Templates: Benefits and Human Resources (GBS) Division ... · 3/25/2014 6 ARTHUR J. GALLAGHER & CO....

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Those Magic Changes: Healthcare Reform Part 1 PETULA WORKMAN, J.D., CEBS| MARCH 2014

ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™

Agenda

• Applicable Large Employer

• Transitional Relief

• Offer of Coverage

• Affordability

• Penalties

• 90-Day Waiting Period

© 2014 GALLAGHER BENEFIT SERVICES, INC. 2

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APPLICABLE LARGE

EMPLOYER



Applicable Large Employer

• Determination impacts timing of mandate

– The mandate only applies to “applicable large employers”

– Applicable large employers are those with 50 or more full-time (FT) and full-time equivalent (FTE) employees

– Final regulations provide additional transitional relief for so called “mid-sized employers”

• Between 50 and 99 FT and FTE employees


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• FT employees are those that average 30 hours per week (or, 130 hours per month)

• FTE employees based on aggregate hours of service of all other employees (including seasonal) and dividing by 120

– Employers can round off to the nearest hundredth (i.e., 30.544 FTEs is rounded to 30.54 FTEs)

– Can’t include more than 120 hours of service for any employee




• Calculating applicable large employer status

– To determine status add FT and FTE employees for each month in the preceding year, then add monthly totals and divide by 12

• If resulting number is fraction then round down

• Seasonal employee exception


Example: Acme employed 25 employees who worked 130+ hours

each month in 2016. Acme also employed 60 employees who worked

60 hours each month in 2016 (3,600 total service hours for non-full-

time employees). To determine FTE employees Acme divided 3,600

by 120, which equals 30 FTEs.

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• Timeframe for calculating status

– Generally, determination based on the entire preceding year

– For 2015, the final regulations allow employers to determine status by using any period of at least six consecutive months during 2014




• Special circumstances

– Status as applicable large employer is based on a controlled group status

– For new employers, status is based on reasonable expectations

• New employers are those that were not in existence on any business day the prior year


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TRANSITIONAL RELIEF



Transitional Relief

• Delay of mandate for employers with between 50 to 99 FT and FTE employees

– Not subject to mandate until 2016 plan year

– Employer must certify that it:

• Employed 50 to 99 FT and FTE employees during 2014

• Between February 9 through December 31, 2014 employer did not reduce the size of its work force to meet above condition

• Did not reduce or materially reduce health coverage between February 9, 2014 and last day of 2015 plan year


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Transitional Relief

• Delay of mandate for employers with between 50 to 99 FT and FTE employees

– Employers will not have materially reduced coverage if they meet the following conditions between February 9, 2014 and last day of 2015 plan year: • Employer continues to offer coverage and the employer contribution toward

the cost of employee-only coverage is at least 95% of the dollar amount of the contribution offered by employer toward such coverage or the same or higher percentage of the cost of coverage that the employer was contributing on February 9, 2014

• If there is a change in benefits under employee-only coverage, the coverage after change provides minimum value

• Employer doesn’t reduce classes of employees to whom coverage is offered



Transitional Relief

Delay of mandate for employers with between 50 and 99 FT and FTE employees


Example: Acme sponsors a plan under which 75 FT employees are

offered coverage. Acme also has 27 FTE employees. In 2014, two of

Acme’s employees voluntarily terminate employment and Acme

terminates three employees due to nonrenewal of a customer

contract. Had those five employees continued in employment

throughout 2014, Acme would have had an average of 100 full-time

employees (including FTEs) on business days in 2014. As a result of

the terminations, it had an average of only 97 full-time employees

(including FTEs) for business days in 2014. From February 9, 2014,

through December 31, 2015, Acme does not change the eligibility

requirements for the plan and does not reduce benefits. Based on

above, Acme will not be subject to a penalty for the 2015 plan year.

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Transitional Relief

• Transitional relief for employers with 100 FT and FTE employees

– Subject to mandate starting in 2015

• However for 2015 plan year only, employer must offer coverage to 70% of FT employees and dependents to avoid Sect. 4980H(a) penalty ($2,000) for failing to offer coverage

– For 2016 plan year percentage increase s to 95%

– Sect. 4980H(b) penalty ($3,000) still applies

– Relief applies if employer does not modify plan year after February 9, 2014 to begin at a later date



Transitional Relief

• Transitional relief for employers with 100 FT and FTE employees

– For 2015 plan year, full-time employee set-off increased to 80 (30 for 2016 plan year)

• Relief applies if employer does not modify plan year after February 9, 2014 to begin at a later date

• For employers that are part of a controlled group, the set-off is allocated amongst the members of the control group


Example: If Acme employed 200 FT employees, then Acme will be

penalized $2,000 x 120 (200 – 80) for 2015 if Acme fails to offer

coverage to at least 70% of FT employees and dependents

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Transitional Relief

• Transitional relief for non-calendar year plan years – general requirements

– Final regulations provide three options, but employers must satisfy the following requirements:

• Only apply if employer maintained non-calendar year plan as of December 27, 2012 that was not modified to begin at a later date

• Doesn’t apply to employees who are eligible for coverage under a calendar year plan year

• If fail to offer coverage then employer accrues penalties from January 2015



Transitional Relief

• Transitional relief for non-calendar year plan years – Option 1 – No penalty for FT employees (whenever hired) who are eligible for

coverage as of the first day of the 2015 non-calendar year plan year under the eligibility terms of the plan in effect on 2/9/2014 (whether or not they took the coverage) and who are offered coverage that is affordable and provides minimum value


Example: An employer with 600 full-time employees maintained a plan with an April 1 plan

year as of December 27, 2012. The plan year was not modified after December 27, 2012.

