Talk about confusing.
The final regulations issued by the IRS defining employer shared responsibility requirement under the Patient Protection and Affordable Care Act are, at times, so complex they leave even the experts scratching their heads.
Buck Consultants, a unit of Xerox, has made a bold attempt at wrestling the regulations to the ground. Its report walks the reader through the maze of guidelines and rules, culling out highlights and translating the gov-speak into plain(er) language.
Still, companies will undoubtedly be confused by the final regs on “pay or play,” says co-author Rich Stover, principle at Buck.
“Mistakes will be made, no doubt about it, as employers try to work through this first year of compliance,” he said. “But keep in mind the IRS is not out to penalize companies. It simply wants to see them making a good faith effort to comply.”
There are some areas that will be tougher to untangle than others, he said. Here we offer a sampling of those particular minefields.
1. The assessment may be cheaper than offering coverage.
This is a point plenty of employers have given thought to. For the record, Stover says that the assessment formula the IRS will use could well mean that employers who are on the fence about offering coverage may save money by merely paying the assessment. In the case of the standard $3,000 annual per employee assessment, many employers will be financially better off choosing to pay the assessment rather than offering coverage. “In many cases I've looked at, the cost of providing coverage to employees and their dependents exceeds the $3,000 assessment,” Stover said. That’s especially the case for companies that often hire temps, or companies in certain industries like retail, healthcare and education. Employers should run the numbers on assessments and compare that to the cost of offering everyone insurance. Of course, they should also try to calculate the cost of constant employee turnover, because few people are happy about working for a company that doesn't offer coverage to its full-time employees.
2. An assessment for failure to offer coverage is not a penalty.
The IRS has not made this especially clear. But the concept of shared responsibility means that employers have the choice to offer affordable coverage to workers, to offer no coverage to workers, or to offer coverage that does not meet the affordable standard. However, employers who do not meet the standards set and are made to pay an assessment for employees who receive coverage from the public exchanges have not broken any law. The assessment is just that: a payment to the government related to health coverage. It's not a penalty, no one goes to jail, and it doesn’t show up on a rap sheet anywhere.
3. Start tracking hours for everyone now.
Tracking hours to determine if an employee is eligible for coverage is crucial to complying with the “pay or play” regs. While it may appear than much of the new rules don't kick in until 2015, there are many “look-back” pieces of the puzzle that require employers to have data from 2014 available for review. “People think it all happens in 2015. But you need to be tracking or measuring hours now.” Stover says it’s best to assume that you'll have to track hours for everyone initially, whether they are offered coverage or not, just to be on the safe side. Having to go back and recreate someone’s hours is a nightmare to be avoided at all costs.
4. New employees need to be very carefully tracked.
The IRS actually gave employers something of a break in its treatment of new employee coverage. Employers have a year to determine if an employee, especially one with variable hours in the first year, will become fulltime and thus eligible for coverage or make the employer liable for an assessment. “This is an extremely complicated area of the rules,” Stover said. “Particularly if you hire a new employee, you need to track that right now because that first year will run out in 2015. We recommend very careful documentation of new employees. The whole process around measuring hours and when to provide coverage to avoid assessment to me is the most complicated set of guidance issued by the IRS.”
5. The waiting period for new hires who can “earn” coverage is fairly liberal.
Employers may think they will be assessed for not immediately offering coverage to new hires if they offer affordable coverage to the rest of the workforce. Not true. Companies can adopt a 90-day-plus policy for new employee coverage under the final regs. “You can actually wait even longer than 90 days to offer coverage,” Stover explains. “You have until the first day of the fourth calendar month after the hire to offer coverage without facing an assessment.” Example: An employee is hired in mid-April. The employer has until Aug. 1 to offer coverage or pay the assessment.
6. Employers above the 100-employee line need to track hours even if they don’t offer coverage.
Here’s how Stover explains this one. “Many employers with 100 or so employees offer no medical benefits at all. Our experience is that they are simply planning to pay the assessment,” he said. What they may not realize is that they still have to track hours for all employees and file voluminous reports with the IRS on the number of hours everyone is working. “The IRS still requires them to do the tracking and reporting, because that’s how they determine the assessment,” he said.