August 7, 2015
CHANCELLORS
LAWRENCE BERKELEYNATIONALLAB DIRECTOR
Re:Affordable Care Act Employer Shared Responsibility Requirements
This memorandumhighlights important changes to eligibility for employee medical insurance benefits as an outcome of the Affordable Care Act (ACA). The ACA is complex and multi-faceted; since its passage in 2010, the law has had a significant impact on the University of California health programs (e.g., requiring coverage of dependent children up to age 26, free preventive care, added fees and taxes). In this letter, we focus on the issue of employees to be covered under the ACA: the ACA’s Employer Shared Responsibility requirements will impact UC’s benefits eligibility rules in 2016 and may influence workforce management strategies at your location going forward.
Beginning in 2015, the ACA’s Employer Shared Responsibility provisions required that large employers such as the university offer medical insurance to substantially all full-time employees and their dependents. For the 2015 plan year, UC has complied with the ACA’s transitional requirement to offer medical insurance to 70% of its full-time employees. (Full-time is defined by the ACA as employees who work, on average, 30 or more hours per week.)
For the 2016 plan year, UC is required to offer medical insurance tosubstantially all of its full-time employees. This will require UC to change benefits eligibility policies and offer coverage to certain categories of employees currently ineligible for medical coverage—specifically, per diem employees, student employees, and those paid solely by agreement—if they work 30 hours on average per week during the applicable “measurement period.” See attached Appendix for more details.
If UC were to fail to offer medical insurance to its full-time employees, itwould be subject to penalties up to $260 million annually,[1] so it is essential that the university comply with the law’s requirements.
The ACA requires only that full-time employees be offered coverage; it does not require that they enroll in the plan. Additionally, the law requires only that the offer of coverage meet specific minimum requirements; the Core Benefits Package, which is UC’s lowest-cost benefits package, meets these requirements.
Although there are about 70,000 employees (mostly student employees) in the university’s population that have been ineligible for coverage under our policies, we estimate that only around 5,000 of these will qualify for the offer to enroll in the Core Benefits Package. Additionally, because the ACA began assessing tax penalties on individuals who were not insured in 2014, it may be that many of these UC employees are already insured from another source and will likely not enroll in UC’s health plan.
While these changes will take effect January 1, 2016, the determination of full-time status is based on a calculation of hours worked during a 12-month “look-back” measurement period which started in November 2014. Consequently, employees in the ineligible categories may qualify for UC insurance in 2016, based on their 2015 employment history. The retrospective calculation and determination of eligibility will occur annually and will be administered automatically in the payroll system. These changes will be communicated to employees during open enrollment.
Because these changes may potentially impact workforce decisions and campus/departmental(employer) costs, we wanted to ensure that you were informed. The HR Benefits organization is actively involved in implementing these provisions and is working closely with Academic Personnel and Payroll staff across the system.
More details may be found in the Appendix attached.
If you have questions, please contact either of us and we will gladly respond.
Sincerely,
Dwaine B. DuckettSusan Carlson
Vice President for Human ResourcesVice Provost, Academic Personnel and Programs
cc:Provost and Executive Vice President Dorr
Executive Vice Chancellors/Provosts
Executive Vice President Brostrom
Executive Vice President Nava
Senior Vice President Henderson
Senior Vice President Stobo
Vice President Sakaki
UC Health Chief Executive Officers
Vice Chancellors Administration
Vice Chancellors Planning and Budget
Vice Chancellors of Student Affairs
Vice Provosts for Academic Personnel
Associate Vice President Arrivas
Campus and Medical Center Controllers
Chief Human Resources Officers
Academic Personnel Directors
Executive Director Baptista
Student Health Service Directors
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Appendix
Affordable Care Act Employer Shared Responsibility Requirements
Why is UC changing its benefits eligibility rules?
The Employer Shared Responsibility provisions of the Affordable Care Act of 2010 (Internal Revenue Code Sec. 4980H) require that UC offer medical insurance to “substantially all” employees reasonably expected to be full time (defined as having, on average, 30 hours of service per week). Failure to offer coverage can result in an estimated monthly penalty of $21.7 million (one-twelfth of $2,000 times the total number of employees at UC who have on average, 30 hours or more of service per week – approximately $260 million annually).
Given the enormity of this penalty, it is extremely important that UC feel confident in its ability to comply.
Why are changes required in 2016 when the regulations were effective for 2015?
The IRS issued final regulations under Code Sec. 4980H which wereeffective January 1, 2015. As indicated in the regulations, an employer will be treated as offering coverage to its full time employees for any month, if, for that month, it offers coverage to 95% of its full-time (30 hours or more) employees. For 2015 only, temporary relief provided by the IRS reduced the threshold from 95% to 70%;the threshold returnsto 95% in 2016 and forward.
