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Health Care Reform Special Considerations for Municipalities and School Districts March 2013 Presented By: www.harrisbeach.com Joshua D. Steele, Esq. firstname.lastname@example.org (585) 419-8846 99 Garnsey RoadPittsford, New York 14534
4980H(a) Penalty and De Minimis Rule • 4980H(a) - If a covered employer does not offer coverage or offers coverage to less than 95 percent of its full-time employees and their dependents this penalty will be $2,000 for each full-time employee in excess of 30 employees per year. • Number of full-time employees for the year - 30 x $2,000 = penalty • Employers have been concerned that they could face a large penalty if they accidentally fail to cover just one employee or a few full-time employees. • 95% Rule: The new regulation provides that an employer will not face a penalty if it offers coverage to all but five percent of its full-time employees or five of its full-time employees, whichever is greater. • Under this rule, an employer with 200 full-time employees can exclude as many as 10 individual full-time employees, while an employer with 50 full-time employees can exclude up to 5.
Large Employers that Offer Coverage May Still Be Penalized • Under 4980H(b), even if an employer does offer “minimum essential coverage”, the employer must still pay an annual penalty if at least one full-time employee receives government-subsidized coverage through an exchange. • Two reasons this could occur: (1) Coverage offered by employer was not “affordable”; or (2) Coverage offered by employer did not have a “minimum value” • The penalty in this case is equal to the lesser of: (a) monthly penalty of 1/12 of $3,000 multiplied by the number of full-time employees who receive government-subsidized coverage through the exchange, and (b) $2,000 multiplied by the number of the employer’s full-time employees, reduced by 30 employees. • This amount cannot exceed the amount the employer would have had to pay if it did not offer coverage.
Determining “Affordability” • To avoid all penalties, a covered employer must provide self-only health plan coverage which is “affordable” (Family coverage does not need to be “affordable”). Generally, a plan is not affordable if the employee’s premium contribution exceeds 9.5% of his/her household income. • Employers may take advantage of one of three safe harbors to determine whether the plan they offer is “affordable”: • Form W-2: Employee premium share does not exceed 9.5% of the amount in Box 1. • Rate of Pay: Employee premium share does not exceed 9.5% of the total of the employee’s hourly rate of pay multiplied by 130 hours per month. • Federal Poverty Line: Employee premium share does not exceed 9.5% of the federal poverty line for one person. • Remember, only the premium for self-only coverage with the employer’s lowest-cost minimum value plan needs to be “affordable.”
The Full-Time Employee Issue Even though part-time employees’ hours of service are counted for purposes of determining whether an employer is a "large" employer, the play or pay penalties can only be triggered by “full-time” employees that receive subsidized coverage through an exchange. Therefore, the determination of whether an employee is full-time or part-time is critical. With respect to any month, a full-time employee is a person who is employed for an average of at least 30 hours of service per week. Remember the difference between hours of service and hours of work.
The Full-Time Employee IssueCalculating Hours of Service • Hourly Employees • Employers must calculate actual hours of service from records of hours worked and hours for which payment is made or due • Non-Hourly Employees • Actual hours of service and hours for which payment is made or due • Daily equivalency (8 hour day) • Weekly equivalency (40 hour weeks) Note: The rules prohibit the use of the daily or weekly equivalency method if the result would be to substantially understate an employee’s hours of service such that it would cause an employee not to be treated as full-time.
Hours of WorkSpecial Rules • The regulations address the special issues presented by educational institutions by providing an averaging method for employment break periods that generally would result in an employee who works full-time during the active portions of the academic year being treated as a full-time employee. • Under this method, employers may either: • Exclude summer vacation (as a “break period”) and determine whether the employee had at least 30 hours of service per week during the school year; or • Calculate the employee’s average number of weekly hours of service during the school year and treat the employee as if he/she earned the same average during the summer months. • Employers are nor required to credit an employee with more than 501 hours of service for any break period in a calendar year.
The New Measurement and Stability Periods • For many employees it is difficult to accurately project the number of hours he/she will work in a week/month. • Presents issues when determining who must be offered coverage. • Safe Harbor Rules • Allow employers to avoid liability based on inaccurate projections through the use of measurement and stability periods.
The New Measurement and Stability Periods Types of Employees • Ongoing employees • New employees (Full-Time, Variable Hour and Seasonal) Categories of Employees • Employers may use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees: • each group of collectively bargained employees covered by a separate collective bargaining agreement; • collectively bargained employees and non-collectively bargained employees; • salaried employees and hourly employees; and • employees located in different states.
The New Measurement and Stability Periods Key Concepts • Standard Measurement Period: A period of time of at least 3 but no more than 12 consecutive months that an applicable large employer selects and uses in determining whether an ongoing employee is a full-time employee under the look-back measurement method. • Initial Measurement Period: A time period of at least 3 consecutive calendar months but not more than 12 consecutive calendar months used as part of the process of determining whether certain new employees are full-time employees under the look-back measurement method. • Stability Period: A period of time that follows, and is associated with, a standard or initial measurement period. Employee status as full-time or part-time is determined by the previous measurement period and remains locked in during the stability period. • Administrative Period: An optional period of no more than 90 days beginning immediately following the end of a measurement period and ending immediately before the start of the associated stability period. • Advisable to have coincide with open enrollment period.
