For Tribes with health plan years beginning on or around July 1st, open enrollment is just around the corner. Many tribes are facing the ACA's so-called "Play or Pay" rules for the first time. This email summarizes critical information all tribes facing the Play or Pay rules need to be aware now in order to limit potential ACA penalties.
By way of background, the ACA's Play or Pay rules generally require "large employers" to offer full-time employees and their dependents health insurance that is "affordable" and provides "minimum value" or else face IRS penalties. Large employers are generally defined as employers who for the previous calendar year had a monthly average of 50 or more full-time equivalent employees ("FTEs"), where each employee working 30 hours per week or more is counted as 1 FTE, and each employee working less than that is counted pro-rata based upon 120 hour month. When preparing for this year's open enrollment in light of the new ACA requirements, it is critical that tribes are aware of the following:
1. The Play or Pay Rules Apply to Tribes: IRS regulations make clear that the Play or Pay rules apply to all "large employers," including tribal governments and tribal enterprises.
2. Special 1 Year Delay for Mid-Sized Employers (50-99 FTEs): Certain employers with between 50 and 99 FTEs will not be subject to the Play or Pay rules until the first day of the health plan year beginning in 2016. For example, a qualifying employer with a health plan year beginning July 1st, will not be subject to the Play or Pay rules until July 1, 2016. Employers seeking to qualify for this relief should work with experienced counsel.
3. Special 1 Year Transition Relief from the So-Called "Sledgehammer Penalty" (100 or more FTEs): There are two potential ACA penalties for large employers. The first penalty, sometimes called the "Sledgehammer Penalty," applies to any large employer that fails to offer health insurance coverage to at least 95% of its full-time employees and their dependents. The second penalty, sometimes called the "Affordability Penalty," applies if the coverage offered by the large employer is either not "affordable" or does not provide "minimum value." For certain large employers with 100 or more FTEs that cannot qualify for the 1-year delay from the Play or Pay rules described in number 2 above, the final regulations contain transition relief whereby the large employer must only offer coverage to at least 70% of its full-time employees until the end of the first health plan year beginning in 2015 in order to avoid the Sledgehammer Penalty (or until June 30, 2016 for a health plan year running July 1 - June 30). It is important to note that this relief does not apply to the Affordability Penalty and employers qualifying for this transition relief may still be subject to the Affordability Penalty during the period of transition relief.
4. Utilizing a Look-Back Approach to Identifying Full-Time Employees - WATCH OUT: One particular problem facing large employers is so-called variable hour employees that move in and out of full-time status throughout the year such that they may be considered a full-time employee for ACA purposes one month, but not another. From a practical standpoint employers cannot offer these individuals health insurance for only those months that they cross into full-time status. To help with this problem, the final regulations contain an optional "Look-Back" approach which allows employers to classify whether or not employees will be treated as full-time for the upcoming health plan year based on whether or not they averaged a full-time schedule (30 hours per week or more) based upon the actual paid hours of service during a prior 12-month look-back period. Generally, if the employee averaged 30 hours per week or more during the 12-month look-back period, he/she must be treated as a full-time employee for the entire upcoming health plan year irrespective of the hours he/she actual works in the upcoming year. Similarly, employees who averaged less than 30 hours per week during this period may be treated as part-time for the entire upcoming health plan year and be excluded from health insurance coverage without risk of triggering ACA penalties on the employer. It is important to note that employers utilizing a look-back approach should generally only use the approach for identifying which full-time employees will be considered full-time for the upcoming year. Employers generally should not incorporate the look-back approach into their health plan documents as a means of determining health insurance eligibility. For example, if an employee worked a full-time schedule during the look-back period and averaged 30 hours or more per week but then switched to part-time for the upcoming year, it may be cheaper to trigger an ACA Affordability Penalty of $250 per month than to offer that individual "affordable" health insurance during the upcoming year. However, if the employer incorporates the look-back approach into its health plan documents as a means of determining health insurance eligibility, the employer may be required to offer this employee employer-paid health insurance coverage during the upcoming health plan year notwithstanding the part-time work schedule. The look-back measurement regulations are exceedingly complex and any employer utilizing this approach is strongly encouraged to work with experienced counsel.
Drummond Woodsum attorneys have extensive experience working with employers on the design and administration of health insurance benefits in light of the Affordable Care Act.