FYI School Law Newsletter – February 2013
Health Care Reform Update: Employer Notice and Requirements for Large Employers
As the time for implementation of certain provisions of the Affordable Care Act (the Act) approaches rapidly, school districts must be aware of their obligations under the Act. In particular, districts must be aware of two important elements under the Act. These two elements relate to employer notices of coverage options and to employer-shared responsibility. This FYI will describe these two elements and provide guidance for school districts on how to comply with these recent changes.
The Affordable Care Act amended the Fair Labor Standards Act to require employers to provide employees with notice of coverage options available through Exchanges. Exchanges under the Act are a new marketplace where individuals and small businesses may buy health benefit plans. The notice regarding coverage options through Exchanges must include the following information:
- information on the existence of Exchanges, a description of the services provided by Exchanges, and contact information an employee may use to contact an Exchange to request assistance;
- if an employer’s plan does not provide minimum value, that an employee may be eligible for a premium tax credit if he or she purchases insurance through an Exchange; and
- that, if an employee purchases insurance on an Exchange, the employee may lose an employer contribution (if any) to any health benefits plan the employer offers, and that all or a portion of that contribution may be excludable from income for federal income tax purposes.
Originally, this notice was to have been issued to current employees beginning March 1, 2013. However, the Department of Labor has postponed the notice requirement and currently estimates it will reinstate the requirement at some point in the late summer or fall of 2013. At that time, the notice will likely coordinate with the open enrollment period of the Exchanges. Future guidance on the notice requirement is expected from the Department of Labor in the upcoming months.
OVERVIEW OF SHARED RESPONSIBILITY PROVISIONS
The Affordable Care Act also included Employer Shared Responsibility Provisions, which go into effect the first day of the 2014 plan year. The Employer Shared Responsibility Provisions require employers that generally employ fifty (50) full-time employees (or full-time equivalents) to offer minimum essential coverage that is affordable to their full-time employees. If such an employer does not offer minimum essential coverage that is affordable, the employer may be subject to an assessable payment. This payment will be issued only if one or more full-time employees receive a premium tax credit or cost sharing reduction for purchasing health insurance on an Exchange created by the Act.
The Department of the Treasury and the Internal Revenue Service (IRS) have issued proposed regulations regarding the Employer Shared Responsibility Provisions under the Act. These regulations are intended to provide significant guidance on the application of the Employer Shared Responsibility Provisions. Both departments are currently waiting for comments from the public on these proposed regulations. After this public comment period, it is expected that final regulations will be issued before January 1, 2014.
School districts are subject to these Employer Shared Responsibility Provisions. As a result, school district officials need to be familiar with these provisions. To this end, below is an overview of important elements of these provisions.
Applicable Large Employers
The Employer Shared Responsibility Provisions are only applicable to large employers. A large employer is one that employed on average at least 50 full-time employees or a combination of full‑time and part-time employees that equals at least 50 full-time equivalents (FTEs) on business days during the preceding calendar year.
Full-Time Employees For Purposes of Coverage
The Employer Shared Responsibility Provisions require large employers to offer affordable minimum essential coverage to full-time employees. Employees who are employed on average at least 30 hours of service per week are considered full-time employees. The monthly standard of 130 hours is the equivalent of 30 hours of service per week. An employee’s hours of service include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and (2) each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.
Full-Time Status for School Year Employees
Many employees of school districts may be full-time during the school year, but then do not accumulate hours of service during the summer months. This presents a unique situation for school districts to determine which employees are full-time. The proposed regulations include additional requirements for educational organizations, which address employment break periods of at least four consecutive weeks during which an employee is not credited with an hour of service. The employment break periods of at least four consecutive weeks do not include unpaid leave subject to the Family and Medical Leave Act (FMLA), unpaid leave subject to the Uniformed Services and Reemployment Rights Act (USERRA), and unpaid leave on account of jury duty.
