Health Care Reform: Count Down to the Pay or Play Penalty

October 1, 2014

The most significant component of the Affordable Care Act (also known as Health Care Reform) for large employers is set to take effect in 2015.  Large employers, which generally means employers with 50 or more full-time employees and full-time employee equivalents, need to take immediate action in advance of the effective date.

One of the critical steps large employers should take now is to identify all employees for whom the employer does not offer health insurance.  This may include part-time employees, variable employees (whose hours fluctuate) and seasonal employees.  For any employees for whom the employer does not offer health coverage, it is critical to demonstrate that the employees do not work 30 or more hours per week on average.  This is the only means of continuing to not offer these employees health coverage without potentially incurring the pay or play penalty.  

The most common method of making this demonstration is to establish a look-back measurement period and measure each employee’s hours of service.  If an employee does not meet the 30-hour average during the look-back measurement period, coverage is not required to be offered during the subsequent stability period.  The first stability period will begin in 2015.  On the other hand, if an employee satisfies the 30-hour per week average during the look-back measurement period, health coverage must be offered during the subsequent stability period in order to avoid the pay or play penalty.  Employers need to select their measurement periods and stability periods now and start capturing the necessary data.

Another related problem is concerning leased employees through temporary staffing agencies.  Recent regulations provide that in the event the customer-employer retains the right to direct and control the leased employees, they should be considered the customer-employer’s employees for purposes of the pay or play rather than the employees of the temporary staffing agency.  Large employers need to review their temporary staffing agency arrangements and review their administrative service agreements with the temporary staffing agencies to address this issue.  One possible strategy in this situation is to require the temporary staffing agency to offer coverage to the workers and if the workers enroll in that coverage, charge the customer-employer an additional fee.  If this occurs, it will be considered an offer of coverage by the customer-employer for purpose of avoiding the pay or play penalty.

Contributed by Mary V. Bauman, Attorney at Law, Miller Johnson

Join us for the “Health Care Reform Update” webinar on October 9, 2014 with Mary Bauman.