From a benefits perspective, the Affordable Care Act (ACA) is the most important piece of legislation passed in almost 40 years. Some of the ACA's most important provisions, including pay-or-play (either provide health care coverage to employees or pay a tax), go into effect on Jan. 1, 2014. The pay-or-play rules are complicated and contain many traps for the unwary. The rules require planning, difficult decisions, tracking, documentation and detailed reporting. Businesses can, however, minimize costs associated with the law through this seven-step approach.
1. Determine if Your Business Must Pay or Play. The pay-or-play rules apply to employers with 50 or more full-time equivalent employees. Under the ACA, full time is considered 30 hours per week. Because the law looks at full-time equivalents, part-time employees are counted according to a multi-step proportionality formula. Certain seasonal employees may be excluded from the calculation.
2. Determine if You Are Eligible for Transition Relief. If an employer determines it is subject to pay-or-play, many will want to determine whether they can apply for transition relief. Transition relief provides alternatives to full compliance on Jan. 1. In recent regulations, the IRS provided transition relief for many non-calendar-year group health plans, as well as for employers for whom the 50-employee threshold is a close call.
3. Understand What is Required as of Jan. 1. Full compliance requires an employer to provide at least 95 percent of its employees working 30 hours or more per week with affordable coverage that meets the ACA's minimum standards.
If requirements are not met, employers will be assessed with an excise tax of $2,000 to $3,000 per employee. Prepared employers are examining employees' work histories now to determine who must be covered and to investigate ways to make coverage affordable to employees. For some employers, this may lead to redefining worker status and/or budgeting for additional compensation and compliance costs.
4. Develop Your Business Strategy. Once an employer knows it must pay-or-play, it's time to develop a strategy for complying with the law and documenting compliance. Even though compliance is not required until Jan. 1, many important decisions must be made based on hours employees worked in 2012 and 2013. The employer must track, calculate and analyze hours to gather the information needed to make coverage decisions and budget for any additional costs.
5. Develop Your Data Collection Systems. Prepared employers are developing internal systems to help them comply with ACA requirements. For example, the IRS issued a safe harbor rule permitting employers to look back over pre-defined periods to determine whether an employee is full time. Using 2011-2013 data, employers are identifying look-back periods and analyzing the results. Without implementation of this safe harbor, employers are required to determine each employee's eligibility for coverage on a month-to-month basis.
6. Analyze the Affordability of Coverage. Prepared employers are investigating the affordability of safe harbors developed by the IRS. The general affordability rule is that the employee's premium cost cannot exceed 9.5 percent of the employee's household income. This rule, however, puts employers in the awkward and possibly invasive position of discovering an employee's total household income. The safe harbors avoid this problem, but may give skewed results in some circumstances. Employers are analyzing various options and developing ways to meet requirements without breaking the bank.
7. Documents and Reporting. Once decisions are made and systems are in place, the next step employers should take is amending plan documents and employee handbooks to ensure there is consistent messaging and ERISA compliance. HR professionals are considering ways to educate employees and analyze the effect on the workforce and recruitment efforts. Moreover, employers are then looking forward to 2015 and identifying reporting responsibilities under the new law.
If your organization is not among the ranks of the prepared, the first step toward tackling action items is to form a senior leadership team including representatives from finance, human resources, benefits and organizational strategy.
For assistance with strategic planning, analyzing options, collecting data, and compliance and reporting, employers should seek employment and benefits counsel familiar with the ACA's most up-to-date guidance.
Steve Gerlach and Karen Aframe, attorneys with Bernstein Shur in Manchester, NH, and Portland, Maine, and are members of the firm's Affordable Care Act Team. For more information, contact Steve Gerlach at 207-228 -7128 and Karen Aframe at 603-623- 8700, or visit www.bernsteinshur.com.