New Guidance Issued on Health Care Reform: Auto Enrollment, Waiting Periods and Full-Time Employees
March 30, 2012
By Stephanie Hicks, courtesy of Clark Hill PLC, an SBAM Approved Partner
On Feb. 9, 2012, the Departments of Labor, Health and Human Services, and Treasury (the Departments) issued Technical Release No. 2012-01 (the Release). The Release provides information regarding PPACA provisions governing automatic enrollment, employer shared responsibility and the 90-day limitation on waiting periods. The Release also outlines various approaches that the Departments are considering proposing in future regulations or other guidance.
A. Automatic Enrollment Compliance May be Delayed
PPACA requires an employer that has more than 200 full-time employees to automatically enroll new full-time employees in one of the employer’s group health plans (subject to any waiting period authorized by law), and to continue the enrollment of current employees in a group health plan offered through the employer. In the Release, the DOL concluded that its automatic enrollment guidance will not be ready to take effect by 2014. It remains the DOL’s view that, until final regulations regarding automatic enrollment are issued and become applicable, employers are not required to comply with the automatic enrollment provisions of PPACA.
B. Determining Who is a Full-Time Employee
PPACA also enacted employer shared responsibility provisions. These provisions provide that an employer with 50 or more full-time employees could be subject to a penalty if the employer does not offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan. The employer also may face a penalty if the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable relative to an employee’s household income or does not provide minimum value. For purposes of the employer shared responsibility provisions, a “full-time employee” is an employee who is employed on average at least 30 hours per week.
The Release states that upcoming guidance on the employer shared responsibility provisions is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the penalty payment. Additionally, the Release states the Department of Treasury and the IRS intend to issue proposed regulations or other guidance that would allow employers to use a “look-back/stability period safe harbor” method for purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee. Accordingly, it is anticipated that the guidance will allow look-back and stability periods not exceeding 12 months. The Department of Treasury and the IRS also intend to issue proposed regulations or other guidance that will address how to determine whether a newly-hired employee is a full-time employee for purposes of the employer shared responsibility provisions. The guidance is expected to provide that, in certain circumstances, employers have six months to determine whether a newly-hired employee is a full-time employee for purposes of the employer shared responsibility provisions and will not be subject to the penalty payment during that six-month period with respect to that employee.
The Department of Treasury and the IRS intend to propose an approach under which the period of time that an employer will have to determine whether a newly-hired employee is a full-time employee will depend upon whether, based on the facts and circumstances, (a) the employee is reasonably expected at the time of hire to work an average of 30 or more hours per week on an annual basis and (b) the employee’s first three months of employment are reasonably viewed, at the end of that period, as representative of the average hours the employee is expected to work on an annual basis.
C. Determining When a Waiting Period Begins
PPACA further provides that, in plan years beginning on or after Jan. 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days. The Departments intend to continue following existing rules that provide that a waiting period begins when an employee is otherwise eligible for coverage under the terms of the group health plan. However, eligibility conditions based solely on the lapse of a time period would have to be limited to 90 days. In cases where eligibility is based on completing a specific cumulative number of service hours within a period (e.g., 12 months), the upcoming guidance is expected to set a maximum number of cumulative hours of service that can be required.