Refocusing on the Employer Shared Responsibility Provisions and Penalties

By Kristi R. Gauthier, Esq.
Clark Hill PLC

Jan. 30, 2014 – With the holiday season behind us, and a new year beginning, now is the time for employers to refocus on the topic of health care reform, and, in particular, the employer shared responsibility provisions that are slated to impact “applicable large employers” beginning in 2015.

The general rule is that applicable large employers must offer “affordable,” “minimum value” health coverage to at least 95% of their full-time employees in order to avoid potential penalties. Employers should reevaluate where they stand with respect to these provisions, in particular:

Are you an “Applicable Large Employer” (ALE)? If an employer averages 50 or more full-time equivalent employees (this calculation takes part-time employees into consideration) in 2014, you will be considered an ALE and subject to these provisions in 2015. Keep in mind that ALE status is determined on a controlled group basis, pursuant to established IRS regulations.

How do you define “full-time employee” with respect to health care benefits? For purposes of the employer shared responsibility provisions under PPACA, a “full-time employee” is defined as one who averages 30 or more hours of service per week during the applicable measurement period. If an employer currently defines full-time employees as something other than 30 hours of service per week for purposes of health care benefits, they will need to reevaluate eligibility criteria beginning in 2015.

Are you tracking the hours of your employees to determine full-time employee status? Employers need to have a system in place to accurately track their employees’ hours of service to determine which employees will be considered full-time using the applicable measurement and stability periods.

Are you looking to reduce hours? Employers who are considering reducing the hours of service worked by their employees in order to preclude individuals from being eligible for health care coverage beginning in 2015 will need to act quickly as the determination of full-time employee takes into consideration the number of hours of service during the entire measurement period (a.k.a. “look back period”). In other words, depending on the length of measurement period an employer chooses, the employer may have already had to start measuring/counting hours for purposes of determining full-time status and health plan eligibility in 2015.

Are you currently offering coverage to all your full-time employees? Employers who are not currently offering health care coverage to at least 95% of their full-time employees (those averaging 30 or more hours of service per week) will need to determine whether the organization is going to expand its eligibility to avoid penalties beginning in 2015.

Will the coverage you offer be considered “affordable” and of “minimum value”? In order to avoid penalties in 2015, employers should start analyzing employee cost of health care coverage to ensure that it will be considered “affordable” (for example, the employee cost does not exceed 9.5% of their W-2 wages, or one of the other IRS safe-harbors) and should also be working with their insurance carriers/consultants to ensure that they will be offering coverage that qualifies as “minimum value,” which is a measure of the cost sharing provisions under the plan.

While we are still waiting (or hoping) for additional guidance and clarification to be issued from the appropriate governmental agencies, the reality is that these provisions continue to exist and employers should plan now to ensure compliance next year.

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.