Seven Steps to the Pay or Play Rule

Originally posted April 02, 2014 by Darla Dernovsek on

Avoiding any missteps in Affordable Care Act (ACA) "Employer Responsibility" compliance relies on checking your health benefit practices against a list of seven crucial steps. Fortunately, employers who have started preparing for this provision of the ACA can already cross some of these steps off their "to-do" list.

Step One: Understand General Rules. The first step is learning the general rules for employers. Beginning Jan. 1, 2015, employers with 100 or more employees who fail to offer coverage to employees and their dependents will trigger a penalty. Employers with 50 to 99 employees have until Jan. 1, 2016; employers with less than 50 employees are exempt.

Step Two: Is the Employer a Large Employer? Knowing when and how to count employee "hours of service" is essential for full-time workers, seasonal workers, part-time workers and other employees. An employee who works 30 hours or more per week - the Internal Revenue Service (IRS) definition of full-time - must be offered benefits to avoid ACA fines. Barlament described the rules as "very pro-employee" in determining what qualifies as an hour of service, including how to count hours for employees who are on-call or do not work on an hourly basis.

Step Three: Will Employees Receive Subsidized Exchange Coverage? Employers can design health plans that avoid ACA "Pay or Play" penalties by meeting three requirements:

  1. They offer "minimum essential coverage" (see below) to full-time employees and dependents who would otherwise be eligible for subsidized coverage from an exchange.
  2. The employer's plan provides "minimum value."
  3. The employee's share of premiums is "affordable" for self-only coverage for the employer's lowest-cost, minimum value plan.

"If you don't remember anything else, remember this," Barlament said about step three.

Step Four: Did the Employer Offer Minimum Essential Coverage? Barlament called this an "easy test" because employers who offer major medical benefits should meet the standard. There are still additional rules that require attention, such as the IRS requirement that employees have the opportunity to enroll once a year.

Step Five: Does the Plan Provide Minimum Value? The IRS has predicted that 98 percent of all employer-sponsored plans would satisfy this test, which requires plans to cover 60 percent of the cost of all benefits. An online calculator is available. Employers should be prepared to prove they met the requirement year after year by laminating or notarizing a copy of their plan and then storing it safely.

Step Six: Is Plan Coverage Affordable? The employee's share of cost for "self-only" coverage for the lowest-cost, minimum value plan cannot be more than 9.5 percent of the employee's household income. Barlament noted that employers are typically unaware of employees' household income, so many employers will instead rely on three "safe harbors" built into the ACA. One option is to set up your plan based on the federal poverty line guidelines that were in effect six months prior to the start of the plan year. Under current guidelines, that would limit the employee share for self-only health benefits to $92 a month.

Step Seven: Determine "Full-Time" Status. "It's the worst step," Barlament said. Three options are available. For example, employers can measure status on a monthly basis, with employees who work 130 hours or more gaining full-time status. However, this method may only be viable for employees that are clearly well above or well below the 30-hour mark with no chance for movement. There's also an option to utilize a measurement period over a block of time and then lock in or lock out the employee's status for a comparable block of time. Finally, the two methods can be combined. The recommended approach varies depending on whether the employee is ongoing; new; new and full-time; new and works variable hours; new and works seasonal hours; or part-time. Barlament said the first step for employers is to put every employee into one of those categories.


Final Employer Responsibility Regulations Released

Originally posted by Melissa Duffy on

The federal government has released final rules governing the Affordable Care Act's Employer Responsibility (aka Pay or Play) provisions that will take effect in 2015 for many Alliance members. Once in effect, the ACA will impose penalties on employers that do not offer "affordable" and "minimum value" coverage to certain full-time workers, currently defined as an average of 30 hours or more per week.

The IRS has posted Frequently Asked Questions to help employers understand the new guidelines and the safe harbors that were created to help employers avoid penalties. Penalties are triggered only when one or more of a company’s full-time workers accesses tax credits to purchase coverage on the public exchange.

The final regulations include some changes to the proposed regulation that were released more than a year ago. Key changes include:

  • An exemption from penalties for employers in 2015 that have 50-99 workers as long as they certify that they have not reduced their workforce to fall under the 100 employee threshold. Employers of this size would be subject to penalties in 2016 if their regulations are not changed once again.
  • More wiggle room for employers that do not offer all employees coverage. Under the new rules, an employer with 100 or more workers will not be subject to the "4980H(a)" penalty ($2,000 X all FT employees minus 30) as long as they offer coverage to at least 70 percent of employees in 2015. This threshold increases to 95 percent in 2016. However, employers will still be subject to "4980H(b)" penalties equaling $3,000 per year for any full-time employee that is able to access exchange tax credits or cost sharing reductions.
  • A new definition for "seasonal employees" to apply to those positions for which customary annual employment is six months or less. For these individuals, the offer of coverage can wait until the end of a measurement period. This is not to be confused with the term “seasonal worker” used for the purposes of determining whether an employer is large enough to be subject to penalties.

