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Health Care Reform and Full-Time Employees - Part 8: Putting It All Together

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Let's review what we know from the previous posts in this series.

(1) It's important to identify full-time employees, because if we want to avoid the play-or-pay penalties, we have to make sure all full-time employees are offered appropriate coverage. 

(2) In many cases, we can determine whether an employee is full-time or not by looking at hours worked over a prior period, known as the measurement period.

(3) An employee's status for a measurement period remains the same during a stability period associated with that measurement period.

(4) We can utilize a brief administrative period between a measurement period and a stability period to allow time for such things as making enrollment elections and allowing coverage to become effective at the beginning of a month or year.

(5) When applying the look-back measurement method, it's useful to distinguish between new hires and ongoing employees. New hires that are reasonably expected to be full time upon hire must be offered coverage within 3 months. New hires that are variable hour or seasonal employees do not have to be offered coverage until the end of an initial measurement period, during which we can determine whether the employees are full-time or not.

(6) For all ongoing employees, full-time status is determined by looking at hours worked over a standard measurement period.

(7) Some special rules apply for rehired employees and employees who have changes in their position or employment status.

How is all of this really going to work? It's going to differ from employer to employer, because the specific choices made will depend on what makes sense for each employer. But as a general rule, most employers will want to use these rules in a way that largely fits with how they've otherwise been operating their health plans, taking into account any changes that need to be made.

Here's an example.

Let's say an employer has a calendar-year health plan. Employees working 35 or more hours per week are eligible to participate after a 60-day waiting period. Open enrollment is held during the month of November each year.

The employer decides it wants to comply with the play-or-pay mandates, so it implements the following:

  • Effective January 1, 2014, the eligibility rules are changed so that all employees working an average of 30 or more hours per week are eligible for the plan. The 60-day waiting period is retained.
  • The plan will use a 12-month standard measurement period each year that begins on October 15. The first standard measurement period will begin October 15, 2012.
  • The plan will use a 12-month standard stability period each year that is the same as its plan year (begins January 1). The first standard stability period will begin January 1, 2014.
  • For new variable-hour and seasonal employees, the plan will use a 12-month initial measurement period that begins on the first day of the month after the date of hire.
  • For new variable-hour and seasonal employees, the plan will use a 12-month initial stability period that begins one month after the initial measurement period ends.

Ongoing Employees. Employees who are employed as of the beginning of the first standard measurement period (October 15, 2012) and remain employed for the full measurement period are ongoing employees. Whether they are eligible for coverage under the plan as of January 1, 2014 will depend on their hours worked during that standard measurement period. All ongoing employees who work an average of 30 or more hours per week during the standard measurement period will need to be offered coverage as of January 1, 2014.

New Hire - Full Time. Assume a new employee is hired on February 22, 2014. She is reasonably expected to work full time from the date of hire. She completes the plan's 60-day waiting period and is offered coverage effective May 1, 2014 (first day of the month after completing the waiting period). This will comply with the rules, because she is offered coverage within 3 months.

New Hire - Variable Hour. Assume a second new employee is also hired on February 22, 2014, but is hired in a variable-hour position. She would not receive coverage after 60 days but instead would have a 12-month initial measurement period beginning March 1, 2014. If she works an average of 30 or more hours during that 12-month period, she will be eligible for coverage beginning April 1, 2015 (one month after the end of the initial measurement period).

The periods from February 22, 2014 to February 28, 2014 and from March 1, 2015 to March 30, 2015 are an administrative period. They satisfy the requirement that an administrative period not exceed a total of 90 days. The structure also satisfies the requirement that the initial measurement period plus the administrative period not exceed a total of 13 months plus a fraction of a month. The employee was hired February 22, 2014 and became eligible for coverage April 1, 2015 (13 months plus a fraction).

An Alternative. What if the employer wants to use this structure, but was not prepared to begin collecting the correct data as of October 15, 2012. Can anything be done? A special transition rule will allow the employer to shorten its first standard measurement period to as short as 6 months, and still use a 12-month standard stability period. So it could use the period from April 15, 2013 to October 14, 2013 as its first standard measurement period. After that, its standard measurement period would need to be a full 12 months, if it wants to have a 12-month standard stability period.

Unclear Cases. As with any change of this nature, there are going to be a few rough patches in the transition - times when the rules aren't entirely clear. In those cases, we'll have to use our best judgment.

For example, assume a full-time employee is hired August 20, 2013 and obtains coverage under the plan beginning November 1, 2013 (after satisfying the 60-day waiting period). How is this employee treated for purposes of the plan year that will begin January 1, 2014? He's not really an "ongoing employee" because he hasn't been employed a full standard measurement period. But he's not a "new" employee anymore either. The intuitively correct answer is that he should be offered coverage as of January 1, 2014, because he is, in fact, a full-time employee and should not again be subject to a waiting period. But a technical application of the rules doesn't provide a clear answer.

There will be many details to work through as you implement these requirements, and the answers won't always be clear. But if you keep the basic rules in mind, that should help you maintain your bearings. 

Related posts:

Part 1: The Problem

Part 2: Measurement Periods

Part 3: Stability Periods

Part 4: Administrative Periods

Part 5: New Hires

Part 6: Ongoing Employees

Part 7: Rehires and Changes in Job Classification

IRS Proposes Comprehensive Regulations on PPACA's Play-or-Pay Penalties


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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Jason Lacey, the Employee Benefits Guy
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