WHITE PAPER

HEALTH CARE REFORM FAQS: ELIGIBLE EMPLOYEES AND EMPLOYEE NOTIFICATION October 2013

The most extensive provisions of the Affordable CareAct (ACA) take effect in January 2014. Among these provisions is the requirement for employers with more than 50 full-time equivalent employees to provide coverage to their full-time employees or face an IRS penalty. A recent announcement by the White House indicates that the IRS will be waiving the penalty for employers who fail to provide coverage during the first year of implementation, but the requirement to provide the coverage remains the same.

For employers that utilize a large number of variable hour employees, identifying which employees must be offered coverage can be a challenge. Employers subject to the law must offer coverage to all employees that work on average 30 hours per week. To accommodate some of the challenges associated with the use of variable hour employees, the regulations provide employers with a safe-harbor approach to determining eligible employees. Under the safe harbor approach, employers must establish annual measurement and stability periods to determine which variable hour employees are offered health care coverage by the employer. The federal rules allow 2013 to be a transition year wherein measurement and stability periods may differ in length. However, beginning with the 2015 coverage year, both the measurement and stability periods must be the same length of time. Due to the staging of the measurement and stability periods, the measurement period established in 2014 determines the stability period in the 2015 coverage year.

Employers also have only a few more weeks to comply with another ACA requirement – employee notification of the availability of the state-based exchange. Federal Department of Labor (DOL) rules require all employers provide the notification to all employees. The DOL has developed a model notice for employers to use to share this information.

The following are Frequently Asked Questions regarding the safe-harbor provision for identifying eligible employees and the employee notification requirement:

Eligible Employees

What does “safe-harbor” mean? Under the safe-harbor provision, employers that follow the process outlined in the rules for determining eligible employees will not be issued a penalty by the IRS if one of their eligible variable hour employees is found eligible for a federal subsidy in a state-based exchange.

Who are “variable hour” employees? All employees who are not full-time employees are considered variable hour employees. Full-time employees are those that work 30 or more hours per week, including salaried employees that work more than 30 hours per week. For purposes of the measurement and stability periods, seasonal employees and salaried employees that work less than 30 hours per week are also considered variable hour employees.

What is the “measurement” period? The measurement or look-back period, is the length of time an employer must evaluate the hours of variable hour employees to determine whether they are eligible for health care coverage in the upcoming coverage year. In 2013, employers may establish measurement periods of 3 to 12 months. Measurement periods in 2014 must coincide with stability periods in 2015 and may not be less than 6 months.

What is the “stability” period? The stability period is the time during the coverage year that a variable hour employee must be guaranteed access to coverage. For the 2014 coverage year, eligible variable hour employees must be offered coverage for either 6, 9 or 12 months. The stability period in 2014 may not be less than the 2013 measurement period. The stability period in 2015, must be equal to the measurement period established for 2014.

Must I include seasonal employees in my measurement period? Yes, you must evaluate the hours of seasonal employees if they are employed during the measurement period and must offer those employees coverage if they:

  • Work more than 120 days during the year;
  • Work more than an average of 130 hours per month, as determined by the measurement period; and
  • Are still in your employ at the beginning of the coverage year

May I have different measurement and stability periods for different employees? Yes, you may establish different measurement and stability periods for categories of employees such as salary/hourly; collective bargaining/non-collective bargaining; etc., but periods established within the categories must be applied uniformly to all employees within the category.

Once I set measurement and stability periods, are they set in stone or can I change them in the future? You may change the periods for the following coverage year but may not change them for the upcoming coverage year (e.g.The current year is 2013; the upcoming coverage year will be 2014; and the following coverage year will be 2015). Beginning in 2014, once a measurement period begins it is linked to the stability period of the upcoming coverage year. In practical terms, the measurement period used in 2014 determines the stability period in 2015 and so on. All changes must therefore begin by altering the upcoming measurement period. Changes can either increase or decrease the measurement and stability periods as long as the periods are still 6-12 months long.

What happens if the hours of a variable hour employee drop after they are enrolled in the health plan? The established stability period guarantees employees access to coverage during that time unless the employee notifies the employer they are no longer able to make the required employee premium contributions. An employer may not make an assumption the employee is unable to afford the contributions even though payroll deductions may not be possible. The employee must notify the employer they are unable to make the payments before the employee can be disenrolled during a stability period.

Employee Notification

What information must be included in the employee notification of the state-based health insurance exchange? The notice to inform employees of the state health insurance exchange must include the following:

  • Information regarding the existence of the exchange, as well as the contact information and description of the services provided in the exchange.
  • Notification that the employee may be eligible for a federal subsidy if the employee purchases coverage through the exchange.
  • Notification that if the employee chooses coverage in the exchange, that he or she may lose the employer contribution (if any) to coverage offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Can I just hold a staff meeting and verbally tell all employees about the exchange? You may hold a meeting to discuss the availability of the state-based health insurance exchange, but the official notification must be provided in writing to all employees and must be written at a level in which your average employee will understand the information in the notice. If your business is organized to allow electronic notification, you may provide the information electronically to your employees, but you must follow the Department of Labor’s safe harbor guidelines for electronically transmitting notifications.

How am I supposed to know how to write at the “level” in which my “average” employee can understand the written notification? The Department of Labor has issued model language that employers are encouraged to use either in its entirety or as a guideline for how to draft a more tailored notification. Two versions are provided, one for employers that offer coverage and one for those that do not. The model language is provided in both English and Spanish versions. You may find the model languageat:

How often must I share this information with my employees? The law indicates that employers must provide this information annually to all employees. However, the rules recently issued are temporary and speak to notification of all current employees prior to October 1, 2013, and to all new hires within two weeks of hire. Permanent rules regarding communication of this information after 2013 will likely be released next year.

I am not currently providing coverage but plan to in 2014. Which notice should I issue in October? Employers not currently providing coverage are on safe ground using either available version so the choice is up to you.

RESOURCES

  • Exchange notification technical release:
  • Department of Labor model language for employee exchange notification:

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