The Internal Revenue Service, and the Departments of the Treasury, Labor (DOL), and Health and Human Services (HHS) (the Departments), simultaneously, but separately, have issued two notices, Notice 2012-58 and Notice 2012-59, respectively, providing guidance on two provisions of the Patient Protection and Affordable Care Act (ACA).
Notice 2012-58 describes safe harbor methods that employers may use (but are not required to use) to determine which employees are treated as full-time employees for purposes of the ACA-added shared employer responsibility provisions of Code Sec. 4980H. Specifically, the administrative guidance in Notice 2012-58 modifies and expands on previous guidance and includes a safe harbor method that employers may apply to specified newly-hired employees.
Beginning Jan. 1, 2014, Code Sec. 4980H provides that an applicable large employer (generally, an employer who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year) is subject to an assessable payment if either of the following situations exists:
1. the employer fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and any full-time employee is certified to receive a premium tax credit or cost-sharing reduction; or
2. the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and one or more full-time employees is certified to receive a premium tax credit or cost-sharing reduction (generally because the employer’s coverage either is not affordable or does not provide minimum value).
Coverage under an employer-sponsored plan is considered affordable to a particular employee if the employee’s required contribution (within the meaning of Code Sec. 5000A(e)(1)(B)) to the plan does not exceed 9.5 percent of the employee’s household income for the taxable year. Code Sec. 4980H(c)(4) provides that a full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week.
Safe harbor method. The safe harbor method described in a previous notice provides employers the option to use a look-back measurement period of up to 12 months to determine whether new variable-hour employees or seasonal employees are full-time employees, without being subject to a payment under Code Sec. 4980H for this period with respect to those employees. An employee is a variable-hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.
In addition, the safe harbor:
- gives employers the option to use specified administrative periods (in conjunction with specified measurement periods) for ongoing employees (generally an employee who has been employed by the employer for at least one complete standard measurement period, a defined time period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer) and certain newly hired employees;
- facilitates a transition for new employees from the determination method the employer chooses to use for them to the determination method the employer chooses to use for ongoing employees; and
- provides employers reliance, at least through the end of 2014, on the guidance in Notice 2012-58 and on the following approaches described in prior notices:
- for ongoing employees, an employer will be permitted to use measurement and stability periods of up to 12 months;
- for new employees who are reasonably expected to work full-time, an employer that maintains a group health plan that meets certain requirements will not be subject to an assessable payment under Code Sec. 4980H for failing to offer coverage to the employee for the initial three months of employment; and
- for all employees, an employer will not be subject to an assessable payment under Code Sec. 4980H(b) for an employee if the coverage offered to that employee was affordable based on the employee’s Form W-2 wages reported in Box 1 (often referred to as the affordability safe harbor).
Seasonal employees. Code Sec. 4980H(c)(2)(B) generally provides that if an employer’s workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal employees, the employer would not be an applicable large employer. A seasonal worker is a worker who performs labor or services on a seasonal basis, such as during the summer or the winter holiday season.
This guidance is intended to encourage employers to continue providing and potentially to expand group health plan coverage for their employees by permitting employers to adopt reasonable procedures to determine which employees are full-time employees without becoming liable for a payment under Code Sec. 4980H; to protect employees from unnecessary cost, confusion, and disruption of coverage; and to minimize administrative burdens on the Affordable Insurance Exchanges (Exchanges).
Limited waiting period. Simultaneously with the issuance of Notice 2012-58, the Departments issued Notice 2012-59, which provides guidance under Public Health Service Act (PHSA) Sec. 2708. PHSA Sec. 2708 provides that, for plan years beginning on or after Jan. 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days. Other conditions for eligibility under the terms of a group health plan are generally permissible under PHSA Sec. 2708, unless the condition is designed to avoid compliance with the 90-day waiting period limitation.
A “waiting period” is defined as the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective. For this purpose, being eligible for coverage means having met the plan’s substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan’s terms).
If, under the terms of a plan, an employee may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation is considered satisfied. Accordingly, a plan or issuer will not be considered to have violated PHSA Sec. 2708 merely because employees take additional time to elect coverage.
Variable hour employees. If under a group health plan an employee’s eligibility is based on the employee regularly working a specified number of hours per period (or working full time), and it cannot be determined that a newly hired employee is reasonably expected to regularly work that number of hours per period (or work full time), the plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition. The eligibility condition may include a measurement period that is consistent with the timeframe permitted for such determinations under Code Sec. 4980H, whether or not the employer is an “applicable large employer” subject to Code Sec. 4980H.
Unless a waiting period that exceeds 90 days is imposed after a measurement period, the time period for determining whether such an employee meets the plan’s eligibility condition will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective no later than 13 months from the employee’s start date, plus, if the employee’s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month.
Employers, plans and issuers may rely on the compliance guidance in Notice 2012-59 at least through the end of 2014.
All employees, whether full time, part-time, or variable hour, who are not offered the opportunity to enroll in health insurance by their employer will be eligible to receive premium tax credits and cost-sharing reductions for Exchange coverage if they meet other conditions for receipt of these credits, the Departments asserted.
Comments. Comments on either notice may be submitted by September 30 to the specified addresses, referring to the applicable notice. For Notice 2012-58, send comments electronically to Notice.comments@irscounsel.treas.gov, or via regular mail to CC:PA:LPD:PR (Notice 2012-58), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. For Notice 2012-59, send comments electronically to e-ohpsca-er.ebsa@dol.gov; or via regular mail 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.
