On February 9, 2012, the Departments of Labor, Health and Human Services, and the Treasury issued answers to frequently asked questions regarding automatic enrollment, employer shared responsibility, and waiting periods. The Departments also outlined various approaches they are considering proposing in future regulations or other guidance.
The Affordable Care Act directs an employer subject to the Fair Labor Standards Act and that has more than 200 full-time employees to enroll new full-time employees automatically in one of the employer’s health benefits plans (subject to any waiting period authorized by law). This provision requires adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled.
The statute provides that employer compliance with the automatic enrollment provisions shall be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].” The Department of Labor has concluded that its automatic enrollment guidance will not be ready to take effect by 2014. It is the Department of Labor’s view that, until final regulations under are issued and become applicable, employers are not required to comply with the automatic enrollment provisions.
The employer shared responsibility provisions, provide that a large employer (for this purpose, an employer with 50 or more full-time equivalent employees) could be subject to a penalty if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. Generally, this may occur where either:
- The employer does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or
- The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable relative to an employee’s household income or does not provide minimum value.
For these purposes, a “full-time employee” is an employee who is employed on average at least 30 hours per week.
Treasury and the IRS have described a safe harbor allowing employers, for purposes of determining whether they owe a penalty, to use an employee’s Form W-2 wages (as reported in Box 1) instead of household income in determining whether coverage offered is affordable.
The upcoming guidance is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the penalty.
Treasury and the IRS intend to issue proposed regulations or other guidance that would allow employers to use a “look-back/stability period safe harbor” method for purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee. Accordingly, it is anticipated that the guidance will allow look-back and stability periods not exceeding 12 months.
The guidance is also expected to provide that, in certain circumstances, employers have six months to determine whether a newly-hired employee is a full-time employee and will not be subject to a penalty during that six-month period with respect to that employee. Treasury and the IRS intend to propose an approach under which the period of time that an employer will have to determine whether a newly-hired employee is a full-time employee will depend upon whether, based on the facts and circumstances, (a) the employee is reasonably expected as of the time of hire to work an average of 30 or more hours per week on an annual basis and (b) the employee’s first three months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis.
Forthcoming guidance is expected also to coordinate the rules for newly-hired employees with those applicable to other employees (including employees who are transferred from one employment classification or status to another).
The Affordable Care Act provides that, in plan years beginning on or after January 1, 2014, a group health plan or insurer shall not apply any waiting period that exceeds 90 days.
Conditions for eligibility under the terms of a group health plan would generally be permissible, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. For example, eligibility conditions such as full-time status, a bona fide job category, or receipt of a license would be permissible.
The upcoming guidance is also expected to address situations in which, under the terms of an employer’s plan, employees (or certain classes of employees) are eligible for coverage once they complete a specified cumulative number of hours of service within a specified period (such as 12 months). It is anticipated that, under the upcoming guidance, such eligibility conditions will not be treated as designed to avoid compliance with the 90-day waiting period limitation so long as the required cumulative hours of service do not exceed a number of hours to be specified in that guidance.
The questions and answers provide information and identify various approaches that the Departments are considering proposing in future regulations or other guidance. Guidance that employers may rely upon with respect to the issues addressed will be provided with sufficient lead time for employers to comply. Comments are requested on these approaches.
Comments are requested by April 9, 2012. Comments may be sent electronically to: e-ohpsca-er.ebsa@dol.gov. Alternatively, comments may be sent via mail or hand delivery to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
