The Department of Labor has issued a new technical release document that provides responses to frequently asked questions (FAQs) about the Affordable Care Act’s automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods provisions. In addition to providing guidance on these topics, the document discusses possible approaches under consideration for future regulations and guidance materials.

Automatic Enrollment

The Affordable Care Act amends Section 18A of the Fair Labor Standards Act (FLSA) to require most very large employers (those with more than 200 full-time employees) to automatically enroll new full-time employees in the employer-provided health plan, and to renew coverage for those already enrolled. Earlier guidance explained that until the DOL developed regulations on this new section, employers are not required to comply with the automatic enrollment mandate.

According to the latest set of FAQs, guidance on this requirement will not be ready to take effect by 2014, as was the previous goal. The agency states that it “remains the Department of Labor’s view that, until final regulations under FLSA section 18A are issued and become applicable, employers are not required to comply with FLSA section 18A.”

Shared Responsibility

Under the health care reform law, large employers (those who have 50 or more full-time employees and full-time equivalents) must offer affordable coverage that meets certain minimum coverage requirements, or pay a penalty. Full-time employees are defined as those who work 30 or more hours a week calculated on a monthly basis.

In previously-issued guidance, the Treasury Department and the Internal Revenue Service (IRS) solicited input on a proposed affordability “safe harbor” for employers under the shared responsibility provisions that would make it easier for employers to determine whether their health care plan is affordable. Among other aspects of this proposal, the suggested safe harbor provision would enable an employer to make this affordability calculation based on each employee’s W-2 wages instead of on each employee’s household income. The new guidance document reiterates the IRS’s intention to allow employers to use this safe harbor.

As for who would qualify as a full-time employee, the guidance document states that the IRS and Treasury Department plan to issue proposed regulations and other guidance materials under Code section 4980H, the shared responsibility provision. Among other things, the future regulations and/or guidance will:

provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the employer responsibility payment under Code section 4980H. The guidance is also expected to provide that, in certain circumstances, employers have six months to determine whether a newly-hired employee is a full-time employee for purposes of section 4980H and will not be subject to a section 4980H payment during that six-month period with respect to that employee. Treasury and the IRS intend to propose an approach under which the period of time that an employer will have to determine whether a newly-hired employee is a full-time employee (within the meaning of section 4980H) will depend upon whether, based on the facts and circumstances, (a) the employee is reasonably expected as of the time of hire to work an average of 30 or more hours per week on an annual basis and (b) the employee’s first three months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis.

FAQ No. 5 in the new guidance provides a detailed discussion of this approach, as well as illustrative examples.

In addition, the FAQs note that the IRS plans to issue a proposal, as discussed in IRS Notice 2011-36, that would permit applicable large employers, at their option, to use a look-back/stability period safe harbor that would provide certainty as to which employees would be considered full-time for a particular coverage period. According to the IRS, such an approach “would be designed to give effect to the statutory provisions while accommodating a wide variety of current eligibility and enrollment practices in group health plans.”

90-Day Waiting Period

Changes made by the Affordable Care Act to Section 2708 of the Public Health Service (PHS) Act stipulate that in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days. The FAQs explain that under prior regulations, the agencies defined a waiting period as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.” The agencies acknowledge that some uncertainty exists regarding this 90-day waiting period, as the Section 2708 provisions – unlike those under the employer responsibility provisions – do not distinguish between full-time and part-time employees. The new FAQs explain that the agencies intend to issue new guidance that that will address this discrepancy, and likely will “provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the employer responsibility payment under Code section 4980H.”

In addition, the new guidance emphasizes that Section 2708 of the PHS Act prohibits requiring an otherwise eligible employee to wait more than 90 days before coverage is effective, but does not require employers to offer coverage to any particular employee or class of employees, including part-time employees. The guidance further explains that nothing in the Affordable Care Act penalizes small employers for choosing not to offer coverage to any employee, or large employers for choosing to limit their offer of coverage to full-time employees, as defined in the employer shared responsibility provisions.

In response to a question about how the agencies intend to address the application of the 90-day waiting period limitation to an offer of coverage by an employer, the guidance explains that “the Departments intend to retain, for purposes of PHS Act section 2708, the definition in existing regulations that the 90-day waiting period begins when an employee is otherwise eligible for coverage under the terms of the group health plan.” Future guidance will also likely address:

situations in which, under the terms of an employer’s plan, employees (or certain classes of employees) are eligible for coverage once they complete a specified cumulative number of hours of service within a specified period (such as 12 months). It is anticipated that, under the upcoming guidance, such eligibility conditions will not be treated as designed to avoid compliance with the 90-day waiting period limitation so long as the required cumulative hours of service do not exceed a number of hours to be specified in that guidance.

The agencies invite comments regarding any of the topics discussed in the latest technical release. Such comments must be received by April 9, 2012, and may be sent electronically to: e-ohpsca-er.ebsa@dol.gov, or via mail or hand delivery to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.

Photo credit: porcorex