On February 10, 2014, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued final regulations that again change the Employer Shared Responsibility, or employer mandate, provisions regarding employee health coverage under the Affordable Care Act (ACA). The changes include new rules that affect both mid-size and large employers and further delay when these employers will be required to provide health care coverage to their workers or risk paying fines. Companies that employ 50 to 99 full-time equivalents will now have an additional year, until January 2016, to comply with the employer mandate. Companies that employ 100 or more full-time equivalents are now required to offer coverage to only 70% of their full-time employees in 2015 and 95% in 2016 and beyond.
The ACA generally requires businesses employing at least 50 or more full-time employees (or full-time equivalents) to offer health insurance coverage that is both affordable and that provides a minimum level of coverage to their full-time employees (and their dependent children). A plan is considered affordable if the employee’s share of the premium costs for the “employee only” plan is less than 9.5% of the employee’s yearly household income. A health plan meets minimum value if the plan’s share of the total costs of covered services is at least 60%.
The latest delay of the employer mandate seeks to simplify the requirements placed on large employers, ensuring a gradual phase-in that assists employers to whom the policy applies. The most notable clarifications and revisions include the following:
- The requirement to offer coverage to 95% percent of full-time employees will now be phased-in over a two year period. Employers with 100 or more full-time employees will need to offer coverage to at least 70% of their full-time employees in 2015 and 95% in 2016 and beyond.
- Instead of the original deadline of January 2015, employers with 50, but less than 100 full-time equivalents, will be required to comply with the employer mandate by 2016.
There were clarifications regarding whether employees of certain types or in certain occupations are considered full-time.
- Volunteers: those who contribute hours for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not be considered full-time employees.
- 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: students performing services under federal or state-sponsored work-study programs will not be considered full-time employees.
- A description of two measurement methods were provided for determining whether an employee should be considered a full-time employee. The first is a monthly measurement method under which an employer determines each employee’s status as a full-time employee by counting the employee’s hours of service for each month. The second method is the “look-back” measurement method under which an employer may determine the status of an employee as a full-time employee during a future period (referred to as the stability period), based upon the hours of service of the employee in a prior period (referred to as the measurement period).
- Because an employee’s annual household income is difficult for an employer to ascertain, the final rules provide safe harbors that make it easier for employers to determine whether the coverage they offer is affordable to employees by allowing them to use one of three sources: the wages they pay (as reported on the employee’s W-2 form), their employees’ hourly rates, or the federal poverty level.
In its most recent announcement, the IRS reiterated that applicable large employers who do not offer insurance to their employees will have to make an employer shared responsibility payment beginning in 2016 (for tax year 2015) to help offset the costs to taxpayers of their employees receiving tax credits to purchase insurance through the Health Insurance Marketplace. Business owners are encouraged to work closely with their attorneys, brokers, and accountants to establish a strategy to ensure compliance with the employer mandate. Failure to do so could prove costly.
A full copy of the final regulations can be viewed here.