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Seven Steps to the Pay or Play Rule

Originally posted April 02, 2014 by Darla Dernovsek on http://www.the-alliance.org

Avoiding any missteps in Affordable Care Act (ACA) “Employer Responsibility” compliance relies on checking your health benefit practices against a list of seven crucial steps. Fortunately, employers who have started preparing for this provision of the ACA can already cross some of these steps off their “to-do” list.

Step One: Understand General Rules. The first step is learning the general rules for employers. Beginning Jan. 1, 2015, employers with 100 or more employees who fail to offer coverage to employees and their dependents will trigger a penalty. Employers with 50 to 99 employees have until Jan. 1, 2016; employers with less than 50 employees are exempt.

Step Two: Is the Employer a Large Employer? Knowing when and how to count employee “hours of service” is essential for full-time workers, seasonal workers, part-time workers and other employees. An employee who works 30 hours or more per week – the Internal Revenue Service (IRS) definition of full-time – must be offered benefits to avoid ACA fines. Barlament described the rules as “very pro-employee” in determining what qualifies as an hour of service, including how to count hours for employees who are on-call or do not work on an hourly basis.

Step Three: Will Employees Receive Subsidized Exchange Coverage? Employers can design health plans that avoid ACA “Pay or Play” penalties by meeting three requirements:

  1. They offer “minimum essential coverage” (see below) to full-time employees and dependents who would otherwise be eligible for subsidized coverage from an exchange.
  2. The employer’s plan provides “minimum value.”
  3. The employee’s share of premiums is “affordable” for self-only coverage for the employer’s lowest-cost, minimum value plan.

“If you don’t remember anything else, remember this,” Barlament said about step three.

Step Four: Did the Employer Offer Minimum Essential Coverage? Barlament called this an “easy test” because employers who offer major medical benefits should meet the standard. There are still additional rules that require attention, such as the IRS requirement that employees have the opportunity to enroll once a year.

Step Five: Does the Plan Provide Minimum Value? The IRS has predicted that 98 percent of all employer-sponsored plans would satisfy this test, which requires plans to cover 60 percent of the cost of all benefits. An online calculator is available. Employers should be prepared to prove they met the requirement year after year by laminating or notarizing a copy of their plan and then storing it safely.

Step Six: Is Plan Coverage Affordable? The employee’s share of cost for “self-only” coverage for the lowest-cost, minimum value plan cannot be more than 9.5 percent of the employee’s household income. Barlament noted that employers are typically unaware of employees’ household income, so many employers will instead rely on three “safe harbors” built into the ACA. One option is to set up your plan based on the federal poverty line guidelines that were in effect six months prior to the start of the plan year. Under current guidelines, that would limit the employee share for self-only health benefits to $92 a month.

Step Seven: Determine “Full-Time” Status. “It’s the worst step,” Barlament said. Three options are available. For example, employers can measure status on a monthly basis, with employees who work 130 hours or more gaining full-time status. However, this method may only be viable for employees that are clearly well above or well below the 30-hour mark with no chance for movement. There’s also an option to utilize a measurement period over a block of time and then lock in or lock out the employee’s status for a comparable block of time. Finally, the two methods can be combined. The recommended approach varies depending on whether the employee is ongoing; new; new and full-time; new and works variable hours; new and works seasonal hours; or part-time. Barlament said the first step for employers is to put every employee into one of those categories.