SECOND OPINIONS: Employer Mandate, Waiting Period, and Auto-Enrollment Issues – Part II
The IRS, DoL and HHS recently issued guidance (IRS Notice 2012-17; DoL Technical Release 2012-1) in the form of Frequently Asked Questions (FAQs) on various issues related to the PPACA employer mandate, waiting period limitation and auto-enrollment requirement.
How will the 90-day waiting period limitation apply where an employer offers coverage only to employees who satisfy certain eligibility conditions?
The recent FAQs provide some guidance on how the agencies intend to apply the 90-day waiting period limit to an employer's offer of coverage, including the following key points.
•The 90-day waiting period begins when an employee is otherwise eligible for coverage under the terms of the health plan.
•A full-time employee's waiting period generally begins on the date of hire (and cannot exceed 90 days) if the plan provides that full-time employees are eligible for coverage without satisfying any other condition for coverage.
•Eligibility conditions that are based solely on the lapse of a time period are permissible for no more than 90 days.
•It will be permissible for a group health plan to impose other conditions for eligibility for coverage, so long as the conditions are not designed to avoid compliance with the 90-day limit on waiting periods.
The FAQ guidance provides the following as examples of permissible eligibility conditions: full-time employee status; employees in a bona fide job category; and receipt of a license.
•Upcoming guidance is expected to address eligibility conditions under which employees or classes of employees are eligible for coverage after they complete a specified cumulative number of hours of service within a specified time period (e.g., 12 months). It is expected that the guidance will permit this type of cumulative hours condition so long as the required cumulative hours do not exceed the number of hours to be specified in upcoming guidance. An example in the guidance describes an eligibility condition under which part-time employees are required to work 750 hours of service in order to participate, and states that, "solely for purposes of illustration," it is anticipated that the upcoming guidance would permit such a threshold.
If the look-back and stability period rules will not apply to new employees, how and when will the full-time status of new employees be determined?
The FAQs include a preview of very detailed rules that Treasury and IRS intend to propose with respect to the determination of whether a newly-hired employee is a full-time or part-time employee – under the 30 hours per week full-time employee threshold -- for purposes of the employer mandate penalty. Very generally, the guidance provides that:
•An employer will not be subject to the employer mandate penalty for failing to offer a newly-hired employee coverage during the first three months of employment (and, in certain circumstances, employers will have six months to determine whether a newly-hired employee is full-time).
•The period of time in which the employer will have to make the determination will depend on whether the employee is reasonably expected as of the date of hire to work an average of 30 or more hours per week on an annual basis, and whether the employee's first 3 months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis.
•If a newly-hired employee is expected to work full-time on an annual basis and does work full-time during the first 3 months of employment, the employee must be offered coverage at the end of that 3-month period.
•If it cannot reasonably be determined whether a newly-hired employee is expected to work full-time, certain rules will apply in determining whether and when the newly-hired employee is considered a full-time employee. Very generally under these expected rules, whether an employee who works full-time during the first 3-month period is considered full-time at the end of that period will depend on whether the hours worked by the employee are reasonably viewed, as of the end of the period, as representative of the average hours the employee is expected to work on an annual basis. If so, the employee will be considered full-time at the end of the 3-month period; if not, the plan is permitted an additional 3-month period to determine whether the employee should be treated as full-time.