and, for educational organizations, employment break periods. Under these rules, for a continuing employee who resumes after a special unpaid leave (or, for an educational organization employee, an employment break period), the employer must determine the average hours of service per week for the employee excluding the special unpaid leave period (or, for an educational organization employee, an employment break period) and use that average as the average for the entire measurement period. Alternatively, the employer may credit the employee with hours of service for the special unpaid leave period (or, for an educational organization employee, an employment break period) at a rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not special unpaid leave (or, for an educational organization employee, an employment break period). The special unpaid leave (and educational organization employment break period rules) only apply under the look-back measurement method—not the monthly measurement method.
Are there safe harbors for determining whether the health coverage provided by an employer is affordable?
The employer mandate’s statutory provision bases affordability on the employee’s household income. Because employers generally will not know an employee’s household income, the final regulations provide three affordability safe harbors under which an employer that offers minimum essential coverage providing minimum value will not be subject to the Code section 4980H(b) penalty for a full-time employee receiving a tax credit for Exchange coverage so long as the coverage was affordable under one of the safe harbors:
- Form W-2 Wages Safe Harbor – The employer generally must offer minimum essential coverage to full-time employees (and their dependents) under an eligible employer-sponsored plan, with the required employee contribution for the lowest cost, self-only coverage option that provides minimum value not exceeding 9.5% of the employee’s Form W-2 wages for that calendar year.
- Rate of Pay Safe Harbor – An employer generally may take the hourly rate of pay for each hourly employee who is eligible for coverage, multiply that by 130 and determine affordability based on the monthly wage. Coverage is considered affordable if the employee’s required monthly contribution for the lowest cost, self-only coverage option that provides minimum value is no more than 9.5% percent of the monthly wage. Similar rules apply for salaried employees based on their monthly salary.
- Federal Poverty Line Safe Harbor – If the employee’s required monthly contribution for the lowest cost, self-only coverage option that provides minimum value does not exceed 9.5% of a monthly amount determined based on the most recently published federal poverty level for a single individual for the year (divided by 12), the coverage will be considered affordable.
An employer may use one safe harbor for all of its employees or use different safe harbors for different “reasonable categories” of employees so long as it does so on a uniform and consistent basis for all employees in the category. The final regulation provide that “reasonable categories” include (1) specified job categories, (2) nature of compensation (salaried vs. hourly), (3) geographic location, and (4) similar bona fide business criteria.
How is the employer mandate penalty assessed?
The final regulations provide that the IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before assessing the liability or demanding payment. The preamble to the final regulations indicates that future guidance will provide that the contact for a given calendar year will not occur until after the employees’ individual tax returns are due for the year (typically, April 15) and after the due date for employers to file Code section 6056 information returns (typically, March 31 if filing electronically).
Can an employer satisfy the employer mandate where one of its full-time employees is provided coverage by another employer within its controlled group?
Yes, the final regulations provide that an offer of coverage by one applicable large employer member to an employee for a calendar month is treated as an offer of coverage by all applicable large employer members for that calendar month.
Can an employer satisfy the employer mandate by providing coverage through a multiemployer plan or multiple employer welfare arrangement (MEWA)?
Yes, the final regulations state that an offer of coverage includes an offer of coverage made by a multiemployer or single-employer Taft-Hartley plan or a MEWA to an employee on behalf of a contributing employer.
Can an employer satisfy the employer mandate by providing coverage through a professional employer organization (PEO) or staffing firm arrangement?
Yes, an employer may satisfy the employer mandate by providing coverage through a PEO or staffing firm arrangement in certain circumstances described in the final regulations. Specifically, the final regulations provide that an offer of coverage to an employee performing services for an employer that is a client of a staffing firm, in cases where the staffing firm is not the common law employer of the employee, and the staffing firm makes an offer of coverage on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer, if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if that employee didn’t enroll in health coverage under the plan.
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You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html.
Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C. She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare. She represents employers designing health plans as well as insurers designing new products. Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.
Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.
PLEASE NOTE: This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.