ACA Pay or Play – Beyond the Look-Back Measurement Period

June 3, 2015

Most large employers subject to the pay or play penalty under the Affordable Care Act (ACA) have established look-back measurement periods and stability periods to determine which employees must be treated as full-time and offered group health coverage to avoid the penalty.

The look-back measurement period is by no means the end of the story when it comes to the pay or play. There are two important remaining pieces to the puzzle in order to address compliance.

  1. SPD/Administration
    While the ACA doesn’t require an employer to specify its new eligibility rules in the Plan document or SPD, ERISA (federal law that governs virtually all employer group health plans) does require the eligibility, participation and termination rules to be set forth in the SPD.
    Large employers will need to update their SPD to make sure that it accommodates the employer’s new rules as a result of the pay or play. In addition, employers need to modify their administrative procedures in connection with enrollment and disenrollment under the health plan. For example, former employees who moved from full-time to part-time status would be terminated and issued a COBRA notice. Because of the pay or play, employers may want to offer health coverage at least until the end of the stability period (typically, the plan year) to minimize penalty exposure.
  2. Reporting
    Beginning in 2016, employers are subject to significant new reporting to the IRS and to full-time employees and any other employees and individuals enrolled in the employer’s group health plan.
    This reporting is required in order for the IRS to administer the pay or play penalty and the ACA’s individual mandate penalty. The reporting is also intended to inform individuals whether they are eligible for a premium tax credit if they go to the exchange and enroll in coverage there.
    The heavy lifting a large employer has already done in terms of establishing measurement periods and conducting testing will be useful when the employer goes to complete the new reporting. That information will help the employer report which employees must be treated as full-time.

Contributed by Mary V. Bauman, Miller Johnson.