ACA action steps for 2014: another look at the ACA's shared responsibility provisions.

• Author: Sears, Christopher S.
• Position: Affordable Care Act - Report

Almost no other piece of legislation has been subjected to as many delays as the Patient Protection and Affordable Care Act of 2010. A year ago, employers were digesting recently proposed regulations on the act's shared responsibility obligations (also known as the "employer penalty" or "pay-or-play" provisions) in anticipation of potential penalties that would begin in 2014. Those plans were delayed when the Obama Administration issued IRS Notice 2013-45 in July 2013, delaying the enforcement of the employer shared responsibility provisions until 2015. Since then, health plan sponsors and their advisors have been waiting for final regulations that will let them know how to prepare for and implement the delayed provisions. Those final regulations were finally released on February 10, 2014, and they generally adopted the approach taken under the proposed regulations, including the availability of a "look-back measurement method" to determine whether employees are "full-time" employees to whom health coverage should be offered to avoid penalties.

BACKGROUND

The ACA's shared responsibility provisions under Internal Revenue Code Section 4980H apply to employers with at least 50 full-time employees (including full-time equivalents). Code Section 4980H provides that these "applicable large employers" will be required to pay penalties if: 1) they do not provide minimum essential health coverage to substantially all of their full-time employees (and their children under age 26); and 2) at least one of their full-time employees receives a premium tax credit or cost-sharing reduction (a "subsidy") for purchasing individual coverage through a health insurance marketplace. An employer might also face a penalty if a fulltime employee receives a subsidy on a marketplace policy and the coverage offered to the employee is not "affordable" or does not provide "minimum value." For these purposes, a "full-time employee" is one who is employed to perform at least 30 hours of service per week, on average. Generally, coverage is "affordable" if the employee's share of single-only coverage does not exceed 9.5 percent of his or her household income, and a group health plan provides "minimum value" if it is designed to pay at least 60 percent of the costs incurred under the plan.

WHAT TO DO IN 2014

Now that the final employer shared responsibility regulations have been issued, employers, including state and local governmental employers, must once again take steps to determine whether they are subject to the shared responsibility provisions and, if so, to determine how they can avoid shared responsibility penalties, if they choose to do so. Employers should consider taking the following steps in 2014 in anticipation of the new effective date for ACA's shared responsibility provisions.

Step I. Determine if you are an applicable large employer subject to the employer shared responsibility provisions by counting full-time employees (including full-time equivalents) employed for at least a six-month period during 2014. If you are an applicable large employer but you have fewer than 100 full-time employees (including FTEs), determine if you can meet the eligibility criteria for an additional one-year delay. You will need to certify to the IRS that you qualify for this relief.

The shared responsibility provisions do not apply to employers with fewer than, on average, 50 full-time employees (including FTEs) on business days in the prior calendar year. Normally, this determination will be made by looking back 12 months into the prior calendar year and averaging the number of full-time employees and FTEs the employer has in each month over the 12 months. However, to determine the application of the shared responsibility provisions for 2015 only, employers need only look back into 2014 for any consecutive six-month period of their choice to determine whether they averaged fewer than 50 full-time employees (including FTEs). For purposes of determining FTEs in any given month, employers will add the hours of all employees who are not full-time and divide that sum by 120. The product equals the employer's FTEs for the month. If the sum of an employer's full-time employees and FTEs exceeds 50 for 120 days or fewer during the measurement calendar year, and the employees in excess of 50 who were employed during the period of no more than 120 days were seasonal workers, the employer is not considered to employ more than 50 full-time employees (including FTEs) and is not subject to the shared responsibility provisions of PPACA for the succeeding calendar year.

The final regulations went further and delayed the application of the shared responsibility provisions for an additional year for employers with fewer than, on average, 100 full-time employees (including FTEs) on business days in the prior calendar year. Employers need only consider the consecutive six-month period of their choice in 2014 to determine whether they are under the 100 full-time employee threshold to take advantage of the delay. Therefore, employers with fewer than 100 full-time employees in 2014 will not be subject to shared responsibility penalties until 2016. However, this extension is not automatic. First, in addition to meeting the requirement of employing fewer than 100 full-time employees (including FTEs), an employer wanting to delay the application of the employer penalties may not, between February 9, 2014, and December 31, 2014, reduce the size of its workforce or the overall hours of service of its...