Play or Pay in 2015 — So Many Requirements, So Little Time
2015 is getting close and the Employer Shared Responsibility Mandate (“Play or Pay”) under the Affordable Care Act is almost here. So what does this mean for your organization? Play or Pay requires certain employers to offer affordable and adequate health insurance to full-time employees and their dependents, or they may be liable for a penalty for any month coverage is not offered.
Play or Pay goes into effect in the calendar year of 2015 for large employers only. However, mid-size employers aren’t entirely off the hook. They’ll have to report on insurance coverage even though they won’t be liable for penalties in 2015. By January 1, 2015, businesses with 100 or more full-time or full-time-equivalent employees must ensure they are offering health benefits to all of those working an average of 30 hours per week, or 130 hours per month. If an employer has a non-calendar year plan and can meet certain transitional rules, they can delay offering employee health benefits until the start date of their non-calendar year plan in 2015. Mid-sized employers will have to comply beginning in 2016.
Here are important questions that employers need to answer today:
- Do you know which category your business fits into?
- How do you classify who is a full-time employee?
- What do you need to do to comply with Play or Pay requirements?
Let’s take an in-depth look at each of these questions.
Which category do you fit into?
Whether you are a small, mid-sized, or large employer is determined by the number of full-time and full-time equivalent employees (FTEs). It sounds simple on the surface:
- Small employers have 1-49 full-time or FTE employees
- Mid-sized employers have 50-99 full-time or FTE employees
- Large employers have 100+ full-time or FTE employees
However, it’s important to remember that these numbers can be affected by several factors, including whether the employer is a part of a control group, seasonal employees and variable-hour employees. That brings us to our next question:
Who is a full-time employee?
The law defines a “full-time employee” for penalty purposes as an employee who, for any month, works an average of at least 30 hours per week, or 130 hours. This includes any of the following paid hours: vacation, holiday, sick time, paid layoff, jury duty, military duty and paid leave of absence under the Family and Medical Leave Act.
Employees who aren’t considered full-time include non W-2 leased workers, sole proprietors, partners in partnerships, real estate agents, and direct sellers.
Variable-hour employees—those who don’t work a set amount of hours each week—fall into a gray area. That is, they don’t need to be counted as full-time employees until and unless it becomes an established practice for them to work more than 30 hours per week.
To assist employers in determining whether variable hour workers will meet the definition of full-time employees (and therefore need to be offered health insurance), employers may use various “look back” and “look forward” periods. Here is a summary of terms used for measuring variable-hour employees:
- Measurement Period: A period from three to 12 months in which the employer would track hours to determine whether the employee worked an average of more than 30 hours per week.
- Stability Period: A period from six to 12 consecutive months in which the employer must provide health insurance coverage to employees who worked more than 30 hours per week in the Measurement Period. Note: must be at least six months and cannot be shorter than the Measurement Period.
- Administrative Period: A period not to exceed 90 days, which falls between the Measurement Period and Stability Period, and/or a short period after a new employee’s date of hire. Using this waiting period allows employers to analyze eligibility of full-time employees and provide enrollment information to enroll them in a plan before penalties could be assessed.
Does your plan meet the Play or Pay requirements?
To avoid penalties, you’ll need to make sure your plan meets certain requirements. First, coverage must be offered to full-time employees and their dependents. Under the ACA, dependents are defined as children under age 26. Spouses are not considered dependents.
Then, the employee benefits program you offer must meet three requirements:
- The plan must provide minimal essential coverage. Most employers won’t have to worry about this, as plans offered by an insurance carrier and approved by a state insurance department offer the required coverage. The only plans that don’t meet this requirement are bare bones or mini-meds that don’t really exist anymore.
- The plan must meet minimum value. That is, your plan must pay at least 60% of the cost of medical claims. For example, someone who goes to the hospital should only have to pay 40% of the total cost out-of-pocket cost.
- The plan must be affordable to employees. There are three tests to determine affordability:
- The W-2 test, in which the cost of premiums for the single-only tier of the employer’s lowest-cost plan cannot exceed 9.5% of the employee’s income as reported in Box 1 of the W-2.
- The cost of the premium for the single-only tier of the employer’s lowest- cost plan cannot exceed 9.5% of the lowest hourly rate paid by employer, multiplied by 130 hours per month.
- The federal poverty line test, in which the cost of the premium for the single-only tier of the employer’s lowest cost plan cannot exceed 9.5% of federal poverty rate (or $92/month for 2014).
Talk with your employee benefits consultant to ensure you’re meeting the requirements for your organization’s size. Remember, depending on how many people you employ, your compliance requirements may increase over the next two years. Be sure to stay on top of these additional requirements.