Moreover, while all employees were eligible for coverage under the plan as of February 9,

2014; the coverage offered was not affordable. The employer will not face any penalties

under the employer mandate as long as the coverage the employer offers its full-time

employees on April 1, 2015 is both affordable and provides minimum value. However the

transitional relief would not apply if the employer only offered coverage to 400 employees

on April 1, 2015.

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Transitional Relief

• Transitional relief for non-calendar year plan years – Option 2

– No penalty will apply prior to beginning of 2015 non-calendar year plan for FT employees who were not eligible for coverage under the plan in effect on February 9, 2014, if:

– Employer, during open enrollment, offered a health plan to at least 1/3 of all employees (FT and PT) or covered at least 1/4 of all employees on any day during 12 months ending on February 9, 2014



Transitional Relief

Transitional relief for non-calendar year plan years – Option 2


Example: An employer with 1,100 employees (100 full-time employees and 1,000 part-time

employees) maintained a July 1, plan year as of December 27, 2012. The plan year was

not modified after December 27, 2012, to begin at a later calendar date. For purposes of

the transitional relief under Option Two the employer chooses December 1, 2013 as the

date to measure the number of employees it covered under the plan. On December 1,

2013 the plan covered 23 percent of the employees; however, during the most recent open

enrollment period the employer offered coverage to 45 percent of its employees (both full-

time and part-time). Under Option Two, no employer shared responsibility penalties would

be assessed, for calendar months between January 1, 2014 and June 30, 2015, against

the employer (because the employer offered coverage to 45 percent of its employees

during the open enrollment period) as long as the employer offers coverage to its full-time

employees and dependents on July 1, 2015 that is both affordable and provides minimum

value.

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Transitional Relief

• Transitional relief for non-calendar year plan years – Option 3

– No penalty will apply prior to beginning of 2015 non-calendar year plan for FT employees who were not eligible for coverage under the plan in effect on February 9, 2014, if:

– Employer, during open enrollment, offered a health plan to at least 1/2 of all FT employees or covered at least 1/3 of all FT employees on any day on any day during 12 months ending on February 9, 2014



Transitional Relief

Transitional relief for non-calendar year plan years – Option 3


Example: An employer has 2,000 employees, of whom 500 are full-time employees and

1,500 are not full-time employees. The employer maintained a plan with a July 1 plan year

as of December 27, 2012 (and did not later change the plan year). The employer choose

December 1, 2013 to measure the number of employees it covered. On December 1,

2013, the employer covered 20% of its full-time employees under the plan and so did not

meet the 1/3 rule. During the open enrollment period that ended most recently before

February 9, 2014, the employer offered coverage under the plan to 60% of its full-time

employees and so meets the 1/2 rule. Under Option Three, no employer shared

responsibility penalties would be assessed, for calendar months between January 1, 2014

and June 30, 2015, against the employer (because the employer offered coverage to 60

percent of its full-time employees during the open enrollment period) as long as the

employer offers coverage to its full-time employees on July 1, 2015 that is both affordable

and provides minimum value.

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Transitional Relief

• First time applicable large employers must provide coverage by April of following year

• If they do, then no penalty for January through March, otherwise they face penalties for entire year including January through March

• Only applies for first year an employer becomes applicable large employer


• For 2015 only, employers will satisfy the employer mandate if they offer coverage no later than first payroll period that begins in January 2015


OFFER OF COVERAGE


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Offer of Coverage

• What constitutes an offer of coverage

– Employee must have an effective opportunity to elect coverage, or

– Employee has an effective opportunity to decline coverage that fails to offer minimum value or requires employee contribution of more than 9.5% of FPL

– Analysis based on facts and circumstances

– Coverage elections that continue unless employee affirmative opts out constitute “offer”



Offer of Coverage

• Which dependents must be included in offer

– Dependent includes biological children and adopted children; does not include spouses, stepchildren or foster children

– Coverage must be offered to dependent for entire month in which child attains 26 years of age

– Generally, employers don’t have to offer dependent coverage until 2016 as long as they take steps in 2014 and 2015


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Offer of Coverage

• Offers made by another entity

– Offers of coverage can be made on behalf of contributing

employer by:

• Controlled group

• Multiemployer or single employer Taft Hartley plan

• MEWA

– Offers made by staffing firm or a PEO is treated as being

made by employer only if employer pays higher fee than

other employers pay the staffing firm for same employee

if that employee was not enrolled



AFFORDABILITY


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Affordability

• Coverage is considered affordable if it does not exceed 9.5% of the employee’s household income

• However, employers will general not know household income of employees


Analysis is based on lowest-cost single coverage only, even if, employee elects family coverage


Affordability

• Affordability safe harbors

– Form W-2 Wages

– Rate of Pay

• Can use this safe harbor if reduce hourly employee's rate of pay, as long as, premium does not exceed 9.5% of the reduced amount

• Not available if reduce monthly salary even if reduction is a result of reduced work hours

– Federal Poverty Line

• May use FPL as of any date during six months preceding the plan year


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PENALTIES



Penalties

• Penalty for failing to offer coverage

– An employer must offer “minimum essential coverage” to

95% (70% for 2015) of its full-time employees and their

dependents up to age 26 or risk a penalty equal to (i)

