New Guidance for Employers to Determine Coverage under the Affordable Care Act
On August 31, 2012, the Internal Revenue Service (“IRS”), the Department of Labor (“DOL”), and the Department of Health and Human Services (“HHS”) issued two notices providing employers guidance on how to determine which workers are full-time employees who must be offered coverage under the Affordable Care Act (“ACA”), and how their wages can be calculated to determine whether coverage is affordable. In Notice 2012-58, the IRS allows employers to rely on wages reported on employees' W-2 forms to determine whether health care coverage is affordable under the ACA. Under the ACA’s “shared responsibility” provisions, employers with 50 or more FTE’s (“full time equivalents” )must provide health care coverage.
To over-simplify, the IRS regulations provide that thirty(30) or more hours of work in a week makes an employee a full time employee, and so an employer must determine how many FTEs there are by adding up all hours worked by all employees and dividing by 120 (4 x 30). If that number is over 200, the employer must provide “affordable” benefits or face potential fines and/or penalties. Employers with 50 or fewer employees may purchase benefits from the SHOP division of the new Exchanges, but will not be subject to penalties/fines if no purchase is made.
The IRS has not yet ruled on how income will be defined to determine whether coverage is “affordable.” The ACA provides that coverage will be considered affordable if the cost of a plan does not exceed 9.5% of the employee's household income.
Notice 2012-59, issued by the IRS along with the DOL and HHS, provides guidance on the ACA requirement that waiting periods for group health plans and group health insurance may not exceed 90 days. Notice 2012-59 gives employers up to 13 months to determine whether an employee will be considered full-time in situations where the employee was initially hired to work part-time or for seasonal work.
In both notices, the three federal agencies emphasize that plan sponsors may rely on the guidance through 2014. Both notices will be issued in Internal Revenue Bulletin 2012-41, dated October 9, 2012, and public comments may be submitted until September 30, 2012.
For more information on Notice 2012-58, Notice 2012-59, and the Affordable Care Act, please contact your Trust Fund counsel.
Author: Ezekiel D. Carder
