The Affordable Care Act’s aim is to make it easier for Americans to obtain health insurance. This aim may be admirable, but for companies, complying with all facets of the new regulations can sometimes get complicated. Challenges include having a clear understanding of all applicable rules and regulations, identifying full-time employees, and determining the best plans based on affordability and value for both the company and for its employees. It is also important for companies to keep track of the data on the health insurance status of their workforces in order to furnish proof of compliance with ACA standards to the IRS via the necessary paperwork.
Equipped with the information on how comply with the ACA, companies must also look forward and consider the possible outcomes of King v. Burwell, a case in which the Supreme Court will rule on whether the text of the ACA allows citizens who obtain health insurance from federal exchanges to receive subsidies. Since there are federally run exchanges in 36 states, and subsidies influence if or how companies offer health insurance, the outcome of this case may have a significant impact on employers.
Other court cases that do not challenge the ACA but relate to other aspects of health insurance are also important for companies to keep on the radar. The Supreme Court will determine whether states must allow same-sex marriage and recognize such marriages performed in other states. This ruling may impact how domestic partners and domestic partner benefits are handled for health insurance purposes.
Another relevant case is EEOC v. Honeywell. In this case, the Equal Opportunity Employment Commission (EEOC) has challenged the legality of voluntary wellness programs that involve biometric screenings used to determine surcharges and employer HSA contributions on the grounds that such practices may violate the Americans with Disabilities Act (ADA). Many companies have similar programs in place.
It is not only important for employers to know regulations, but to document their own practices properly to prove that they are complying with said regulations. There are several forms employers, employees, and insurers must fill out and submit to the IRS to verify employer compliance with ACA regulations, and employee eligibility for subsidies. IN order to properly comply with regulations and fill out these forms, employers must determine which of their employees are full time, and can draw upon several different methods to figure this out.
Mercer partner Dorian Smith, J.D., visited TemPositions’ HR Roundtable Series on Thursday, January 29, 2015 to address the intricacies of these issues. About one-third of attendees said they worked for companies that employ more than 50 people, and are therefore subject to ACA regulations. Many admitted to being confused and overwhelmed by all of the changes and pending issues, and were eager to get answers to specific questions to ensure their companies were complying with the new regulations.
Employer Wellness Programs
A few attendees said that their companies sponsored wellness programs for employees.
“Wellness programs come in all shapes and sizes,” explained Smith. “They can come in the form of asking employees to fill out a health risk assessment, and in order to get them to do that, the employer will provide an incentive, such as a reduction in their medical premiums, or a gift card, or entry into a raffle.”
Smoker surcharges are another example of wellness programs, said Smith. Under such programs, employees who smoke are charged more for their insurance, which they can avoid by participating in smoking cessation programs.
Providing incentives or rewards to employees who meet certain biometric standards or merely getting biometrics checked is another example of a wellness program.
Laws and Regulations
Wellness programs are governed by the Health Insurance Portability and Accountability Act (HIPAA). Program based on a health status, such as smoking, are allowed, but subject to strict guidelines. HIPAA guidelines also limit the amount of rewards that can be provided under such programs.
The Americans with Disabilities ACT (ADA) also pertains to wellness programs, but its guidelines are less clear than those provided by HIPAA. The ADA is enforced by the Equal Opportunity Employment Commission (EEOC), and prohibits employers from making disability-related inquiries or requiring medical examinations.
“A lot of these wellness programs do just that,” said Smith. “They ask you to fill out a health risk assessment, and the assessment is asking questions about someone’s health information, so that’s technically a disability-related inquiry.”
The ADA allows such inquiries only if doing so is a business necessity, or if it they are part of a voluntary wellness program.
The Genetic Information Nondiscrimination Act (GINA) prohibits employers from requesting genetic information from employees. This includes information about an employee’s spouse.
Definition of “Voluntary”
“Unfortunately, the EEOC has provided very little guidance on what it means to be a voluntary wellness program,” said Smith.
“All they have said is that a voluntary wellness program is one that neither requires participation nor penalizes someone who doesn’t participate.”
Because of the lack of guidelines, there has been a flurry of confusion in the corporate world about what sorts of programs and practices are legal, and which may be questionable.
Giving a health risk assessment to employees’ spouses in exchange for incentives is not permitted under GINA, as providing an incentive is considered to compromise the voluntary nature of such a practice.
EEOC v. Honeywell
Honeywell was operating what Smith described as “a pretty standard vanilla wellness program” that included a smoker surcharge, a health risk assessment, biometric screenings, and potential rewards that amounted to approximately $2,500/year. No employees were known to have their jobs compromised in relation to the program.