$2,000, multiplied by (ii) the number of full-time

employees minus 30 (80 for 2015)

– There is no requirement that the coverage be affordable

or provide “minimum value”

– Penalty can only be triggered if a full-time employee goes

to a public exchange and receives a premium tax credit


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Penalties

• Penalty for offering coverage that is not affordable or does not meet minimum value

– If the employer fails to offer coverage that is both affordable and provides minimum value to a full-time employee, it can risk a penalty equal to $3,000 per year for that employee

– Penalty can only be triggered if a full-time employee goes to a public exchange and receives a premium tax credit

– If the employer offers the employee affordable, minimum value coverage , then the employee is not eligible for a premium tax credit and thus cannot trigger this penalty



90-DAY WAITING PERIOD


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Final Guidance for 90-Day Waiting Period

• Final Rule: 90 Days Means 90 Days • Coverage must be effective no later than the 91st day after

the employee becomes eligible – All calendar days count, including weekends and holidays – Using 3 months as the basis is considered non-compliant

• Applies to grandfathered and nongrandfathered plans • Fully-insured and Self-insured are both subject to limitation

as well • Plan years beginning in 2014 can comply with either the

proposed or final regulations • Plan years beginning in 2015 must comply with the final

regulations




• Employee Eligibility and the 90-Day Waiting Period

• Variable Hour: reasonable time to determine eligibility (12 months

or less)

– Coverage effective no later than 13 months

– Calculated from employees start date or the first day of the month following

employee’s start date

• Cumulative Hours: 1,200 hours or less

– Coverage effective no later than 91st day after 1,200 hours satisfied

• Ex: hired 1/6/14, completes hours by 12/15/14, coverage by 3/16/15

– May need to offer FT employees coverage while working towards

cumulative hours due to Employer Mandate


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• Employer Eligibility and the 90-Day Waiting Period

– Rehired Employees: satisfaction of the waiting period and

eligibility must be reasonable under the circumstances

– Orientation Period: 1 month or less from start date

• Calculated by adding 1 month and subtracting 1 day

– Ex: start date 10/1/14, orientation period ends 10/31/14

• Coverage effective no later than 91st day after orientation

period ends

– Ex: orientation ended 10/31/14, coverage by 1/30/15



DELAY IN IRS REPORTING

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Health Insurance Coverage Reporting

• PPACA requires reporting relating to individuals who have health coverage and the type of coverage provided (under section 6055) by insurers, self-insuring employers, and other parties that provide health coverage – It also requires similar information reporting (under

section 6056) by employers with respect to the health coverage offered to their full-time employees

• These reporting requirements have been delayed

• Additional guidance issued in early March 2014 – See GBS Toolkit for additional information

© 2014 GALLAGHER BENEFIT SERVICES, INC.



• Section 6055 Reporting

– Applies to insurers, self-funded medical plans, government agencies, and “other providers of insurance”

– Purpose is to verify individual Minimum Essential Coverage

– Originally effective 1/1/14 with first report due 1/31/15

• DELAYED ONE YEAR

• Reporting due 2/28 (or 3/31 if filed electronically)

• Must file electronically if provide 250 or more “returns”

– Proposed regulations state that Form 1095-B will be used


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• Section 6056 Reporting

– Originally effective 1/1/14 with first report due 1/31/15

• DELAYED ONE YEAR

• Reporting due 2/28 (or 3/31 if filed electronically)

• Must file electronically if provide 250 or more “returns”

– Under proposed regulations, use Form 1095-C to file report

• Transmittal form must also be filed using Form 1094-C



ADDITIONAL KEY

CHANGES

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Summary of Benefits and Coverage

• New language for second year of applicability – Does this Coverage Provide Minimum Essential Coverage?

The Affordable Care Act requires most people to have health care coverage that qualifies as “minimum essential coverage.” This plan or policy [does/does not] provide minimum essential coverage.

– Does this Coverage Meet the Minimum Value Standard? The Affordable Care Act establishes a minimum value standard of benefits of a health plan. The minimum value standard is 60% (actuarial value). This health plan [does/does not] meet the minimum value standard for the benefits it provides.



Summary of Benefits and Coverage

• Second year of applicability

– Coverage beginning on or after January 1, 2014, and before January 1, 2015

– Provide with 2014 open enrollment or 30 days before the beginning of the plan year if no open enrollment period

• Penalties

– Excise Tax of $100 per day per impacted individual

– Required to report violations and the amount of the Excise Tax on Form 8928


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Key Coverage Changes

• 90-day waiting period limitation

– For plan years beginning on or after January 1, 2014, a group health plan may not have a waiting period that exceeds 90 days

– Applies to grandfathered and non-grandfathered plans

– If currently have employees in longer waiting period as of first day of 2014 plan year, must enroll them for coverage no later than 91st day after employment begins

– May have one month orientation period



Key Coverage Changes

• Patient Protections – Elimination of Pre-existing Condition Exclusions

– No Annual Limits for Essential Benefits • No more mini-medical plans

– Non-grandfathered plans: • Cannot deny participation in a clinical trial • Cannot discriminate based on health status • Small group insured plans

– Must provide essential benefits – Deductibles must not exceed limits for qualified high deductible

health plans ($2,000 individual/$4,000 family in 2014); indexed annually

• Out-of-pocket limits cannot exceed applicable limits for qualified high deductible health plans ($6,350 individual/$12,700 family for 2014) – Applies to both fully insured plans and self-funded plans


