How the Employer Mandate Delay Works for Groups of 50-99

Since the administration announced yet another delay in the employer mandate a few weeks ago, there’s been some confusion about the rules for groups with 50-99 employees. What we were told when the news broke is that companies with 50-99 employees would not be required to offer coverage until 2016 – there would be no penalty for those that choose not to. That’s not entirely correct.

Here’s a quick summary of the new transition rule:

Full-Time Equivalents: First, the transition rule applies to companies with 50-99 full-time equivalents, where any employee who works 30 hours or more per week is treated as 1 and any employee who works less than 30 hours per week is treated as a fraction of an employee. We’ve received a lot of calls from brokers asking if the group size was based on full-timers or full-time equivalents. It’s FTEs.

One-Year Delay: A group that has between 50 and 99 FTEs will not be required to offer coverage in 2015 (and there will be no penalty for failure to do so) IF it has not offered coverage since December 27, 2012. Additionally, groups in this size range that already offer coverage will not pay a penalty if any of their full-time workers access a premium tax credit as long as they qualify for the transition relief.

Requirement to Maintain Coverage: This is the biggie. While those companies with an average of 50-99 FTEs in 2014 are not required to offer coverage in 2015, those that were already offering coverage can’t drop it or decrease the percentage they’re paying toward the cost of the single premium by more than 5%. If they do, they won’t qualify for the transition relief and will pay a penalty of $2,000 per full-time employee minus the first 30 if any of their full-time workers get a subsidy.

 
Here’s the wording from the final rules on employer shared responsibility, which were published in the Federal Register February 12th.

2015 Transition Relief for Applicable Large Employers With Fewer Than 100 Full-Time Employees (Including FTEs)

The Treasury Department and the IRS understand that application of section 4980H will involve changes for applicable large employers that did not previously offer coverage, or that did not offer affordable, minimum value coverage. A large percentage of those employers are in the smaller size range, such as those with fewer than 100 full-time employees (including FTEs). To assist these employers in transitioning into compliance with section 4980H, the transition relief described below is provided for all of 2015 plus, in the case of any non-calendar plan year that begins in 2015 (2015 plan year), the portion of that 2015 plan year that falls in 2016. For employers eligible for the transition relief described in this section XV.D.6, no assessable payment under section 4980H(a) or (b) will apply for any calendar month during 2015 or any calendar month during the portion of the 2015 plan year that falls in 2016.

a. Eligibility Conditions for Transition Relief

An employer is eligible for the transition relief described in this section XV.D.6 if it satisfies the following conditions:

(1) Limited Workforce Size.

The employer employs on average at least 50 full-time employees (including FTEs) but fewer than 100 full-time employees (including FTEs) on business days during 2014. For this purpose, the determination of the number of full-time employees (including FTEs) is made in accordance with the otherwise applicable rules for determining status as an applicable large employer.

The rules for determining status as an applicable large employer include application of the aggregation rules under section 414 (see § 54.4980H-1(a)(16)), the rule regarding employers whose workforce exceeds the applicable threshold (which for this purpose is 99) for 120 days or fewer during the calendar year due to the employment of seasonal workers (see § 54.4980H-2(b)(2)), and the transition relief permitting the use of any consecutive month period during 2014 of at least six months in lieu of the entire calendar year as provided in section XV.D.3 of this preamble.

(2)Maintenance of Workforce and Aggregate Hours of Service.

During the period beginning on February 9, 2014, and ending on December 31, 2014, the employer does not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition set forth in paragraph (1) of this section XV.D.6. A reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition. For example, reductions of workforce size or overall hours of service because of business activity such as the sale of a division, changes in the economic marketplace in which the employer operates, terminations of employment for poor performance, or other similar changes unrelated to eligibility for the transition relief provided in this section XV.D.6 are for bona fide business reasons and will not affect eligibility for that transition relief.

(3) Maintenance of Previously Offered Health Coverage.

Except as otherwise provided in this paragraph (3), during the coverage maintenance period the employer does not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014. For purposes of this paragraph (3), in no event will an employer be treated as eliminating or materially reducing health coverage if (i) it continues to offer each employee who is eligible for coverage during the coverage maintenance period an employer contribution toward the cost of employee-only coverage that either (A) is at least 95 percent of the dollar amount of the contribution toward such coverage that the employer was offering on February 9, 2014, or (B) is the same (or a higher) percentage of the cost of coverage that the employer was offering to contribute toward coverage on February 9, 2014; (ii) in the event there is a change in benefits under the employee-only coverage offered, that coverage provides minimum value after the change; and (iii) the employer does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or the employees’ dependents) to whom coverage under those plans was offered on February 9, 2014. For purposes of this paragraph, the term coverage maintenance period means (1) for an employer with a calendar year plan, the period beginning on February 9, 2014, and ending on December 31, 2015, and (2) for an employer with a non-calendar year plan, the period beginning on February 9, 2014, and ending on the last day of the plan year that begins in 2015.

For example, if on February 9, 2014, an employer was contributing $300 per month for coverage that costs $400 per month for employee-only coverage, and the employer continues to offer to contribute $300 per month after the cost of employee-only coverage increases to $425 per month for the plan year beginning on July 1, 2014, the increase in cost to the employee will not be treated for this purpose as an elimination or material reduction of health coverage offered.

(4) Certification of Eligibility for Transition Relief.

The applicable large employer certifies on a prescribed form that it meets the eligibility requirements set forth in paragraphs (1) through (3). The forthcoming final regulations under section 6056 are expected to provide that an applicable large employer, or an applicable large employer member, that otherwise qualifies for the transition relief described in this section XV.D.6 will provide this certification as part of the transmittal form it is required to file with the IRS under the section 6056 regulations, in accordance with the instructions to that transmittal form. See section III of the preamble regarding section 6056.

b. Application of Transition Relief to Non-Calendar Year Plans

The transition relief described in this section XV.D.6 applies to all calendar months of 2015 plus any calendar months of 2016 that fall within the 2015 plan year. It is not available for an employer that modifies the plan year of its plan after February 9, 2014, to begin on a later calendar date (for example, changing the start date of the plan year from January 1 to December 1). Notwithstanding paragraph (a)(3) of this section XV.D.6, an employer with a non-calendar year plan meeting the coverage maintenance period requirements for 2015 may be eligible for the relief for 2015 even if the employer does not meet the coverage maintenance period requirements later (during the portion of the 2015 plan year falling in 2016).

 
Need help?

The truth is, this “delay” has little impact on employers that were already offering coverage. Groups with more than 100 FTEs are still required to offer coverage in 2015, though they get to exclude the first 80, not the first 30, full-timers when calculating the penalty if they decide to drop it. Groups with 50-99 FTEs that decide to drop their coverage will still pay a penalty if any of their employees access a subsidy; there is no transition relief for them.

Either way, employers need to do some math and figure out what makes the most sense for them and their employees. And that math is a lot easier with a tool like the Insight Catalyst Report from Health Partners America. To learn more, click here.

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