Toeing the Line – The Coverage Eligibility Limits for a New Full-Time Employee in 2015

Toeing the Line – The Coverage Eligibility Limits for a New Full-Time Employee in 2015 (Print Friendly)

By:  Ryan Moulder

One frustrating aspect of the Affordable Care Act (ACA) for employers is they can be in compliance with one area of the ACA and not in compliance with another area of the ACA. This frustration can be seen when an employer tries to determine the latest date it can make a new full-time employee eligible for coverage while still being in compliance with all of the ACA’s provisions. The purpose of this article is to discuss the issues of eligibility surrounding new full-time employees hired in 2015 and to provide a chart showing the latest date a new full-time employee can be eligible for coverage in 2015. Unfortunately, out of necessity the article is extremely technical, but the chart at the conclusion of the document accurately summarizes the article for those readers who are not interested in the details and reasoning.

A new employee under the ACA can be classified as a full-time employee, a part-time employee, a variable hour employee, or a seasonal employee. A full-time employee is an employee who accumulates 30 or more hours of service per week.  The final regulations allow an employer to use 130 hours of service in a calendar month as the monthly equivalent to 30 hours of service per week. When determining whether to classify a new employee at his or her start date as a full-time employee the employer should consider, among others, the following factors: (1) whether the employee is replacing an employee who was a full-time employee; (2) the extent employees with the same or comparable positions have averaged 30 or more hours of service per week (or 130 hours of service per calendar month); and (3) whether the job was advertised as full-time (under the ACA standards). If the new employee is classified as full-time, the next step is to determine when the new full-time employee needs to be eligible for coverage. This will be dictated by the plan document

There are three rules an employer must master to understand when a plan must allow a new full-time employee to be eligible for coverage to comply with all of the ACA provisions. First, an employer must satisfy the obligation of the 90-day waiting period.  This rule prohibits a group health plan from having a waiting period that exceeds 90 days.  A waiting period is defined as the period that passes before coverage is available to an otherwise eligible employee or dependent under the plan terms.  All days, including weekends and holidays must be considered when counting the 90 days.

A separate rule under the §4980H final regulations requires a new full-time employee to be eligible for coverage by the conclusion of the employee’s initial three calendar months.  A calendar month is defined as one of the 12 months such as January, February, or March.  For example a new full-time employee with a start date of January 2, 2015 would not have to be eligible for coverage until May 1, 2015. The partial calendar month of January and the three calendar months of February, March, and April would not subject an employer to a §4980H penalty with respect to the new full-time employee so long as certain conditions (discussed below) are satisfied.

The problem is the 90-day waiting period does not mesh with the §4980H final regulations. In the example above, the general 90-day waiting period rule would require a full-time employee to be eligible for coverage no later than April 2, 2015. To correct this issue the government created an orientation period which is incorporated into the 90-day waiting period final regulations.

The orientation period is theoretically intended to be used by employers and employees to evaluate whether the employment situation is satisfactory to each party. The orientation period can last no more than one month. For example if the orientation begins on January 14, 2015, the orientation period must end on February 13, 2015. Then the 90-day waiting period would have to begin. The real reason the orientation period was created was to try to assist employers bridge the gap between the incompatible 90-day waiting period rule and the §4980H rule allowing an employer to have a new full-time employee eligible for coverage by the first day of the fourth calendar month following the employee’s start date. The §4980H rules will almost always be more than 90 days as the §4980H rules include three full calendar months plus the possibility of a partial calendar month. The orientation period helps, but it does not completely solve the problem because of detailed language explaining the limited non-assessment periods (non-assessment periods).

The final regulations for §4980H included the addition of non-assessment periods. The non-assessment periods refer to a limited period during which an employer is not subject to a penalty under §4980H for an employee so long as certain conditions are met.

The first non-assessment period applicable to a new full-time employee causes no issues. If an employee’s start date is not on the first day of a calendar month, that employee cannot subject the employer to a §4980H penalty for that partial calendar month. This non-assessment period can be combined with other non-assessment periods and has no conditions associated with it making it straight forward to apply.

The second non-assessment period applicable to a new full-time employee is not as simple. Beginning with the first calendar month when an employee first becomes otherwise eligible to be offered coverage under the employer’s group health plan, the employee will not trigger a §4980H penalty for up to three calendar months so long as the employee is offered coverage no later than the first day of the first calendar month following the three calendar month period. To meet the qualifications for this non-assessment period the employee must not have been eligible for an offer of coverage by the employer during the employee’s current employment period.

A key phrase to this non-assessment period is the “otherwise eligible to be offered coverage” language (the “otherwise eligible” test). Under the “otherwise eligible” test, an employee is “otherwise eligible to be offered coverage” if the employee meets all conditions to be offered coverage under the plan for that calendar month, other than the completion of a waiting period. The first part of the “otherwise eligible” test, meeting all of the conditions of the plan, include but is not limited to being in an eligible job classification, fulfilling a job-related license requirement, or satisfying a reasonable and bona fide employment based orientation period. What is troublesome is the orientation period is included as an eligibility condition of the plan and not part of or some form of extension of the 90-day waiting period.

Regulators will probably say their hands were tied because of the language in the text of PPACA which, while true, does not solve the potential problem. The problem an employer could face if it does not plan properly is making an employee not meet all of the conditions for the plan in the second partial month of the orientation period. This would make the employee ineligible for the non-assessment period in the first calendar month.

For example, if a new full-time employee’s start date was January 15, 2015 the orientation period could theoretically run until February 14, 2015. The partial calendar month non-assessment period would apply to the new full-time employee for January 15, 2015 thru January 31, 2015. However, if the orientation period was used to its full capacity and continued to run from February 1, 2015 until February 14, 2015 the employee would fail the “otherwise eligible” test as the employee would be subject to an orientation period which is a condition for the plan and not an extension of the waiting period. This would lead to the employer potentially being liable for a §4980H penalty for the employee for February 2015 as no non-assessment period would apply. For this reason to avoid the §4980H penalties for a new full-time employee, under a strict reading of the law, the orientation period can never go into a second month.

The second part of the “otherwise eligible” test allows employers to have a waiting period apply to an employee in a non-assessment period. As discussed above, the general rule is a waiting period is limited to a period of 90-days. There are several provisions in the 90-day waiting period final regulations that the government will not consider to be designed to avoid compliance with the 90-day waiting period such as a 12 month measurement period for new variable hour employees or an employee accumulating 1,200 hours of service before plan eligibility. However, and importantly, these are eligibility conditions to the plan and not an extension of the 90-day waiting period. Thus these provisions do not alleviate the problem.

The chart below explains the outer limits of each separate measurement period to be in full compliance with the law. While an orientation period could be longer as explained above, the chart shows the last possible date to comply with the non-assessment period rules.

Chart 1030 250

These dates represent the outer limits possible to be in compliance with the various ACA provision. However, an employer must remember to follow the eligibility conditions discussed in its plan document and to give the new full-time employee sufficient time to accept or reject an offer of coverage. Many employers are not taking the risk of toeing the line because the rules are so complicated. However, there is value for employers in certain industries with a low paid workforce for not allowing eligibility for coverage until the last possible date. Employers toeing this line need to take extreme caution with their plan documentation and implementation.

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