The EEOC deemed the program involuntary, and tried unsuccessfully to get a temporary injunction to suspend the program. A group of senators told the EEOC that it needs to make clearer guidelines before taking action. At this time, the issue remains unresolved.
The EEOC’s action sent shockwaves through many Fortune 500 companies with similar programs. Smith advised attendees whose companies sponsor wellness programs to follow HIPAA rules, and to be aware of other rules such as those that are part of the ADA.
Smith noted that the ACA encourages wellness programs, particularly those that levy smoker surcharges.
At this time, same-sex marriages are recognized and issued in 36 states and DC, with numbers increasing frequently. Almost all appeals courts have found same-sex marriage bans unconstitutional under federal law. The 6th Circuit Court of Appeals has disagreed, and ruled that states may have and enforce such bans.
The Supreme Court has agreed to hear a group of cases to rule on the issue. The Court will answer two questions:
- Does the U.S. Constitution require states to issues marriage licenses to same-sex partners?
- Does the U.S. Constitution require states to recognize same-sex marriages that were lawfully licensed and performed in other states?
In 2013, the Supreme Court recognized the federal rights of married same-sex couples in their ruling in Windsor v. United States, which overturned the Defense of Marriage Act.
Given this precedent, many Court watchers are predicting a ruling in favor of requiring the recognition and issuing of same-sex marriages.
Impact on Companies
If the Court rules in favor of same-sex marriage, this will ease the administrative burden for companies when it comes to health insurance. Imputing income would become a thing of the past.
Smith posited that in the case of a favorable ruling, employers will also likely get rid of domestic partner benefits, as there would cease to be a legal distinction between same-sex and opposite-sex marriages.
Another case that the Supreme Court will rule on this year is King v. Burwell, which will affect who is eligible for federal subsidies when buying health insurance through the publicly run exchanges set up under the ACA. Though the case is most directly relevant to citizens who do not have health insurance coverage through their employers, the decision is important for companies because the subsidies can trigger “pay-or-play” assessments.
Federal Exchanges, State Exchanges and Subsidies
A provision of the ACA makes subsidies available to health insurance consumers who earn up to 400 percent of the federal poverty level. If full-time employees are not offered coverage through their companies and instead purchase their own insurance with the help of subsidies, a penalty can be triggered for the companies that have not offered coverage.
Some states (including New York) run their own exchanges, but 36 states’ exchanges are run by the federal government.
“The issue is the way that the statute is written,” explained Smith. “It says that individuals are eligible for subsidies in exchanges established by the state.”
“So the challenge is, should people really be entitled to those subsidies? Because they’re not in an exchange established by the state, they’re in an exchange established by the federal government.”
Some view the law as being written this way as a means to incentivize states to create their own exchanges. The IRS interpreted “state” as encompassing both state and federally run exchanges, which allows subsidies for consumers purchasing insurance in either type of exchange.
Why it Matters
Smith said that the outcome will be very important in determining the future of the ACA.
“It tears away the individual mandate, because coverage becomes unaffordable for tons of people in those other [federally run] states,” he said. (If the cost of insurance exceeds 8 percent of a person’s income, the person is exempt from purchasing it). He said that this could result in only those who are unhealthy and in dire need of insurance to purchase it, setting off a “death spiral” due to a lack of healthy people in the insurance pool to underwrite payouts.
“It would have a detrimental effect on the employer pay-or-play mandate,” Smith added. If employees can no longer get subsidies, there is no way to trigger penalties for employers that do not provide health benefits to their full-time employees.
A question was raised about family coverage. Companies are obligated to provide affordable coverage for full-time employees per the ACA’s guidelines, but have no obligation to provide affordable coverage (or any coverage) for employees’ families. If an employer covers an employee but coverage is not available or unaffordable to the employee’s spouse, the company will not suffer any penalties. However, it may cause the spouse to be ineligible for a subsidy when shopping for independent coverage in a marketplace exchange.
A ruling will be issued in the summer of 2015. If the Supreme Court rules that “state” encompasses both state and federal exchanges, nothing will change, and the ACA will proceed as planned.
If the Court rules that “state” only encompassed state-run exchanges, some states may act immediately to make their exchanges state-run so that they do not lose access to subsidies, Smith said.
Other states will not. If this happens, it is unclear what will happen next, but Smith said that is is very unlikely that there will be a bifurcated system. A corrections bill may be introduced, which could be the center of political bargaining on healthcare and possibly other issues.
