Health care reform special transitional relief for 2013 measurement periods – are you prepared?
March 27, 2013
Article courtesy of SBAM Approved Partner Clark Hill PLC
by Kristi R. Gauthier and Stephanie L. Hicks
The employer shared responsibility provisions under the Patient Protection and Affordable Care Act (“PPACA”) take effect on January 1, 2014. Pursuant to these provisions, large employers (i.e., those with 50 or more full-time equivalent employees) must provide affordable health insurance coverage that provides minimum value to at least 95% of its full-time employees and their dependent children or face potential penalties. Under PPACA, a “full-time” employee is defined as one who averages 30 or more hours of service per week or 130 or more hours of service per month. Large employers must implement methods for determining which of their employees are considered “full-time” for purposes of these provisions.
The IRS has introduced a safe harbor method of calculating hours of service in order to determine the full-time status of employees. The general rules involve a standard measurement period (i.e. “look back” period) and a stability period during which an employee’s status as full-time or part-time is locked in regardless of how many hours the employee works during the stability period. A large employer must provide health insurance coverage to those employees who are deemed to be “full time” based on their hours of service during the applicable measurement period for the duration of the corresponding stability period which begins on or after January 1, 2014. The employer can choose a measurement period of 3 to 12 months and a stability period of at least six months and no shorter than the measurement period. Because administering shorter measurement and stability periods may prove difficult, many employers are opting for a measurement period of 12 months, which will allow for a 12 month stability period.
Employers must use a “look back” measurement period in 2013 to determine which employees are full-time employees who are entitled to health insurance coverage during the 2014 stability period. Employers who intend to take advantage of a 12 month stability period would also have to adopt a 12 month measurement period and begin tracking employees’ hours no later than January 1, 2013 if operating on a calendar year basis. However, the IRS has provided employers with transitional relief. This transitional relief provides that solely for purposes of 12-month stability periods beginning in 2014, employers may adopt a transitional 2013 measurement period that is shorter than 12 months (the “Special 2013 Measurement Period”). The Special 2013 Measurement Period must:
- be at least 6 months long;
- begin no later than July 1, 2013; and
- end no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2014 (90 days being the maximum permissible administrative period)
The advantage of using this Special 2013 Measurement Period is that an employer can temporarily use a shorter measurement period to determine full-time employees, and still take advantage of a 12 month stability period in 2014. Otherwise, under the general rules, if the employer wanted to use a 12 month stability period, its measurement period would have to be at least 12 months.
Employers with calendar year plans who want to take advantage of an optional administrative period in order to have time to perform administrative tasks before the beginning of the 2014 plan year (such as calculating employees’ hours during the Special 2013 Measurement Period, determining eligibility for coverage, providing enrollment materials, conducting open enrollment, etc.) may have to begin their Special 2013 Measurement Period as soon as early April of this year.
For example, if an employer with a calendar year plan wants to use a 90 day administrative period (the maximum permissible length of the administrative period), then its administrative period must begin no later than October 3 (i.e., 90 days prior to January 1). In this case, the Special 2013 Measurement Period must begin no later than April 3, 2013 and must end October 2, 2013. As another example, an employer with a calendar year plan who wants to use a shorter administrative period, for example October 15 through December 31, the Special 2013 Measurement Period must begin no later than April 15, 2013 and must end October 14, 2013.
April is right around the corner, and employers with calendar year plans who intend to use an administrative period and who want to take advantage of the Special 2013 Measurement Period should carefully examine their current workforce to determine if any changes with respect to employees’ hours of service can or should be made prior to the start of the Special 2013 Measurement Period. The guidance issued to date does not discuss if and how an employer should memorialize its decision to utilize this Special 2013 Measurement Period. However, we recommend employers keep detailed records of measurement periods and related calculations, including a clear statement indicating that the employer affirmatively elected to utilize the Special 2013 Measurement Period.
The rules regarding the Special 2013 Measurement Period, as well as the general rules for determining “full-time” employees, are complex. If you are an applicable large employer, we encourage you to contact us to discuss how to apply the measurement and stability periods to your company’s workforce.
If you have any questions about the Special 2013 Measurement Period or about health care reform in general, please contact Clark Hill or visit SBAM’s special health care reform section of the website.