It's Official – Employers Have 90 Days to Provide New Hires With Health Insurance
In December 2012, we reminded you that proposed regulations under the Patient Protection and Affordable Care Act (ACA) – colloquially known as “Obamacare” – sought to impose strict requirements on employers and issue penalties for noncompliance. Those regulations just lost their “proposed” character. Last week, the Obama Administration published a final rule under the ACA requiring employers to provide health insurance to new full-time employees within their first ninety days of employment.
The proposed regulations mandated that the employers subject to the ACA are those who have at least 50 full time employees. However, the regulations defined full time employees as those who work, or are expected to work, at least 30 hours per week. Additionally, in order to prevent employers from exempting themselves from the ACA by hiring only part-time employees, the proposed regulations stated that part-time employees’ hours count towards determining whether the 50 full time employee threshold is satisfied. For example, if six part-time employees work 20 hours per week, they will be treated as four full-time employees for ACA coverage purposes. Additionally, and deviating from common state and federal definitions, the IRS’s regulations clarified that “hours of work” include all paid hours during which no duties are performed due to vacation, jury duty, voting time, and even military duty and leaves of absence.
As we explained in January 2013, the regulations proposed a $2,000-per-employee penalty for an employer’s failure to provide health insurance.
The proposals have now become final rules with only slight modifications, such as the following examples. First, employers can still require new hires to complete up to 1,200 hours of work before becoming eligible for health insurance, but any such employer-imposed eligibility conditions cannot preclude a new hire from going uncovered for a period of more than employee’s first 90 days of employment. Second, the proposed regulations made both the employer and the employer’s health insurer liable if an employee did not receive health insurance by the close of the 90-day window. Following arguments against this provision by health insurance companies that it would require them to policy their employer policyholders, the final rule now does not hold insurance companies liable if they lack “specific knowledge” of an employer’s intent to avoid compliance with the 90 day rule. And in a third variance for the earlier proposed regulations, employers can permit employees to obtain their own health insurance through options outside their employer, so long as the employer complies with established notice requirements. The Department of Labor has published guidance regarding this notice requirement.
Although these regulations have not become final, it nevertheless remains important to remember that they will not be implemented until 2015. Employers are therefore encouraged to consult with their counsel and tax advisors to ensure that their employment policies are compliant and their business plans are financially equipped to handle the requirements of the ACA.