What changes will be made?
While UC’s current eligibility rules allow us to meet the 70% requirement for 2015, reaching the 95% threshold will require significant changes to the University’s benefits eligibility rules starting in 2016, including the expansion to classes of employees previously considered ineligible, including:
- Per diem employees
- Casual/Restricted employees (students)
- Employees with “By Agreement” appointments (employees paid a flat dollar amount for whom no time worked is record-kept)
UC has made the decision that employees in these previously-ineligible classes will be offered the CORE Benefits Package if they are appointed 75% or expected to work 30 hours/week, on average.
UC will also move to the ACA-required method to measure full-time status using a 12-month “look-back” measurement period.
How WillUC Handle By-Agreement Appointments?
To determine which employees are full-time under the ACA regulations, UC must begin to credit reasonable hours of service to those who are paid by agreement. This is not an attempt to move these individuals from by-agreement appointment pay to hourly wages but simply represents a way to track eligibility for medical benefits as required by the ACA.
Campuses and/or departments paying employees by agreement will need to develop a method to determine how many hours of service should be credited to an employee. The IRS has acknowledged that for some employees, hours of service are challenging to identify or track; nevertheless, all employers must find a way to credit reasonable and realistic hours of service. There may be different approaches for academics and staff when calculating hours of service. The Academic Personnel and Programs Office will coordinate this effort for the academic population. Human Resources and Payroll will coordinate the effort for the staff population.
Employees paid by agreement with no credited hours of service in a look-back measurement period for whom status as full-time or part-time cannot be determined will be automatically offered Core Benefits. This is to mitigate the risk of an IRS penalty should the employee, in fact, be working more than 30 hours per week.
How WillUC Handle Per Diem Appointments?
Per diem employees should be appointed at a percentage and duration that closely reflects the anticipated time to be worked and provided with Core Benefits if appointed at least 75% for 3 months or more. While there may be uncertainties at the time of initial hiring, if there is likelihood that the employee will work a particular schedule, then he/she should be appointed to that level and offered coverage if appropriate. For example,per diem employees should not be appointedat an artificially low level (e.g., 20% or 40%) when there is a likely possibility that the employee may work 75% or more. When the appointment percent and hours of work are out of sync, the University is at risk for not offering coverage as required. The measurement of average hours worked for per diem employees is already underway, as their hours are captured in the payroll system.
How WillUC Handle Casual/Restricted (Student) Workers?
The majority of student workers do not average 30 hours per week; in fact, students generally work up to 20 hours per week in order for them to focus on their academic programs. Nevertheless, student workers who work a combined average of 30 hours or more per week in all jobs during the measurement period must be offered Core Benefits. The UC-sponsored student health insurance programs do not satisfy UC’s ACA employer shared responsibility obligations to offer coverage to these student employees.
How does enrollment in the Core Benefits Package potentially impact employees with existing health coverage?
Individuals having other coverage, including students covered by the UC-sponsored student health insurance plans and those alreadycovered by other family members’ plans, may not find it in their best interest to enroll in the Core Benefits Package. In many cases, other coverage may be preferable to Core (with its $3,000 deductible). Additionally, those with other coverage should carefully consider the potential drawbacks of enrolling in order to obtain double coverage. In manycases, the insurance provided as employer coverage is the primary insurance and this could present coordination of benefits problems if the secondary insurance isincompatible (e.g., Kaiser) or more generous.
What is UC doing to mitigate the potential increased cost of these changes?
In anticipation of more newly eligible employees and the potential drawbacks of being doubly insured, UC will be eliminating automatic enrollment into the Core Benefits Package in the event an employee fails to affirmatively enroll. This will apply to all employees prospectively, beginning January 1, 2016.
How will UC demonstrate its compliance with these Employer Shared Responsibility requirements?
The Affordable Care Act added section 6056 to the Internal Revenue Code, which requires applicable large employers such as UC (defined as employing more than 50 full-time employees) to file information returns with the IRS and statements to their full-time employees about the health insurance coverage the employer offered. A new Form 1095-C has been developed by the IRS for this purpose; the Form 1095-C must be furnished to each employee by January 31, 2016 covering the calendar year 2015, and each year thereafter. In addition, the employer must file an electronic copy along with a transmittal form to the IRS by March 31, 2016. For the first year of reporting, UC will engage the services of a third party to assist with this process.
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[1] If UC fails to offer medical coverage to the required percentage of full-time employees, and if even one full-time employee who was not offered coverage enrolls in a plan on the ACA Marketplace (e.g., Covered California) and receives a premium tax credit or cost-sharing reduction from the government, the annual penalty to UC would be $2,000 times the total number of full-time employees in the UC workforce.