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Cafeteria Plans

• An employer may not permit employees to pay for individual coverage in an Exchange on a pre-tax basis through a cafeteria plan

• Employers may permit employees to add coverage under an employer-sponsored plan once during a plan year beginning in 2013 (i.e., a non-calendar year plan year) to comply with the Individual Mandate

• Employers may permit employees to drop coverage once during a plan year beginning in 2013 (i.e., a non-calendar year plan year) to elect individual coverage in an Exchange



ACTION STEPS &

RESOURCES

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Action Steps

• Determine if non-calendar year transitional relief available • Determine employment status for all employees

– Variable hour, part-time, full-time, and seasonal employees

• If using look-back method, determine measurement and stability periods

• Determine whether to adopt final regulations methodology for counting hours of service for Adjunct Faculty

• Discuss treatment of student employees’ hours of service outside of work study programs

• Consider nondiscrimination requirement issues arising from potential benefits for “newly eligible” employees

• Determine potential financial impact of expanded coverage • Make necessary plan design changes • Stay tuned for more



Resources – http://www.ajg.com/knowledge-

center/healthcare-reform/


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Resources



Questions & Answers

The intent of this presentation is to provide you with general information regarding the topic presented. It does not necessarily fully address specific issues with respect to your employee benefits environment. It

should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific

issues should be addressed by your general counsel or an attorney who specializes in this practice area.

50 © 2014 GALLAGHER BENEFIT SERVICES, INC.

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Thank You Petula Workman, J.D., CEBS

Division Vice President

Gallagher Benefit Services, Inc.

713.358.5856 Phone

713.358.5857 Fax

[email protected]


TO BE CONTINUED

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We Go Together: Healthcare Reform Part 2 COMPLIANCE CONSULTING | MARCH 2014


Agenda

• Refresher

• Calculating Hours of Service

• Identifying Full-Time Employees

• Monthly Measurement Method

• Look-Back Method

• Special Issues


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REFRESHER



Penalty Triggers

• Failure to offer coverage (i.e., triggers the $2000 annualized penalty) – Must offer to 95% of all full-time employees in 2015 (70% in 2015) – Must offer coverage to children (except foster and step-children) (but

not spouses) – Must have annual opportunity to accept or decline coverage (unless

affordable using federal poverty line safe harbor) • Failure to offer affordable coverage (i.e., triggers the $3000

annualized penalty) – Employee-only coverage cost to employee must not exceed 9.5% of

employee’s compensation • Failure to offer coverage that provides minimum value (i.e.,

triggers the $3000 annualized penalty) – Plan must pay for at least 60% of cost of benefits

• NOTE: Only full-time employees may trigger penalty and count toward penalty calculation


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Employee Categories

• Full-time employee – Hired to work at least 30 hours per week or 130 hours per

month

• Part-time employee – Hired to work less than average of 30 hours per week

• Variable hour employee – As of the date of hire, employer cannot reasonably

determined average hours – May be full-time employee



Employee Categories

• Seasonal employee – Not limited to agricultural or retail

workers

• Under recent guidance, a seasonal employee is an employee who is in a position for which the customary annual employment is 6 months or less – The period of employment should

generally begin in the same part of the year each year (e.g., summer or winter)

– An employee can still be considered seasonal if the employment period extends beyond customary duration – (e.g., ski instructors during a long snow season)


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Full-Time Employee Determination

• Must pigeon-hole employees into one of four categories

– Full-time

– Part-time

– Variable hour

– Seasonal

• Determine status based upon hours of service



HOURS OF SERVICE


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Hour of Service

• For hourly employees, hours of service include: – Hours Worked

• Each hour for which the employee is paid, or entitled to payment, “for the performance of duties”; and

– Paid-Time Off

• Each hour for which the employee is paid, or entitled to payment, due to (1) vacation, (2) holiday, (3) illness, (4) incapacity (including disability), (5) layoff, (6) jury duty, (7) military duty, or (8) leave of absence



Hour of Service

• For non-hourly employees, hours of service may be calculated using one of three possible methods: – Actual Hours

• Count actual hours of service worked “from records,” as well as other non-worked hours for which he or she is paid, or entitled to payment

– Days-Worked Equivalency • Credit 8 hours of service per day for each day for which the

employee would be credited with at least one hour of service

– Weeks-Worked Equivalency • Credit 40 hours of service per week for each week for which the

employee would be credited with at least one hour of service

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Hours of Service

• Non-Hourly Employees

– Days-worked equivalency

• Employees are credited with eight hours of service for any day during which the employee would be due one hour of service for an actual hour worked or for which payment is due

– e.g., if the employee worked for one hour on Monday, the employee would be credited with eight hours of service for Monday


EXAMPLE: Julia is a home health care worker. She makes home

visits on Monday, Tuesday, and Thursday. If she works one hour on

each day, she is credited with twenty-four hours of service for that

week.


Hours of Service

• Non-Hourly Employees

– Weeks-worked equivalency

• Employees are credited with forty hours of service for each week in which the employee would be due one hour of service for an actual hour worked or for which payment is due (e.g., if the employee worked for one hour on Monday, the employee would be credited with forty hours of service for that week)


EXAMPLE: Jonathon is a salaried retail manager. If he works one

hour on Monday, he is credited with forty hours of service for the entire

week. Jonathon works at least one hour on Monday for each of three

weeks and one week of paid vacation. He would be credited with 160

hours for that four week period.