The New Measurement and Stability Periods Generally for Ongoing Employees • Employers may select a period of time between three months and one year to use as the look-back, “standard measurement period”. • If the employee was employed on average at least 30 hours per week during the look-back period then the employee must be treated as full-time during a corresponding stability period regardless of the number of hours of service the employee actually works in stability period. • The duration of the stability period must be the greater of six consecutive calendar months or the length of the look-back period. • The employer determines the months in which the standard measurement period starts and ends, provided that the determination must be made on a uniform and consistent basis for all employees in the same category.
The New Measurement and Stability Periods New Employees • Previous guidance made major distinctions between current and new employees - the new rules eliminate much of the distinction • For all new employees employer must determine whether at his/her start date, the employee is “reasonably expected to work full time. • If “reasonably expected” to work 30 hours on average, an employer must offer coverage at or before the conclusion of the employee’s initial three full calendar months of employment (90 days) to avoid liability. • If unclear, the employee will be treated as a Variable Hour or Seasonal.
The New Measurement and Stability Periods New Employees: Variable Hour and Seasonal • Variable Hour Employee: Based on the facts and circumstances at the employee’s start date, it cannot be determined whether the employee is reasonably expected to work on average at least 30 hours per week. • For 2014, this also includes individuals expected to work 30 or more hours per week but whose employment is expected to be of “limited duration.” • Seasonal Hour Employee: Term is not specifically defined. Employers are to use a “reasonable good faith interpretation” of the term. • Examples being agricultural workers or retail workers employed only during holiday seasons.
The New Measurement and Stability Periods • For new variable hour employees and seasonal employees, an employer may determine whether a new employee is full-time by using an initial measurement period of between 3 and 12 months that begins on any date between the employee’s start date and the first day of the calendar month following the start date. • The stability period for such employees must be the same length as the stability period for ongoing employees. • Each Variable Hour/Seasonal employee will have his/her own initial measurement and stability periods.
The New Measurement and Stability Periods Status Changes and Rehires • A new variable hour or seasonal employee who has a change in employment status to a full-time position during the initial measurement period must be treated as a full-time employee as of: • the first day of the fourth month following the change in employment status; or • if earlier, and the employee averages more than 30 hours of service per week during the initial measurement period, the first day of the first month following the end of the initial measurement period (including any optional administrative period applicable to the initial measurement period) • Break in Service Rule: If an employee does not earn an hour of service for 26 consecutive weeks and is rehired, their status (as full-time, variable, or seasonal) will be re-determined at the time of rehire.
Issues of Concern to School Districts and Municipalities • Substitute Teachers: • If they are variable hour employees, are they averaging 30 hours of service per week during measurement periods? • Long-term substitutes will not be considered “variable hour” employees, which means they must be offered coverage within 90 days of the start of their employment. • Employees Holding Multiple “Part-time” Positions: • Multiple part-time positions can equal “full-time” under PPACA • Stipend positions where hours are not currently recorded (coaches) • Affordability– For lower wage employees, affordability will be a major concern. For someone that makes $10/hour for 130 hours per month, their monthly contribution cannot exceed $123.50.
Issues of Concern to School Districts and Municipalities • Status Changes – Obtaining employee contributions from employees that transition from “full-time” to “part-time”. • Employees Subject to CBA – Lack of flexibility poses concern: • Contractual rules regarding overtime • Inability to alter terms and conditions to meet 95% threshold safe harbor • Inability to alter terms and conditions to meet affordability safe harbor • Potential worst case scenario – Required to pay for health insurance and pay penalties • Cadillac Plan Tax - Starting in 2018, employers will be subject to an excise tax on their sponsored health insurance coverage if the value of that coverage exceeds $10,200 for individual coverage and $27,500 for family coverage. The tax is equal to 40% of the aggregate value of coverage in excess of these threshold amounts.
Issues of Concern to School Districts and Municipalities • Recording Hours of Service– Positions that are currently paid with stipend , “straight 8’s”, or other daily/weekly equivalent. Employers should seriously consider adopting more accurate time-recording measures. • Shared Services – Employees that perform services for multiple employers or employees that are employed by one entity but assigned to another entity can pose a problem. The employer liable for penalties may not be in a position to take action to protect itself. • Non-Discrimination Rules – Still awaiting final rules, but employers will not be able to discriminate in favor of highly compensated individuals with respect to eligibility or benefits. There is some concern that Municipalities and Districts could fail the final non-discrimination tests due to the level of benefits received highly compensated individuals.
Issues of Concern to School Districts and Municipalities • Employing Retirees – Employers that hire former full-time employees to serve in part-time positions may have to provide insurance or risk penalty. • Budget Issues – PPACA will place more pressure on already strained finances. • Administrative costs associated with monitoring compliance • Risk of penalties and uncertainty, especially if enforcement activities suffer expected time delay • Affordability requirements will handicap employers’ ability to allay continued increase in insurance costs by requiring larger employee contributions