Health Affairs Blog
August 31, 2012
Implementing Health Reform: A Summer Lull
By Timothy Jost
Employment Status And Waiting Periods
On August 31, 2012, the IRS released Notice 2012-58 addressing the
question of how full-time employment status is to be determined for
deciding whether an employer owes a tax penalty for under section 4980H
for failing to provide health insurance (or adequate or affordable
health insurance) to full-time employees who consequently receive
premium tax credits. On the same day, the IRS, Department of Labor, and
Department of Health and Human Services jointly released notice 2012-59
addressing the question of how the ninety-day waiting period limit for
employment-based health insurance enacted by the Affordable Care Act as
section 2708 of the Public Health Services Act would be applied.
The application of both the penalty and waiting period is quite
straightforward for employees hired on a full-time basis. An employer
that offers health insurance must cover a new full-time employee no
later than 90 days after employment. A large employer (with more than
50 full-time-equivalent employees) must offer adequate and affordable
coverage to employees hired as full-time employees or risk owing a tax
penalty if an employee goes to the exchange to obtain a premium tax credit.
The problem is how to handle employees who work variable hours and
seasonal employees. Full-time employment is defined as 30 hours a week
(or 130 hours a month), but many employees work 20 hours one week and 45
hours the next, or may work 40 hours a week but only for two months a
year during the growing or holiday seasons. The notices address how
this situation should be handled.
Notice 2012-58 defines three time periods— measurement periods,
stability periods, and administrative periods. New employees who are
not expected to work full time (variable hour or seasonal employees) can
be employed without health insurance for an "initial measurement period"
of between 3 and 12 months, as determined by the employer, during which
the employees hours are tracked. If at the end of that period it
becomes clear that the employee has been working an average of 30 hours
a week or more, the employer must offer health insurance to the employee
for a "stability period" of at least 6 months or for the length of the
initial measurement period, whichever is longer.
Alternatively, if the employee worked on average less than 30 hours a
week, the employer can treat the employee as a part-time employee for a
subsequent stability period and not offer insurance. The employer can
take up to 90 days for an "administrative period" before the stability
period begins during which the employer can determine eligibility and
add the employee to its health insurance program. In no event, however,
can the combined measurement period and administrative period extend
beyond the last day of the first calendar month beginning on or after
the one-year anniversary of the employee's start date.
Ongoing employees with variable hours can also be made subject to
measurement periods and stability periods, with the measurement periods
lasting 3 to 12 months and the stability periods lasting for the same
period of time but in no event less than 6 months. If an ongoing
employee is determined to be part-time during any measurement period,
the employer can deny coverage to that employee without risking a
penalty for the next stability period. If the employee is determined to
be full-time during the measurement period, the employer must insure the
employee for the following stability period or risk paying a tax penalty.
In sum, variable-hour employees may be insured one year, not insured the
next, depending on their hours of work during the prior "measurement
period." An employer can take up to 90 days following the measurement
period for an administrative period before coverage begins, but if an
employee is already covered under a stability period, the employer must
make the continuing eligibility determination before the stability
period ends to avoid gaps in coverage.
Under notice 2012-59, new employees reasonably expected to work
full-time cannot be required to wait more than 90 days to be enrolled in
coverage offered by an employer. An employer may, however, impose a
measurement period on variable-hour employees of up to 12 months,
consistent with the scheme described in Notice 2012-58, before
determining that an employee is in fact a full-time employee. An
employer may also impose other conditions before enrolling the employee,
such as requiring an employee to complete enrollment forms or work a
reasonable number of hours (not exceeding 1200) before coverage begins,
as long as the condition is not designed to avoid compliance with the 90
day waiting period.
Finally, Notice 2012-58 continues the expressed IRS policy of allowing
an employer to avoid penalties as long as the employee's contribution
for premiums does not exceed 9.5 percent of the employee's W-2 wages,
regardless of the employee's actual household income. The Notice does
not address the important question, currently open, of whether
affordability is to be calculated based on the employee's premium share
for self-only or family coverage. Employers can rely on the safe
harbors provided by both notices through 2014.
Some method is necessary for determining when employees who are hired
without an expectation that they will be full-time employees in fact
become full-time employees. But giving employers more than a year to
figure out whether an employee is working full-time seems excessive.
Under previous proposed guidance, a maximum of 6 months was allowed
for this determination. This approach will end up increasing the number
of the uninsured, or at least those insured through the exchanges
without employer assistance, and is to that extent a disappointment to
Comment: The administrative nightmare created by the Affordable Care
Act not only adds to the expensive public and private bureaucratic waste
that characterizes our health care system, it also fails to adequately
address fundamental issues such as equity and universality. This brief
summary of the rules establishing whether or not an employer must
provide coverage for employees based on a variable number of hours
worked and on seasonal variations in employment, and how soon the
coverage must be offered, demonstrates not only the complexity of just
this one issue, but also demonstrates how easy it is for an individual
to fall through the cracks.
Under a single payer system, everyone is covered. There would be no need
to be concerned about part time and seasonal work in determinations of
eligibility. And there would be no need for all of the rest of the
administrative complexity that this law creates - complexity that shoves
patients in and out of different programs and will leave 30 million with
no coverage at all. Insane.