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Hours of Service

• No requirement to use the same method for all non-hourly employees – May apply different methods for different categories of non-

hourly employees, provided the categories are reasonable and consistently applied

• No requirement to apply the same methods as other members of a controlled so long as the categories are reasonable and consistently applied by the controlled group member

• May change the method of calculating the hours of service of non-hourly employees (or of one or more categories of non-hourly employees) for each calendar year



IDENTIFYING FULL-TIME

EMPLOYEES


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Identifying Full-Time Employees

• Final regulations require use of one of two methods to identify full-time employees – Monthly

measurement method

– Look-back method



MONTHLY MEASUREMENT

METHOD


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Monthly Measurement Method

• Monthly measurement method

– Must count the employee’s hours of service each calendar month

– No penalty for the first three months for new employee if the employee is not eligible due to a waiting period

• But coverage must be provided no later than the first day of the first month following that three-month period

EXAMPLE: If an employer hires an employee on March 1 and the

employee averages 130 hours per month for March, April and May, the

employer will not be subject to a penalty if the employee is offered

coverage as of June 1 of that same year under the monthly

measurement method.




• Employers may use successive one-week periods to determine an employee’s status for a calendar month under the “weekly rule”

• Under the weekly rule, full-time status is based on hours of service over four-week periods for certain months and five-week periods for other months – For calendar months calculated using a four-week period, an

employee with at least 120 hours of service will be considered as full-time for that month

– For calendar months with five-week periods, an employee with at least 150 hours of service will be considered to be a full-time employee for that month

• The period measured for each month must include either the week that includes the first day of the month, or the week that includes the last day of the month, but not both


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• Employer Y uses weekly method

– Sunday – Saturday

– Includes first, excludes last

– January 2016

• Sun Dec 27, 2015

• End Sat Jan 30, 2016

– 5 weeks = 150 hours

• Feb 2016 = 4 weeks = 120 hours

2015

2016




• Rehired employees

– Period of at least 13 weeks (26 weeks for academic employer) during which no hours of service credited

– If employment terminated, employee may be treated as a rehired employee (and thus a new employee) upon resumption of services instead of a continuing employee if the period without credit for an hour of service is greater than 13 weeks


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• Employee works for Employer A

– Begins 2/1/16

– Terminates 12/31/16

• Employee works for Employer B

– Begins 1/1/17

– Terminates 12/31/17


• Rehired by Employer A on 1/1/18

– May be treated as a new (rather than continuing) employee on 1/1/18

– May be subject to applicable waiting period

– No penalty if affordable, minimum value coverage offered at the end of any applicable waiting period



• Continuing employees

– If period of less than 13 weeks (26 weeks for an academic institution) without credit for an hour of service, the employee will be treated as a continuing employee instead of a rehired employee

– The employer must offer coverage as of the first day that the rehired employee is credited with an hour of service, or if later, as soon as administratively practicable

• Providing coverage on the first day of the calendar month following the day the employee first received credit for an hour of service would satisfy this rule


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• Rule of Parity

– An employee may be treated as terminated and rehired as a new employee if the employer under Rule of Parity

– Must use a period of at least four consecutive weeks during which the employee is not credited with an hour of service, and the period without any hours of service credited is longer than the period (i.e., the number of weeks) of that employee’s period of employment with the applicable large employer, but is shorter than 13 weeks (26 weeks for an academic institution employer)





EXAMPLE: Employee works for Employer C for two weeks and voluntarily terminates employment. Employee works for Employer D for six weeks and voluntarily terminates employment with Employer D, but then is rehired by Employer C. That employee may be treated as terminated and rehired as a new employee under the monthly measurement method.

Rule of Parity

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• Special Unpaid Leave and Employment Breaks

– The averaging method for special unpaid leave and employment break rules (for academic institutions) do not apply under the monthly measurement method, even if the employer is an academic institution

– The reason for this rule is that the monthly measurement period does not average hours of service over a particular period of time, but instead determines hours of service for a particular month




• Changes in employment status

– If an employee moves from a position that was not eligible for benefits into a position that is, the employer will not be subject to a penalty for the months the employee was not offered coverage IF the employer provides coverage no later than the first day of the first full calendar month following the period of three full calendar months after the change in position


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• Employer Z hires Employee A – 1/1/16-12/31/16

– Not in eligible class

– Averages 20 hrs/wk all of 2016

• Employee A – Promoted on 1/1/17 to

eligible class

– Averages 40 hrs/wk in 2017

– 90-day waiting period


• Employee A offered affordable, minimum value coverage on 4/1/17

• January – March 2017

– Coverage offered to eligible class is affordable and minimum value

– Coverage offered day after end of waiting period (91st day)

– No penalty for Jan, Feb and March 2017


LOOK-BACK METHOD


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Look-Back Method

• If an employer does not use the monthly measurement method to calculate employees’ hours of service, the employer must use the look-back measurement method

• The look-back method uses measurement periods to determine the average number of hours of service for periods ranging from three months to twelve months

• It uses stability and administrative periods to determine when penalties might apply if coverage is not offered



Look-Back Method

• The look-back method uses safe harbors for variable hour, seasonal, and part-time employees – Measurement Period (MP)

• Allows employers an opportunity to look-back at the hours worked by an employee to determine health plan eligibility or continued eligibility

– Administrative Period (AP) • An optional period used by the employer to perform

administrative duties related to counting hours and, where applicable, making an offer of coverage

– Stability Period (SP) • The period following a measurement period (and AP, if applicable)

during which employees determined to average 30 hours per week during a Measurement Period, are offered coverage