Congress Considers Changing the Definition of Full-Time

In a related note, a Congressional committee has approved one of several bills introduced this session to modify the Employer Responsibility provisions in the Affordable Care Act. The bill, which would define full-time as 40 hours for the purposes of the ACA, passed the House Ways and Means Committee on a party-line vote with Republicans on the committee supporting the measure and Democrats opposing it. Similar bills have gained bipartisan support but are stalled in the Senate.

Click here to view testimony from the public hearing held on this issue.


Final Employer ACA Regs from IRS Provide Transition Relief to Mid-Sized Employers

Originally posted on

The Internal Revenue Service (IRS) issued final regulations implementing the employer responsibility provisions under the Affordable Care Act (ACA) that take effect in 2015.

The final rules implement the employer shared responsibility provisions of the ACA, under section 4980H of the Internal Revenue Code. The rules make a number of changes in response to input on the proposed regulations issued in December 2012.

Highlights of the rules include addressing a number of questions about how plans can comply with the employer shared responsibility provisions; ensuring that volunteers such as firefighters and emergency responders do not count as full-time employees; and phasing in provisions for businesses with 50 to 99 full-time employees and those that offer coverage to most but not yet all of their full-time workers.

The final rules provide, for 2015, that:

  • The employer responsibility provision will generally apply to larger firms with 100 or more full-time employees starting in 2015 and employers with 50 to 99 full-time employees starting in 2016.
  • To avoid a payment for failing to offer health coverage, employers need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent in 2016 and beyond, helping employers that, for example, may offer coverage to employees with 35 or more hours, but not yet to that fraction of their employees who work 30 to 34 hours. (Proposed regulations would have required employers to offer coverage to 95 percent of their full-time employees in 2015.)

Various Employee Categories

The final regulations provide clarifications regarding whether employees of certain types or in certain occupations are considered full-time, including:

  • Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees.
  •  Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
  • Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
  • Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees.
  • Adjunct faculty: Based on the comments received, the final regulations provide as a general rule that, until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer responsibility provisions. However, to accommodate the need for predictability and ease of administration and consistent with the request for a “bright line” approach suggested in a number of the comments, the final regulations expressly allow crediting an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.

U.S. Treasury Press Release
U.S. Treasury Fact Sheet
IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act

The Tomato Paradox of Health Care Reform

Original article

By Mick Constantinou

There is an old paradoxical adage that, “Knowledge is knowing that a tomato is a fruit, while wisdom is not putting it in a fruit salad.”

In terms of the promises of the health care reform law(keep, access and affordable), paradoxes like the tomato have come to light, but the Tomato Paradox relates directly to the difference between having knowledge and commanding wisdom.

Most Americans are aware of health care reform and the massive changes to how health insurance and health care will be accessed and regulated beginning this fall.  Some companies and individuals have the knowledge (or think they have the knowledge) of how the law will impact them directly, but the variable is the source of their knowledge and whether or not that knowledge is based in fact, political rhetoric or meetings at the water cooler.

The other variable is wisdom.  Employers may have the knowledge of “what they must do,” or “do not have to do,” based on the number of FTEs they employ, whether they are fully-insured or self-insured and other factors, but many have not been afforded access to the wisdom to answer the simple question: “What should we do?”

Regardless of whether an employer decides to “play or pay” in 2014 and beyond, there are other subjective factors (hidden costs) of health care reform that will impact company culture and strategic direction.  These factors need to be considered in concert with the results of modeling and compliance tools orchestrated by a trusted advisor, including but not limited to:

  • Increased reporting burdens, whether you “play or pay
  • Recruitment and retention challenges related to changes in total compensation
  • Impacts to employee productivity and morale
  • Changes in taxable income for both employers and employees

In simple terms, knowledge is information and facts of which someone is aware, and wisdom is the ability to make correct, common sense judgments and decisions based on the facts.  Wisdom is an intangible quality gained through experience and expertise.

What separates insurance sales people from trusted advisors is the experience, expertise and wisdom brought to the unique challenges faced (and overcome) during the benefits renewal process in the era of health care reform.