On February 10, the Treasury Department released the final rules on compliance with the employer shared responsibility requirements under the health-reform law, often referred to as the law’s employer-mandate provisions. The rules will take effect generally on January 1, 2015, and they are scheduled for formal publication in the Federal Register today. Treasury also has a web page available offering more guidance on the rules and determining employer eligibility.
The final rules provide a number of important changes from the proposed rules issued in December 2012, and provide a great deal of transition relief for employers of all sizes that are subject to the mandate. While NAHU opposes the employer mandate generally, we did lobby the Treasury Department extensively for leniency and flexibility for employers given that, at this time, the employer mandate is the law of the land. We are very pleased to say that the vast majority of the changes to the employer-mandate rules requested by NAHU and our coalition partners, both in written comments and via many meetings and direct conversations with Treasury officials over the past year, have been included in the final rule.
Some of the more notable provisions:
• In response to our request for more small-business flexibility, the final rules phase in the employer requirements for smaller employers, giving employers with less than 100 full-time equivalent employees but more than 50 FTEs until January 1, 2016, to comply with the employer requirements. To be eligible, an employer will have to go through a certification process to demonstrate that, during the period beginning on February 9, 2014, and ending on December 31, 2014, the employer does not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition. Employees of entities that are part of a controlled group are still all aggregated when an employer is determining whether or not mandate enforcement would apply in 2015. However, applicable penalties will still be applied on an entity basis. So, for example, a company with 800 full-time employees would be obligated to offer coverage or face penalties in 2015, as would its wholly owned subsidiary with 60 employees. However, if the 60-person subsidiary group did not offer affordable and minimum value coverage and the 800-employee parent company did, applicable penalties would be applied to the subsidiary separately according to a formula outlined in the final rule, and the parent company would not be penalized for the actions of the subsidiary.
• Employers may establish a six-month period in 2014 to count employees to determine if the mandate applies for the subsequent year. In response to comments made by NAHU and others, if the employer uses the last few months of the year as its measurement period for applicability, the employer will not have to have a compliant plan in place for all employees by January 1. The employer will not be subject to penalties for the first three months of the year if such an employer establishes a compliant plan and offers it to all eligible employees by April 1.
• The regulations provide that employers will not be subject to tax penalties for not offering coverage under section 4980H(a) in 2015 if they offer coverage to at least 70% of their full-time employees. This means the employer will not be subject to the $2,000-per-employee “no coverage” penalty if it offers coverage to 70% or more of eligible employers in 2015. This is a change from the proposed rule, under which employers would have had to offer coverage to at least 95% of their full-time employees right away. All eligible employers will need to offer coverage to 95% of eligible employees and their dependents in 2016 to avoid potential tax penalties under Section 4980H(a). In 2015, under the 70% standard and, in later years, under the 95% standard, the employer may still be subject to the “b” penalty of $3,000 per individual employee if an otherwise eligible employee who was not offered coverage does seek and obtain subsidized coverage through a health insurance exchange. The choice to exclude certain classes of workers (such as variable-hour employees) in order to fall under the 70% coverage standard may be deliberate for 2015, as this transition relief was intended to make the transition to the 30 hours/week standard of offering coverage easier for employers.
• Employers that offer non-calendar-year plans are not required to comply with Section 4980H until the start of their plan years in 2015, rather than on January 1, 2015. Please note that this provision applies to the ERISA plan year stipulated in the group’s plan documents, not the plan renewal date, and these dates may differ. A group may want to modify its ERISA plan year to conform with the plan renewal date for ease of administration.
• The policy that employers offer coverage to their full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
• A one-year transition period outlined in the proposed rule for employers who contribute to multi-employer plans will carry forth until such a time when the IRS issues different guidance on the topic. The final rule says that, should the current requirements ever change, the change will be applied prospectively, so that employers will always have the chance to come into compliance before being penalized. The existing guidance on multi-employer plans provides that if an employer contributes to a multi-employer plan on behalf of employees (such as union employees) and the multi-employer plan meets the affordability and minimum value coverage criteria, the employer’s obligation offer coverage to these employees will be considered met.
• The rules provide that the service hours of certain types of individuals are not taken into consideration even if these individuals receive some for of compensation (such as expense reimbursements). These include hours worked by individuals who meet a definition of a bona fide volunteer, students who are participating in the federal work-study program or a similar state-based program and individuals who work for religious organizations who have taken a vow of poverty. The rule also provides detailed guidance about how to count the hours of employees who work hours that are particularly difficult to track, including adjunct faculty, people with on-call duty responsibility like medical personnel, people with layover hours like airline employees and commissioned salespeople. The regulation indicates that further guidance may be released to clarify hours-of-service issues for those in professions that are challenging to track.
• NAHU and others requested that the monthly measurement method for hours worked be applied in a manner that approximated or otherwise took into account payroll periods. To provide flexibility, the final rule allows an employer to determine an employee’s full-time-employee status for a calendar month under the monthly measurement method based on the hours of service over successive one-week periods.
• The new rule provides detailed guidance about how employees of staffing firms are to be treated and how staffing firms may assess if a new hire to a staffing firm is likely to be a variable-hour or full-time employee, among other matters.
• The final rule retains the requirements for an employer to use when classifying an employee with a break in service as a “rehire” with regard to the coverage rules but reduces the length of the break in service required before a returning employee may be treated as a new employee from 26 weeks to 13 weeks (except for certain educational organization employers). This break-in-service period applies for both the look-back measurement method and the monthly measurement method. To avoid educational employees being treated as rehires after summer break, the 26-week window is applied.
In addition, the final rule maintains a number of provisions included in the proposed rules, including an optional look-back measurement method of determining full-time-employee status and employer affordability safe harbors based on employee W2 wages, rates of pay or the Federal Poverty Level. The rule also includes many specific examples of what is and is not permissible, and this guidance was specifically requested by NAHU.
The rules released on February 10 do not address the employer reporting requirements necessary for enforcement of both the employer and individual mandate components of the law (Sections 6055 and 6056 of the IRS Code). However, a fact sheet on the final rules states that final rules are intended to simplify the employer information reporting requirements, and that proposed rules on these requirements will be issued “shortly.”
Many in the media and other places have questioned the Obama Administration’s legal authority to make these changes to the employer mandate. Many others have suggested these changes were made for political purposes only. From NAHU’s perspective, we will leave the definitive word on constitutional authority to the courts, but do note that all presidents in recent memory have used their enforcement authority with regard to regulations broadly. There are other PPACA provisions currently not being enforced, such as the non-discrimination rules for all fully insured group plans, and the previous Administration also used regulatory authority to delay action and change requirements on health insurance-related matters, such as the HIPAA privacy rules and reimportation of prescription drugs. So while the Obama Administration may play the regulatory authority card fairly regularly, it’s a card that’s been played many times in our nation’s history. As for the view that this decision was politically motivated, we concede that few things in Washington occur for purely altruistic reasons. However, NAHU and many other groups have been asking for relief for employer clients for more than a year. No matter the reason why it was granted, we are grateful for the relief this rule will bring.
NAHU staff is still going through the almost 300 pages of rules to get a handle on all of the details. We will provide additional guidance as it becomes available and invite you to direct specific questions to firstname.lastname@example.org or submit them via the Compliance Corner section of the NAHU website. In addition, we have changed the topic of the previously scheduled Compliance Corner webinar on Thursday, February 13, at 1:00pm Eastern to address the rule changes. Seats are limited to the first 1,000 registrants but the session will be recorded and slides made available to NAHU members by February 14. Click here to register for the webinar.