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Look-Back Method

• Ongoing employees

– Those employees who have been employed for at least one “Standard Measurement Period” are “ongoing employees”

– Proposed regulations addressed “ongoing” employees in the context of variable hour and seasonal employees

– Final regulations have much broader application

– Use standard Measurement Period, standard Administrative Period, and standard Stability Period



Look-Back Method

• Ongoing employees – If an employee is determined to have averaged at least 30

hours per week during a Standard Measurement Period, that employee is entitled to treatment as a full-time employee for the following stability period so long as he or she remains employed, regardless of the number of hours worked

– If an employee is determined not to average at least thirty hours per week during a Standard Measurement Period, the employer may treat the employee as not a full-time employee for the following Standard Stability Period


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Look-Back Method

• Ongoing employees – The Standard Measurement

Period may be a period from three to twelve months long • If an employer chooses a

twelve-month Standard Measurement Period, the employer may use the calendar year, a non-calendar year plan year, or a different twelve-month period that ends prior to the start of the employer’s annual enrollment period



Look-Back Method

• Ongoing employees – For employees determined to be full-time during a

Standard Measurement Period, coverage must begin as of the first day of the new Standard Stability Period, which must begin immediately following any Standard Administrative Period

– The Administrative Period must immediately follow the Standard Measurement Period and can be no longer than 90 days

– The Standard Stability Period cannot be shorter than the Standard Measurement Period and must be at least six months in duration


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Look-Back Method

EXAMPLE: ACME, Inc. has 200 full-time and equivalent employees and must

comply with the employer mandate as of 2015. It implements a 12 calendar

month Standard Measurement Period. The goal is to coincide the Standard

Administrative Period with open enrollment (beginning November 1 each year).

ACME, Inc. chooses to begin its Standard Measurement Period each October

15 and end it on the following October 14. ACME, Inc. establishes its Standard

Administrative Period as October 15 through December 31 of each year. Then,

it sets its Standard Stability Period to provide a coverage effective date of

January 1 (the beginning of its plan year) through December 31 of that same

year.

Ongoing employees



Look-Back method

2014 2015 2016 2017

12-month Standard Measurement Period

77 Day Standard Administrative Period

10/15/14 – 12/31/14

administration period

10/15/15 – 12/31/15

administration period 10/15/16 – 12/31/16

administration period

10/15/15 – 10/14/16

measurement period

10/15/14 – 10/14/15

measurement period

10/15/13 – 10/14/14

measurement period

1/1/17 – 12/31/17

stability period

1/1/15 – 12/31/15

stability period

1/1/16 – 12/31/16

stability period


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Look-Back Method

• Ongoing employees determined to be full time during the Standard Measurement Period are entitled to coverage during the full Stability Period regardless of their hours, provided they remain employed and pay contributions

• Ongoing employees determined NOT to be full time during the Standard Measurement Period are not entitled to coverage during the Stability Period – But their hours will be reviewed again at the end of the next

standard measurement period



Look-Back Method

• New non-variable hour, non-seasonal employees

– If a new non-variable hour, non-seasonal employee within a category of employees (e.g., hourly employees) for whom the employer has decided to use the look-back method is reasonably expected at the start of his or her employment to be a full-time employee, the employee’s initial status is determined based upon the hours of service for each calendar month


EXAMPLE: An employer hires an employee who is reasonably

expected to work 40 hours per week, then the employer will classify

that employee as a full-time employee and offer coverage under the

regular eligibility rules for new employees (e.g., impose a 30-day

waiting period before coverage begins).

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Look-Back Method

• Treatment of New Variable Hour, Seasonal, and Part-Time Employees under the Look-Back Method – Determination as to whether a new employee is a full-

time employee is based upon facts and circumstances such as: • Whether the employee is replacing an employee who was

(or was not) a full-time employee,

• The extent to which employees in the same or comparable positions are or are not full-time employees, and

• Whether the job was advertised (or otherwise communicated) as requiring hours of service that would average 30 or more (or less) hours per week



Look-Back Method

• Treatment of New Variable Hour, Seasonal, and Part-Time Employees under the Look-Back Method

– Initial Measurement Period of no less than and no more than 12 consecutive months

• Must begin on the employee’s start date or on any date up to and including the first day of the first calendar month following the employee’s start date (or on the first day of the first payroll period starting on or after the employee’s start date, if later)


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Look-Back Method

EXAMPLE: Employee K is hired on June 15, 2017. To simplify its

administrative process, K’s employer decides to begin K’s Initial

Measurement Period on July 1, 2017.

K’s Initial Measurement Period will run from July 1, 2017 until June

30, 2018.

Treatment of New Variable Hour, Seasonal, and Part-Time Employees under the Look-Back Method



Look-Back Method

• The final regulations do not permit employers to use the monthly measurement method for one subcategory of employees and the look-back method for another

• This means that employers cannot apply the monthly measurement method to non-variable hour hourly employees and the look-back method to variable hour hourly employees

• Small exception for when non-variable hour, non-seasonal employees are initially hired


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Look-Back Method

• New non-variable hour, non-seasonal employees

– When first hired, employer will use monthly measurement method to determine status as full-time employee until beginning of Standard Measurement Period


EXAMPLE: ACME Grocers hired Employee M on June 1, 2015 as a cashier regularly scheduled to work 35 hours per week. ACME Grocers has 20 cashiers who work at least 35 hours per week and 25 cashiers who hours vary each week. ACME Grocers uses a Standard Measurement Period from October 15, 2015 through October 14, 2016 to determine the status of its variable hour cashiers. This means that if M is still employed on October 15, 2015, ACME Grocers must apply the measurement and stability period rules to determine if M is a full-time employee.


