Second Opinions

SECOND OPINIONS: Questions About Employer Shared Responsibility Rules

July 9, 2014 (PLANSPONSOR.com) - Below we address recent questions we have received about the Patient Protection and Affordable Care Act’s (ACA’s) Code section 4980H employer shared responsibility provisions.

By PS | July 09, 2014
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Do the final regulations on the ACA employer mandate requirements provide special measuring rules for an employee returning after a leave of absence?   

Yes, the final regulations include rehire and break in services rules under which an employee who returns after a 13 week (26 week for an educational organization employee) or more break in service is treated as a new employee instead of an ongoing employee. The final regulations also include optional rule of parity rules under which, for “no service” periods of less than 13 weeks (26 weeks for an educational organization employee), the employer may apply an optional rule of parity and treat the employee as a new employee if the “no service” period is at least four but less than 13 weeks long, and is longer than the period of employment.

The final regulations also include special averaging rules for special unpaid leaves of absence—defined as FMLA, military, and jury duty leave—and, for educational organizations, employment break periods. Under these rules, for a continuing employee who resumes after a special unpaid leave (or, for an educational organization employee, an employment break period), the employer must determine the average hours of service per week for the employee excluding the special unpaid leave period (or, for an educational organization employee, an employment break period) and use that average as the average for the entire measurement period.  Alternatively, the employer may credit the employee with hours of service for the special unpaid leave period (or, for an educational organization employee, an employment break 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 special unpaid leave (or, for an educational organization employee, an employment break period). The special unpaid leave (and educational organization employment break period rules) only apply under the look-back measurement method—not the monthly measurement method.

Are there safe harbors for determining whether the health coverage provided by an employer is affordable? 

The employer mandate’s statutory provision bases affordability on the employee’s household income. Because employers generally will not know an employee’s household income, the final regulations provide three affordability safe harbors under which an employer that offers minimum essential coverage providing minimum value will not be subject to the Code section 4980H(b) penalty for a full-time employee receiving a tax credit for Exchange coverage so long as the coverage was affordable under one of the safe harbors:  

  • Form W-2 Wages Safe Harbor – The employer generally must offer minimum essential coverage to full-time employees (and their dependents) under an eligible employer-sponsored plan, with the required employee contribution for the lowest cost, self-only coverage option that provides minimum value not exceeding 9.5% of the employee's Form W-2 wages for that calendar year. 
  • Rate of Pay Safe Harbor – An employer generally may take the hourly rate of pay for each hourly employee who is eligible for coverage, multiply that by 130 and determine affordability based on the monthly wage. Coverage is considered affordable if the employee’s required monthly contribution for the lowest cost, self-only coverage option that provides minimum value is no more than 9.5% percent of the monthly wage. Similar rules apply for salaried employees based on their monthly salary. 
  • Federal Poverty Line Safe Harbor – If the employee’s required monthly contribution for the lowest cost, self-only coverage option that provides minimum value does not exceed 9.5% of a monthly amount determined based on the  most recently published federal poverty level for a single individual for the year (divided by 12), the coverage will be considered affordable.  

 

An employer may use one safe harbor for all of its employees or use different safe harbors for different “reasonable categories” of employees so long as it does so on a uniform and consistent basis for all employees in the category. The final regulation provide that “reasonable categories” include (1) specified job categories, (2) nature of compensation (salaried vs. hourly), (3) geographic location, and (4) similar bona fide business criteria.

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