Employer Shared Responsibility
The ACA’s employer shared responsibility mandate applies to companies with 50 or more full-time employees. Companies with 50-99 full-time employees have until 2016 to get up to speed before this is enforced. Full-time employees are those who work an average of 30 hours a week, or 130 hours a month.
Pay or Play
In 2015, employers must offer minimum essential coverage (MEC) to at least 70 percent of their full-time employees and their children 26 years of age and younger. In 2016, this increases to 95 percent. If an employer does not meet what Smith calls “the 70 percent test” (and then “the 95 percent test”), the company will be fined a $2,000 penalty for each full-time employee.
“There’s nothing worse then offering coverage to 68 percent, or 93 percent, because you get no credit for that,” Smith cautioned. “So if you’re gonna play, play.”
The remaining 30 percent (2015) and 5 percent (2016) are intended to leave room for calculation errors, and certain full-time employees to whom companies may not want to offer benefits, such as interns or short-term employees.
Once this threshold is overcome, a company can still be fined $3,000 for any remaining full-time employee not offered coverage. This fine can also be levied on companies if the coverage they offer to employees is not affordable, or does not provide minimum value. If the latter occurs and a full-time employee goes to a government-run exchange and gets a subsidy, the company will be fined $3,000. If the employee is not eligible for a subsidy, no penalty will be triggered for the company.
“Of all the employers that I’ve dealt with, no one is paying,” said Smith, referring to the $2,000-per-employee penalty.
He noted that it’s cheaper in a vacuum to “pay” $2,000 per employee than it is to offer coverage, but that the associated factors and costs are generally not worthwhile for companies.
Smith advised an attendee whose company covers employees at no cost but does not subsidize higher-cost family coverage to consider dropping coverage for spouses altogether.
“By offering coverage to that spouse, what you’re doing is making that spouse ineligible for a subsidy,” Smith said. “Because your employee-only coverage is affordable, that disqualifies the spouse for being eligible for a subsidy merely because the spouse is offered coverage.”
Instead, he advised only offering coverage to employees and their children. This way, the spouse may be eligible for a subsidy, and there will still be no penalty triggered for the company.
To demonstrate compliance with ACA regulations, there are several key government forms that must be filled out by insurers, employers, and employees.
The insurer is responsible for a Minimum Essential Coverage (MEC) report, which tells the government which employees (and their family members) were covered under a company’s insurance plan, and for which months, of a given year.
The insurance company will send copies of Form 1095-B to individual employees by February 1, 2016 to be filled out for the 2015 plan year. It is not clear whether the forms will be sent directly to employees, or to employers to hand out. This form, along with a transmittal report sent directly from the insurer to the government (Form 1094-B) must be sent to the government by March 31.
Form 1095-B requires the social security numbers of employees and anyone else included in their coverage plan, such as spouses and children. If an employee refuses to give his/her social security number or does not have one, employers can substitute the employee’s date of birth.
The Employer Shared Responsibility (ESR) form is a form that employers need to send to the IRS and to individuals to show which of their employees are full-time, if said employees were offered insurance coverage, and if the coverage offered was affordable. If employees were not offered coverage, it indicates the reason.
ESR reporting serves three purposes, according to Smith. The government needs them to help enforce the individual mandate, as they can be used as proof of insurance in the event that an individual is audited. The forms also help the IRS enforce the employer mandate, as it shows whether affordable coverage with minimum value (or any coverage at all) was offered to full-time employees, and any reason that it was not offered. Finally, the forms help the IRS verify whether individuals receiving subsidies to purchase insurance from the government exchange are in fact eligible for the subsidies they are receiving.
Form 1095-C will be issued to all full-time employees who are employed for at least one month, beginning February 1, 2016 for the 2015 year. Smith emphasized the importance of knowing who counts as a full-time employee not only for meeting the 70/95 percent threshold, but for ESR reporting.
Most companies will have vendors to fill out the employer sections of this form. Many vendors who do payroll, such as ADP, offer this service. Smith encouraged attendees to inquire with their vendors if the vendors had not advertised this service. Vendors will need data from HR on their methods for measuring full-time employees, who is covered under the insurance plan, and other relevant information.
“If nothing else, start to engage your vendor,” Smith advised.
Part III of Form 1095-C is only relevant for employees who are self-insured. All attendees came from fully insured companies.
Part II is is broken down by month, and for each month requires employers to record:
- Whether an employee was offered coverage
- The employee share of the lowest cost plan
- Applicable Section 4980H Safe Harbor. If an employee is not offered insurance, there are indicator codes to communicate the reason for that in the last portion. This part is also a place for employers to indicate whether coverage was affordable based on a safe harbor. For example, coverage would be classified as affordable if it met a federal poverty level safe harbor, or a rate-of-pay safe harbor.
