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IRS issues notice on full-time employee determination and guidance on waiting periods

Posted on September 4, 2012 | No Comments

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Key Developments

Last week, the Internal Revenue Service (IRS) issued a notice regarding safe harbor methods that employers may use to determine which employees will be considered as full-time employees for purposes of the shared employer responsibility provisions under the Internal Revenue Code, as added by the Affordable Care Act (ACA). The guidance expands on the previous guidance by including a safe harbor method that may apply to newly-hired employees. The notice provides employers with the option to use a look-back measurement period of up to 12 months to determine whether new employees are full-time employees, without being subject to a payment for this period with respect to those employees.

Also last week, the IRS, Department of Health & Human Services (HHS), and Department of Labor (DOL) issued a notice regarding the 90-day waiting period limitation in Public Health Service Act (PHS Act). The PHS Act provides that, for plan years beginning on or after January 1, 2014, a plan or issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.

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The US Department of Health and Human Services (HHS), the Internal Revenue Service (IRS) and the Employee Benefits Security Administration (EBSA) released several rules today concerning the 90-day waiting period limitation before insurance coverage can become effective. The final rule states that group health insurance plans cannot apply a waiting period that exceeds 90 days beginning January 2015. The proposed rule clarifies the 90-day limitation in terms of the length of employment-based orientation periods, stating that one month is the reasonable limit for employment-based orientation periods.
A proposed rule issued yesterday by the US Department of Labor, US Department of Treasury, and the US Department of Health and Human Services (HHS) implements a provision in the Affordable Care Act (ACA) that requires employer-sponsored health plans to be activated for employees within 90 days. In addition, employers cannot require employees to accrue a minimum number of hours before the 90 day wait period starts. The rules specifically state the 90 day wait limit in and of itself is not an employer mandate. Comments on the proposed rules will be due by May 20, 2013.
On Friday, the Internal Revenue Service (IRS) of the Department of Treasury issued a notice of proposed rulemaking (NPRM) addressing the Affordable Care Act's (ACA's) employer mandate. The IRS also released a series of questions and answers, highlighting the key provisions in the NPRM. The 144-page document explains how to determine which companies constitute large employers and which employees qualify as full-time. In the guidance, IRS also said that large employers must offer coverage not only to employees, but to their families as well.  Comments on the proposed rule are not due until March 18, 2013, and a public hearing will be held on the proposal on April 23, 2013. This comment period contrasts the 30-day comment periods imposed on the proposed market reform and essential health benefits rules recently released by the Department of Health and Human Services (HHS).
The Internal Revenue Service answered frequently asked questions related to automatic enrollment, employer shared responsibility payments, and waiting periods under the Affordable Care Act (ACA). The notice addressed employers' questions and invited comments on proposals that the Treasury, Labor, and Health and Human Services departments expect to include in future guidance or rulemaking under the ACA. The notice included the following information...
The Congressional Research Service (CRS) published a report exploring the key terms of the employer shared responsibility provision and methods to calculate full-time equivalent (FTE) employees. Pursuant to the Affordable Care Act (ACA), large employers will be penalized if they do not offer affordable health insurance to their full-time employees, and if one of their employees qualifies for a subsidy in the Exchange. Large employers are defined as entities with more than 50 FTE employees. The CRS memo addressed the confusion around calculating seasonal and part-time workers, which are assessed differently, in determining the number of FTE for the purposes of assigning penalties. Additionally, the CRS report outlines the methods for determining an employee's full-time status at hire and safe harbor provisions associated with offering affordable coverage.  
A Congressional Research Service (CRS) report released last week clarified confusion associated with how companies treat their part-time and seasonal workers, and how this treatment may make them eligible for employer penalties under the Affordable Care Act (ACA). The CRS report includes updated information on employer penalties, which was provided by IRS guidance released late last year. According to the ACA, employers with a minimum of 50 full-time equivalent employees must offer affordable and adequate health insurance to their employees, or run the risk of receiving significant penalties under the law. The confusion on the issue stems from the difference in calculating which businesses are subject to penalties, and the IRS guidance helps to clarify this issue by explaining the ACA's classification of a full-time employee and provisions related to seasonal workers.
The Affordable Care Act (ACA) will significantly impact how employers handle employee benefits, according to a study released today by ADP Research Institute. The intent of the paper is to provide data and insights regarding how employers can begin to take action to manage the impact of the ACA's shared responsibility requirements on financial and human capital resources. The ADP study indicates that most of the impact will revolve around the part-time workforce. The data shows that, in 2012, 23% of all employee positions were classified as part-time, but only 15% of these were eligible for benefits. Roughly two-thirds of the part-time workforce was classified as single, versus less than 50% of full-time employees. When eligible part-time employees were offered health benefits, only 53% elected coverage versus 77% of full-time employees. These and other factors are indicators of whether the employer may be subject to potential penalties once the ACA’s shared responsibility requirements take effect and how much exposure the employer might have. Because of this, composition of the workforce may shift to accommodate the influences of the ACA, according to the report. With information provided in the report, larger employers can begin determining their exposure and considering options.
About one in eight (12.8%) nonelderly Americans with employer coverage switched health plans in 2010. This number is down from one in six (17.2%) in 2003, according to a new national study by the Center for Studying Health System Change (HSC). As was true in 2003, about 5 percent of people with employer coverage switched plans in 2010 because of a job change. However, the proportion of people younger than 65 with employer coverage changing plans for other reasons fell from 12 percent in 2003 to 7.5 percent in 2010, often due to a change in employer benefit offerings. Less than 2.5 percent of workers in 2010, about the same proportion as in 2003, initiated a change in plans to reduce their health insurance costs or to get a better quality plan, such as better benefits or a more desirable provider network. According to the report, these findings suggest that consumer choice plays a relatively small role in health plan switching, with most changes resulting from job changes or changes in employers’ plan offerings. Affordable Care Act (ACA) implementation may create opportunities to increase plan choice among people with employer-sponsored coverage, particularly those in small firms, resulting in more frequent switching of health plans. However, a potential downside of more switching is less stable patient-provider relationships, such as in a medical home.
The 2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care offers insights into the actions and plans of leading U.S. employers and views of what the future of employer-provided health care in the U.S. may look like this year and in the coming three years. According to the study, as health care costs continue to rise, employers are looking for ways to cut costs. While the total cost of health care is predicted to rise 5.3%, to $11,507 per employee in 2013, the growth is slowing. Many companies will keep premium increases in line with the health care cost increases. The study found that 13% of companies would increase premiums by 5% in 2013, for example.
The Government Accountability Office (GAO) released a report yesterday which reviews estimates of the impact of the Affordable Care Act (ACA) on employer-sponsored coverage. According to some researchers, the ACA's Medicaid expansion and subsidized coverage for low- and moderate-income people who buy health insurance through Exchanges beginning may discourage employers from offering coverage. However, other researchers believe that the financial penalties imposed by the ACA will actually encourage employers to offer coverage. The GAO report examines 27 studies published between January 1, 2009 and March 30, 2012 that offer estimates regarding changes in employer-sponsored health coverage as a result of the ACA.