Health & Welfare Notes
Vol. 19, Issue 1 January/February 2014
Final Regulations Released on Employer “Shared Responsibility” Provisions. On February 12, 2014, the Department of the Treasury published in the Federal Register final regulations under the Affordable Care Act’s Employer Shared Responsibility requirement (more commonly referred to as the “employer mandate” or “pay‑or‑play” requirement). The IRS also posted a Q&A addressing the final regulations. The final regulations contain a number of clarifications as well as various forms of transition relief intended to assist employers in preparing for the employer mandate, which generally goes into effect on January 1, 2015. The final regulations retain most of the guidance issued in the proposed regulations and four earlier Internal Revenue Service notices on minimum value and reporting requirements and methods for determining employee status. A few highlights of the transition relief and clarifications included in the final regulations include:
Delay of Employer Mandate. The final regulations reaffirm that the requirement to offer health coverage applies only to employers with an average of at least 50 full‑time employees, based on the prior year’s data. To ensure a gradual phase‑in of the employer mandate, however, the final regulations provide that only employers with 100 or more full‑time employees will be subject to the employer mandate for 2015. In 2015, such employers must offer coverage to at least 70% (as opposed to 95%) of their full‑time employees (and their dependents) to avoid a penalty. Employers with 50‑99 full‑time equivalent employees are not subject to the employer mandate until January 1, 2016 at the earliest, as long as certain conditions are met, including no reductions to the workforce size without a bona fide business reason. (Employers with less than 50 full‑time equivalent employees continue to be not subject to the employer mandate.) In 2016, employers that are subject to the employer mandate provisions must offer coverage to at least 95% of their full‑time employees (and their dependents) in order to avoid a penalty.
Hours equivalency for non‑hourly employees. In defining Hours of Service for purposes of the employer mandate, the final regulations largely adopt the definition of hours of service included in the proposed regulations, with a few modifications and clarifications. One of the clarifications provides that if an employer counts hours for non-hourly employees using equivalencies of 8 hours a day or 40 hours per week, employees must be credited with the full 8 or 40 hours of service if the employee works (or is entitled to pay for) even a single hour that day or week, as applicable.
Rehired employees. The final regulations retain the rehire rules contained in the proposed regulations but reduce, in most situations, the length of the break in service required before a returning employee may be treated as a new employee from 26 weeks to 13 weeks.
Definition of Dependent. The final regulations, like the proposed regulations provide that dependents only include children and adult children for these purposes, not spouses. The final regulations include the following clarifications: (1) Dependent does not include stepchildren, foster children, and a child who is not a US citizen or national, unless that child is a resident of a country contiguous to the US or is an adopted child; (2) A child is a dependent for the entire calendar month in which he or she attains age 26. Note that the adult child mandate, as implemented by the Affordable Care Act for plan years generally beginning in 2011, only requires plans to extend coverage to adult children until their 26th birthday, so this clarification may require employer plan sponsors to revisit their definition of dependent.
2015 Transition Provisions. In addition to the 2015 transition relief provided regarding the employer mandate delay, the final regulations extend 2015 transition relief to several other rules that originally applied only to 2014 under the proposed regulations, including:
- Non‑calendar year plans: Employers with plan years that do not start on January 1 will be subject to the employer mandate when their plan years begin in 2015, rather than on January 1, 2015.
- Transition measurement period: For stability periods that begin in 2015, employers may adopt a transition look-back measurement period that is shorter than 12 months but no less than six months, even if the corresponding stability period is 12 months. However, the measurement period must begin no later than July 1, 2014 (regardless of whether the employer qualifies for the non-calendar year plan year transition relief.
- Determining large employer status in 2015: Employers can determine whether they are a large employer for 2015 by reference to a period of at least six consecutive months in 2014, instead of the full 2014 calendar year.
- Dependent coverage: The requirement that employers offer coverage to their full‑time employees’ dependents will not apply in 2015 to employers that are taking reasonable steps to arrange for such coverage to begin in 2016.
- Multiemployer plans: Employers contributing to a multiemployer plan can rely on plan eligibility terms for coverage. The final regulations now provide that an employer is treated as offering coverage for all employees for whom it is required to contribute to a multiemployer plan, even those full‑time employees who never satisfy that multiemployer plan’s eligibility rules and therefore are never offered coverage. This interim guidance extends indefinitely (pending future IRS guidance to the contrary) the transition relief from the proposed regulations (which only applied in 2014) that would consider a large employer to be in compliance with the requirement to offer coverage for purposes of any collectively bargained full‑time employee as long as (i) the multiemployer plan offers dependent coverage; (ii) the multiemployer plan provides minimum value coverage; and (iii) the coverage is affordable.
[Excerpts from Seyfarth Shaw LLP Client Alerts, 2/18/2014; Ballard Spahr LLP Health Care Reform Dashboard, 2/12/2014]
Final Rule for Mental Health Parity and Addiction Equity Act of 2008. On November 8, 2013, the Departments of Labor, Health and Human Services, and the Treasury (the Departments) issued final rules on the Mental Health Parity Addiction Equity Act of 2008 (MHPAEA). Concurrently, the Departments posted Frequently Asked Questions related to the final rule (http://www.dol.gov/ebsa/faqs/faq‑aca18.html). The final rules apply to most employment‑based group health plans and to individual health plans with plan years beginning on or after July 1, 2014, including: grandfathered and non‑grandfathered group health plans and health insurance issuers offering group health coverage; health insurance issuers offering individual health insurance coverage both through the Health Insurance Marketplace (Exchanges) and outside the Marketplace; small employers (generally defined as one that has 50 or fewer employees). Until July 1, 2014, plans and issuers must continue to comply with the interim regulations.
MPHAEA does not require plans to offer coverage for mental health/substance abuse (MH/SA) disorders. However, plans that provide coverage for MH/SA disorders may not impose more restrictive financial requirements or quantitative treatment limits than the predominant provisions that apply to medical/surgical benefits available under the plan. “Predominant” is not a subjective term. The interim regulations established a mathematical test (quantitative parity analysis) for the definition of predominant. A temporary exemption is available for group health plans if the cost of compliance exceeds two percent in the first year and one percent for each subsequent year. Plans that claim the exemption must send a notice to plan participants and beneficiaries and to the appropriate federal agency. The exemption is not effective until 30 days after the notice has been sent. The Final Rules incorporate most of the interim rules and provide clarifications regarding parity, terminology, non‑quantitative treatment limits (NQTLs), the increased cost exemption and employee assistance programs (EAPs).
[Excerpt from ERISAdiagnostics, Inc., ErisaALERT 2014-01, February 17, 2014]
Disclaimer – This newsletter’s purpose is to inform our clients and friends of recent legislative health care-related developments. It is not intended, nor should it be used, as a substitute for specific legal advice.
Health and Welfare Notes is prepared four to six times annually and will accompany Retirement News. If there are questions concerning the information discussed, call richard Gabriel associates and ask for Gabe Zinni, Karen Irwin, Cindy Swartz or Nancy Cunningham.