If someone was a full-time employee for all 12 months of the year, there is a single column on the left part of Section II that can be filled out. If someone was not a full-time employee for all 12 months (e.g. a new hire, someone who was terminated, someone who fluctuates between full-time and part-time status), employers must fill out each of the 12 monthly columns.
“The 70 percent test, the 95 percent test, it’s all looked at monthly,” said Smith. “The way the penalties are calculated is monthly.”
In order to avoid penalties, it is important to choose the right method of counting full-time employees.
Smith clarified in response to attendee questions that the form was for all employees, whether or not they actually took the coverage offered, as it was to show that the company offered coverage in line with ACA requirements.
Identifying Full-Time Employees
Any paid hours when employees are at work, or not at work but getting paid (e.g. vacation) count as working hours. Depending on the type of calculation used, unpaid FMLA (Family and Medical Leave Act) and USERRA (Uniformed Services Employment and Reemployment Rights Acts) leave, and unpaid jury duty may also count. If employers use the look-back method to calculate hours, time on the aforementioned unpaid leaves does count.
Counting hours varies depending on whether am employee is salaried, or paid on an hourly basis. For hourly employees, any hour paid goes into the calculation. For salaried employees, there are two equivalency methods: the days-worked equivalency, and the weeks-worked equivalency.
Under this method, an employee gets eight hours of credit for any day in which he/she works at least one hour.
Employers may NOT use this method if they know that an employee is working at least 30 hours/week, but the days-worked count would give them fewer hours. For example, if an employee works 10 hours/day for three days, using the days-worked equivalency would only give the employee credit for 24 hours.
Under this method, an employee gets 40 hours of credit for any week in which he/she works for at least one hour. Smith said that this method is generally simpler, as any employee who works 30 hours/week or more counts as full-time for ACA purposes, and the precise number over 30 is irrelevant.
“These are simplified ways of counting hours for employers that aren’t going to try to recreate how many actual hours that someone who is salaried worked, because you just don’t know that information,” explained Smith.
Methods to Identify Full-Time Employees
Once hours are counted, employers must then determine who is truly a full-time employee. To do this, companies can use the monthly method, or the look-back method.
The method entails looking at how many hours an employee worked in real time in a particular month. If the employee worked 130 hours or more, he/she is considered full time for that month. This method is useful for monthly ESR reporting, but not as useful for determining which employees are eligible for benefits.
This method looks back at a specific period of time – usually 12 months – and divides the hours worked during that time by 12 (monthly) or 52 (weekly). If the employee averaged 30 hours/week or more during that period, he/she is counted as full-time for a subsequent “stability period,” even if the employee is not working full time during that period.
This method is useful for companies with employees who work variable hours, seasonal employees, or others who otherwise may not consistently work 130 hours or more from one month to the next. It offers some stability to employers in terms of having a better idea of to whom they will be offering coverage.
Questions and Clarifications
In response to a question from an attendee, Smith clarified that every salaried employee would be counted as full-time under the weeks-worked method. For salaried employees who do not actually work full-time, it is usually better to use the days-worked method.
“You can use different equivalencies for reasonable categories for employees,” Smith said. “You may say, ‘for part-time non-hourly, we’re going to use the days-worked. For full-time non-hourly, we’re going to use the weeks-worked.”
In response to another question, Smith stressed that employee scheduling does not matter when using the look-back method, as it uses past times employees actually worked, not projected future times.
If an employee works less than full-time during the stability period, the employer is not required to continue offering benefits. However, for reporting purposes, that employee is still treated as being full-time.
“If you take their benefits away at some point, that’s going to count against you in those months for the 70 percent, the 95 percent test,” said Smith. “You can take them off your plan, but it will count against you in the penalty calculation.”
He pointed out that if such an employee works fewer hours, this will be reflected in the next stability period calculation, even if the employee begins working more hours.
Smith emphasized the importance of properly recording the company’s practices. He concluded that even if an employer is fully compliant with ACA regulations, it needs to be able to prove this. He advised attendees to keep abreast of developments in the relevant cases discussed to stay on top of best practices.
Andrea Burzynski is a freelance writer based in New York. Reach her at firstname.lastname@example.org.
The HR Roundtable is a breakfast forum for human resources professionals in New York City sponsored by The TemPositions Group of Companies. TemPositions, one of the largest staffing companies in the New York tri-state area with operations in California, has been helping businesses with their short- and long-term staffing needs since 1962. Visit them online at www.tempositions.com or email them at email@example.com.