IRS Guidance Under PPACA
The IRS recently released guidance on certain provisions under the Patient Protection and Affordable Care Act (PPACA). Effective 2014, employers with 50 or more full-time employees must offer affordable health coverage or pay a penalty. The IRS safe harbor approach to affordable coverage is the premium for single coverage under the lowest cost health option is not more than 9.5% of the employee’s wages for that year. Also in 2014, plans may not impose waiting periods longer than 90 days.
IRS notice 2012-58 gives employers flexibility on how to classify employees for purposes of the “pay or play” penalty.
To figure out if an new hire is considered full-time would depend on whether he/she is reasonably expected to work full-time (at least 30 hours), work variable hours or are seasonal. If new hires work full-time and are offered health insurance by the end of the initial three months of employment, the employer will not be subject to a penalty.
If new hires are seasonal employees or work varied hours then employers are not required to offer them health coverage within that initial three months of employment. Instead employers would have to offer health coverage only if the employee works at least 30 hours a week during a “measurement period” which would be between three to 12 months. The measurement period can be different for certain groups such as collectively bargained vs. non-collectively bargained employees, salaried vs. hourly, employees of different entities, and employees in different states.
If such an employee were to meet this threshold, he/she must be a full-time employee for a “stability period” which must be at least six months and no shorter than the initial measurement period. The employer still does not have to provide health insurance during the stability period even if the employee works 30+ hours a week. The IRS notice also allows for an “administrative period” between the measurement period and stability period which allows employers to see who may be eligible for health insurance and enroll them at that time. The administrative period may be as long as 90 days.
For current employees an employer can use similar testing periods as mentioned above. An employer would determine each ongoing employee’s full-time status by looking back at the standard measurement period. If the employee has worked at least 30 hours per week during the measurement period, then the employee must treat the employee as full-time during the stability period. If the employee did not meet the 30 hours per week, then the employee is not considered full-time during the stability period.
IRS Notice 2012-59 explains that group health plans cannot apply a waiting period that is beyond 90 days. A waiting period is “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.” Other coverage conditions are allowed as long as it doesn’t interfere with the 90 days limit. Plans would be in compliance if the employee could elect within the 90-day period but takes additional time to actually elect coverage. Employers trying to determine whether variable hours or seasonal employees meet their plan’s eligibility conditions will not violate the 90 day waiting period if coverage is made effective no later than 13 months from the employee’s start date.