IRS, DOL issue FAQs on ACA auto-enrollment rules, shared responsibility, and waiting periods

The IRS, in conjunction with the HHS and the Labor Department, has issued a notice (IRS Notice 2012-17) containing frequently-asked questions and answers with regard to the Patient Protection and Affordable Care Act's (ACA's) provisions governing automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods for health insurance coverage. The notice identifies various approaches under consideration for future regulations and other guidance.

The notice provides that the Labor Department has concluded that its guidance on automatic enrollment under the Fair Labor Standards Act (FLSA) section 18A will not be ready to take effect until 2014. The provisions of FLSA Sec. 18A direct certain employers to automatically enroll new full-time employees in one of their health benefits plans, and require adequate notice and the opportunity for employees to opt out of coverage in which they were automatically enrolled. According to the Labor Department, until final regulations are issued and applicable, employers will not be required to comply with those provisions.

The notice also states that the IRS intends to issue proposed regulations or other guidance on the following: permission for employers to use employees' Form W-2 wages instead of household income to determine the affordability of employer coverage, coordination of employer shared responsibility provisions under Code Sec. 4980H and the 90-day waiting period limitation under Public Health Service Act Sec. 2708, and an allowance for employers to use a "look-back/stability period safe harbor" method to determine whether a certain employee is a full-time employee.

Code Sec. 4980H shared responsibility provisions

More specifically, forthcoming guidance is expected to provide that, for three months after an employee's date of hire, an employer that sponsors a group health plan will not be subject to the employer responsibility payment assessed under Code Sec. 4980H by reason of failing to offer coverage under its plan during that three-month period. It is also expected to provide that employers generally have six months to determine if a newly-hired employee is a full-time employee for purposes of Code Sec. 4980H, meaning that they will not be subject to an assessed payment under Code Sec. 4980H during that six-month period for the employee in question.

PHSA provisions

Public Health Service Act (PHSA) Sec. 2708 states that, in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period exceeding 90 days. The IRS has now stated that, after reviewing comments from the public, it has decided to retain, for purposes of PHS Act Sec. 2708, the definition in existing regulations that the 90-day waiting period begins when an employee is otherwise eligible for coverage under the terms of the group health plan.

Guidance is also expected to be issued under PHSA Act Sec. 2708 stating that eligibility conditions making certain classes of employees eligible for coverage once they complete a specified cumulative number of hours of service within a specified period will not be viewed as being designed to avoid compliance with the 90-day waiting period limitation. This would be the case so long as the required cumulative hours of service do not exceed a number of hours specified in the guidance.