Look-Back Method

• Employers may use different measurement, administrative, and stability periods for different categories of employees, but only so long as those categories fall within one of the following: – (A) Collectively bargained employees and non-collectively

bargained employees,

– (B) Each group of collectively bargained employees covered by a separate collective bargaining agreement,

– (C) Salaried employees and hourly employees, and

– (D) Employees whose primary places of employment are in different States


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Look-Back Method

• Treatment of New Variable Hour, Seasonal, and Part-Time Employees under the Look-Back Method

– If the new variable hour, seasonal, or part-time employee works on average at least 30 hours per week during the Initial Measurement Period, the employee will be considered to be a full-time employee for the following Initial Stability Period

– The Initial Stability Period must be the same length as the Standard Stability Period, but may not be less than 6 months



Look-Back Method


comply with the employer mandate as of 2015. It implements a 12-month initial

Measurement Period. It will begin its initial Administrative Period on the first day

of the calendar month following the date of hire, and it will last one month.

ACME, Inc. will also adopt a 12-month initial Stability Period.

Employee J is hired on March 14, 2016.



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Look-Back Method

2016 2017 2018

Initial Measurement Period

4/1/16 – 3/31/17

Initial Stability Period

5/1/17 – 4/30/18

12-month measurement period

1-month administrative period

1 month

Administrative

Period (4/1/17–

4/30/17)

Employee 3/14/16 DOH


Look-Back Method


comply with the employer mandate as of 2015. It implements a 12-month initial

Measurement Period. It will begin coverage as of the first day of the calendar

month following the date of hire. The initial Administrative Period will last one

month. It will also adopt a 12-month initial Stability Period.

Employee L is hired on March 14, 2016.


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Look-Back Method

2016 2017 2018


3/14/16 – 3/13/17


5/1/17 – 4/30/18

12-month measurement period

1+ month administrative period

1+ month

Administrative

Period (3/14/17–

4/30/17)



Look-Back Method

• Transition from new employee to ongoing employee

– Requires inclusion in Standard Measurement Period

– This results in some overlap in measurement periods

• Regardless of whether the new employee “met” the full-time requirement during the Initial Measurement Period or not

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Look-Back Method

• Acme Inc.

– 12 month initial measurement period (IMP)

• Begin 1st of month after hire

• End day before 1st year anniversary

– 12 month initial stability period (ISP)


• Standard periods

– Measurement period = Oct 15 – Oct 14

– Administrative period = Oct 15 – Dec 31

– Stability period Jan 1 – Dec 31

• Employee P is hired on March 14, 2016


Look-Back Method

2016 2017 2018


4/1/16 – 3/31/17


5/1/17– 4/30/18

1-Month

Administrative Period

(4/1/17 – 4/30/17)


Standard Stability Period

1/1/18 – 12/31/18

Administration Period

(no longer than 90 days)

Standard Measurement Period

10/15/16 – 10/14/17

Potential length of coverage if determined to be full-time employee during Initial Measurement Period AND Standard Stability Period

5/1/17 – 12/31/18


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Look-Back Method

2016 2017 2018


4/1/16 – 3/31/17


5/1/17– 4/30/18

1-Month

Administrative Period

(4/1/17 – 4/30/17)


Standard Stability Period

1/1/18 – 12/31/18

Administration Period

(no longer than 90 days)

Standard Measurement Period

10/15/16 – 10/14/17

Coverage terminates on 4/30/18



Look-Back Method

• Rehired employees – Under the final regulations, if an employee has a period of at

least 13 weeks (26 weeks for an employee of an academic institution) during which no hours of service were credited for that employee, then that employee may be treated as a rehired employee rather than a continuing employee upon resuming services for the employer • Employer may begin a new Initial Measurement Period

– Periods shorter than 13 weeks (26 weeks for academic institution) without credit for any hours of service are considered to be “breaks in employment”

– Employees who do not qualify as rehired employees under these guidelines will be considered to be “continuing” employees


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Look-Back Method

• Rehired employees – An employer that is not an academic institution must either:

• Determine an employee’s average hours of service for a measurement period by computing the average after excluding any special unpaid leave (defined as unpaid leave for FMLA, USERRA, or jury duty) during that measurement period and by using that average as the average for the entire measurement period, or

• Choose to treat the employee as credited with hours of service for any periods of special unpaid leave during that measurement 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 part of a period of special unpaid leave



Look-Back Method

• Rehired employees – An employer that is an academic institution must either:

• Determine an employee’s average hours of service for a measurement period by computing the average after excluding any special unpaid leave and any break in employment due to a closure of the institution (such as a summer break) during that measurement period and by using that average as the average for the entire measurement period, or

• Choose to treat the employee as credited with hours of service for any periods of special unpaid leave during that measurement 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 part of a period of special unpaid leave

– An academic institution employer is not required to exclude (or credit) more than 501 hours of service for employment breaks and leave combined


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Look-Back Method

• Continuing Employees

– Employees who are treated as continuing employees (and not rehired employees) will retain the status held during an applicable stability period prior to the break in service immediately preceding their return to work



Look-Back Method

• Continuing Employees – Must be offered coverage upon resumption of services for the

employer • “Upon resumption of services” means that the employer must

offer coverage as of the first day that the employee is credited with an hour of service or, if later, as soon as administratively practicable