Under the proposed regulations, an educational organization must determine the average hours of service per week for an employee during the measurement period, excluding the employment break period, and use that average as the average for the entire measurement period. Alternatively, an educational organization may treat employees as credited with hours of service for the 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 part of an employment break period. However, the educational institution is not required to credit an employee in any calendar year with more than 501 hours of service for any employment break period. The rules governing an employment break period for educational organizations apply only to an employee treated as a continuing employee upon the resumption of services, and not to an employee treated as terminated and rehired.
The proposed regulations reserve the definition of seasonal employee, and provide that, employers are permitted, through 2014, to use a reasonable, good faith interpretation of the term seasonal employee. However, it will not be considered a reasonable good faith interpretation of the term seasonal employee to treat an employee of an educational organization, who works during the active portions of the academic year, as a seasonal employee.
Coverage for an employee under an employer-sponsored plan is affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income for the taxable year. The proposed regulations also include optional affordability safe harbors because it has been recognized that an employer may not necessarily know an employee’s household income for the taxable year. One such affordability safe harbor provides a safe harbor to an employer who provides minimum essential coverage that provides minimum value that does not cost the employee more than 9.5% of the wages the employer pays the employee that year as reported in Box 1 of Form W-2.
Coverage offered by an employer must provide minimum value, defined as a plan that covers at least 60 percent of the total allowed costs of benefits that are expected to be allowed under the plan. The Department of Health and Human Services and the Internal Revenue Service (IRS) will provide a minimum value calculator that will allow an employer to input information about the plan, such as deductibles and co-pays, to determine whether the plan provides minimum value under the 60 percent test.
Employer Shared Responsibility Payment
An employer may be liable for an employer shared responsibility payment under one of two scenarios. First, an employer may owe a payment if the employer does not offer minimum essential health coverage or offers minimum essential coverage to less than 95% of its full‑time employees, and at least one of the full-time employees receives a premium tax credit for the purchase of coverage on an Exchange. Second, an employer may owe a payment if the employer offers minimum essential coverage to at least 95% of the employees, but at least one full-time employee receives a premium tax credit for the purchase of coverage on an Exchange because the coverage offered by the employer was either unaffordable to the employee or fails to provide minimum essential coverage.
If an employer is liable for a payment under the first scenario, that payment is calculated as an amount equal to the number of full-time employees (but not FTEs), minus 30, multiplied by $2,000. If an employer offers minimum essential coverage for some months but not others, the payment is separately computed for each month (1/12 of the above amount) for which minimum essential coverage was not offered.
If an employer is liable for a payment under the second scenario, the payment is computed monthly, and equal to 1/12 of $3,000 multiplied by the number of full-time employees who receive a premium tax credit, but not to exceed a cumulative total equal to 1/12 of $2,000 multiplied by the total number full-time employees (minus 30). This latter calculation is capped in order to ensure that an employer that offers coverage can never be liable for a payment that is larger than the payment that would be owed if the employer did not offer coverage.
For employers who currently offer coverage only to their employees, and not to dependents, the proposed regulations provide transition relief with respect to dependent coverage for plan years that begin in 2014. Under the regulations, any employer that takes steps during plan year 2014 to offer coverage to full time employees’ dependents in the next plan year will not be liable for any assessable payment on account of failure to offer coverage to dependents during plan year 2014. Under the Affordable Care Act, a “dependent” is defined as a child of an employee, including children up to age 26. The definition of “dependent” does not include an employee’s spouse.
The Employer Shared Responsibility provisions, which take effect the first day of the 2014 plan year, will bring substantial change to many districts in the benefits they offer to employees. This may include determining whether to provide affordable, minimum essential coverage to full-time employees or instead pay a penalty. As such, districts must plan in advance of the first day of their 2014 plan year regarding the insurance coverage that they may offer and the level of contribution that it will make towards such coverage. Employees who may not have received insurance coverage from a district may now be required to be covered, or alternatively, such a district will be penalized.