• Future Guidance Outlined For Automatic Enrollment, Employer Responsibilities and Waiting Periods
  • February 27, 2012 | Authors: Lois Wagman Colbert; Sarah N. Lowe; Karen D. Martinez; Martha L. Sewell; Mark L. Stember; Mark D. Wincek
  • Law Firms: Kilpatrick Townsend & Stockton LLP - Charlotte Office ; Kilpatrick Townsend & Stockton LLP - Atlanta Office ; Kilpatrick Townsend & Stockton LLP - Raleigh Office ; Kilpatrick Townsend & Stockton LLP - Washington Office
  • This month, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury released yet another page from their Affordable Care Act playbook in substantially identical forms. The Treasury issued its information in Notice 2012-17 which provides several FAQs (the DOL issued Technical Release 2012-01 and HHS issued a Bulletin dated February 9, 2012) in anticipation of the regulations that are being developed by the three Departments. Comments are requested by April 9, 2012.

    Automatic Enrollment

    One important piece of information in this Notice is that the rules under the Affordable Care Act requiring certain employers to automatically enroll employees in their group health plan are being further delayed. As a reminder, these rules provide that an employer to which the Fair Labor Standards Act (FLSA) applies and that has more than 200 full-time employees is required to automatically enroll new full-time employees in a health benefit plan upon their completion of the waiting period, if any applies, and to continue the enrollment of current employees in employer health benefits. This new rule was added as Section 18A of the FLSA. In addition, the employer must provide notice and an opportunity for the employee to opt out of this coverage. In previous FAQs, the DOL indicated that this requirement would not apply until regulations were issued.

    The Notice provides that the automatic enrollment guidance will not be ready with sufficient time for this provision to take effect by 2014. The DOL reiterates that until final regulations are issued and become applicable, employers are not required to comply with this rule.

    Employer Shared Responsibility

    The Notice also sheds more light on certain requirements that are referred to as “employer shared responsibility” provisions. These provisions generally provide that an employer with 50 or more full-time equivalent employees will be subject to a penalty if the employer fails to offer “minimum essential coverage,” if the coverage is unaffordable relative to an employee’s household income, or if the coverage does not provide minimum value (to be determined under future guidance). For this purpose, a full-time employee is one who works an average of 30 hours per week.

    The Notice explains that the guidance relating to this penalty is expected to provide the following -

    • Employers may use an employee’s Form W-2 wages, as reported in Box 1, as a safe harbor in determining the affordability of employer coverage.

    • Employers will have some flexibility in looking backward (referred to as the “look-back period”) to establish if a particular employee (other than a new-hire) is full-time for purposes of the penalty. There will also be flexibility regarding when an employer must re-evaluate that status (referred to as the “stability period”). The Notice anticipates that future guidance will allow look-back and stability periods of up to 12 months.

    • Employers will not be subject to the penalty for failing to offer coverage during the first three months following an employee’s date of hire.

    • In certain cases, employers will have six months following an employee’s date of hire (without application of the penalty) for determining if an employee is a full-time employee. This will be useful to employers when it is not clear upon hire if an employee will be working full-time or if an employee initially works full-time but those hours are not reasonably viewed as representative for that employee (as often occurs with seasonal employees).

    Waiting Periods Cannot Exceed 90 Days

    For plan years beginning on and after January 1, 2014, health plans cannot require a waiting period of more than 90 days before becoming eligible for coverage. Although this rule applies to both full-time and part-time employees, this does not mean that coverage must be offered to part-time employees. What it does require is that, if coverage is offered, the waiting period cannot exceed 90 days even for part-time employees.

    The upcoming guidance is expected to provide that eligibility provisions requiring employees to satisfy a cumulative number of hours of service within a specified period are permissible (if the cumulative number of hours do not exceed the number to be specified in the future guidance). An example in the Notice about this expected rule is as follows - 

    Assume Plan X requires part-time employees to complete 750 hours of service before becoming eligible to participate. Further assume that the final guidance determines that 750 hours is an acceptable cumulative hour requirement. Plan X would satisfy the waiting period requirement as long as it allows part-time employees to enroll no later than thre