– The first of the month following the date the employer is credited with an hour of service would satisfy the administratively practicable requirement

– If an employee returns during a stability period for which the employee previously declined coverage, the employer will not be required to make a new offer of coverage, but will be considered to have offered coverage for the remainder of the applicable stability period


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Look-Back Method

• Rule of Parity

– Employers may also apply a rule of parity when determining if an employee is a rehired or continuing employee

– Employers must choose a period, measured in weeks, of at least four consecutive weeks during which the employee was not credited with any hours of service that exceeds the number of weeks of that employee’s period of employment with the applicable large employer immediately preceding the period and that is shorter than 13 weeks (for an employee of an educational organization employer, a period that is shorter than 26 weeks)



Look-Back Method


EXAMPLE: Employee works for Employer C for two weeks and voluntarily terminates employment. Employee works for Employer D for six weeks and voluntarily terminates employment with Employer D, but then is rehired by Employer C. That employee may be treated as terminated and rehired as a new employee under the look-back method.

Rule of Parity

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Look-Back Method

• Changes in employment status – If an employee begins employment as a seasonal or variable

hour employee and has a change in position during his initial measurement period that, if the employee had originally been hired in that position, would have made him a full-time employee, the employer would not be subject to an employer shared responsibility penalty until the first day of the fourth calendar month following the change in employment status if the employer provides coverage at the end of that period, or if earlier, on the first day of the first month following the initial measurement period (if the employee was determined to be a full-time employee based upon the initial measurement period)



Look-Back Method


EXAMPLE: If an employee was hired on August 1st as a seasonal employee (e.g., a football coach) and was promoted to Athletic Director on October 15th, so long as he is offered coverage by the first day of February, the employer would not be subject to penalty under 4980H(a). Under the final regulations, in order to avoid a penalty under 4980H(b), that coverage must also be coverage what provides minimum value.

Change in Employment Status

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Look-Back Method


EXAMPLE: If a variable hour employee is hired on January 2, 2016 and thus has an initial measurement period running from January 2, 2016 through January 1, 2017, but is promoted to a full-time position in July 1, 2016 during the initial measurement period, the employer would be required to offer coverage with minimum value as of the first day or the fourth month following the change in employment status or the end of the Initial Measurement and Administrative Periods. This means that the employer must offer coverage by July 1, 2017 in order to avoid a 4980H penalty. Due to the limitation under PPACA regarding the length of waiting periods, the employer could not impose a waiting period longer than 90 days.

Change in Employment Status


Look-Back Method

• Shorter Standard Measurement Period available for 2015 • For measurement periods that begin in 2014, employers may

use a measurement period that is shorter than 12-months, but must be at least 6-months (and still have a 12-month stability period)

• The measurement period must begin no later than July 1, 2014 and must end no earlier than 90-days before the first day of the plan year beginning on or after January 1, 2015


EXAMPLE: An employer with a calendar year plan year may use a measurement period from April 15, 2014 through October 14, 2014 (i.e., six months) followed by an administrative period from October 15, 2014 through December 31, 2014, with a stability period from January 1, 2015 through December 31, 2015.

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SPECIAL ISSUES



Special Issues

• On-Call Hours – Under Department of Labor standards, an employee who is required

to remain on his or her employer’s premises or so close thereto that he or she cannot use the time effectively for his or her own purposes is working while “on-call”

– Until further guidance is issued, employers of employees who have on-call hours are required to use a reasonable method for crediting hours of service that is consistent with section 4980H

– Employers must credit an employee with an hour of service for any on-call hour for which: • Payment is made or due by the employer, • The employee is required to remain on-call on the employer’s

premises, or • The employee’s activities while remaining on-call are subject to

substantial restrictions that prevent the employee from using the time effectively for the employee’s own purposes


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Special Issues

• Bona fide volunteers – An hour of service does not include any hour of service performed by

a bona fide volunteer or members of a religious order who have taken a vow of poverty • e.g., a volunteer firefighter or emergency medical provider who

receives expense reimbursements or a member of the Order of St. Francis

– Bona fide volunteers include any volunteer who is an employee of a government entity or an organization described in section 501(c) that is exempt from taxation under section 501(a) whose only compensation from that entity or organization is in the form of: • (i) reimbursement for (or reasonable allowance for) reasonable

expenses incurred in the performance of services by volunteers, or • (ii) reasonable benefits (including length of service awards), and

nominal fees, customarily paid by similar entities in connection with the performance of services by volunteers



ACTION STEPS


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Action Steps

• Determine effective date for employer mandate

• Identify types of employees

• Select measurement method(s)

• If look-back, determine which categories to use

• Determine process for tracking hours

• If eligibility changes – coordinate with carrier/TPA/stop loss

• Monitor developments



Questions & Answers

The intent of this presentation is to provide you with general information regarding the topic presented. It does not necessarily fully address specific issues with respect to your employee benefits environment. It

should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific

issues should be addressed by your general counsel or an attorney who specializes in this practice area.

122 © 2014 GALLAGHER BENEFIT SERVICES, INC.

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Thank You Petula Workman, J.D., CEBS

Division Vice President

Gallagher Benefit Services, Inc.

713.358.5856 Phone

713.358.5857 Fax

[email protected]

Templates: Benefits and Human Resources (GBS) Division ... · 3/25/2014 6 ARTHUR J. GALLAGHER & CO....

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