Should Employers Change Their Policy Year to Delay ACA Compliance?
by Brian McLaughlin
The definition of a "small employer" will change on January 1, 2016 from a firm with up to 50 employees to one with up to 100 employees. As a result, several insurers are encouraging employers with 51-100 full-time employees to convert their policy years in order to delay Affordable Care Act requirements that apply to non-grandfathered group health plans. Before your company makes any changes, here are several compliance issues to consider:
Beginning in 2015, large employers can be subject to a penalty if they fail to offer affordable, minimum-value coverage to all full-time employees. Final rules provide relief for mid-sized employers to delay the employer penalty until 2016. The transition relief applies to all calendar months of 2015 and 2016 that fall within the employer’s 2015 plan year. It will cover non-calendar year plans only if the employer did not modify the plan year after Feb. 9, 2014 to begin on a later calendar date (e.g., changing the plan year’s start date from January 1 to December 1).
- Limited Workforce Size. The employer employs on average at least 50 FTEs (including full-time equivalent employees) but fewer than 100 FTEs (including full-time equivalent employees) on business days during 2014.
- Maintenance of Workforce and Aggregate Hours of Service. Between Feb. 9, 2014 and Dec. 31, 2014, the employer does not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition. Bona fide business reasons for a reduction in workforce size or overall hours of service will not be considered a violation of the provision.
Maintenance of Previously Offered Health Coverage. During the coverage maintenance period, the employer does not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014. For purposes of this paragraph, the "coverage maintenance period" applies to employers whose calendar year plan begins on Feb. 9, 2014 and ends on Dec. 31, 2015. For employers with non-calendar year plans, the period begins Feb. 9, 2014 and ends the last day of the plan year that begins in 2015.
- Certification of Eligibility for Transition Relief. The large employer certifies on Form 1094-C that it meets criteria 1-3 above.
The policy year is relevant for transition rule purposes. The plan year is relevant for employer penalty purposes. A plan year is an accounting period. It is usually the same as the policy year (the period for which rates are locked in), but not always.
To confirm the plan year, employers can examine the summary plan description and/or Form 5500. Employers relying on transition relief for the employer penalty until 2016 will no longer qualify if they change their plan years along with their policy years. If employees pay premiums on a pre-tax basis, there should be a plan year change for the cafeteria plan. Any plan year change would have to be properly documented. It may be desirable to change other policy years as well (e.g., for the disability and life insurance plans) to maintain a consistent program.
The bottom line is that employers with 51-100 full-time employees can move their policy years to October 1 – September 30, effective Oct. 1, 2015, to delay certain design requirements applicable to non-grandfathered group health plans. In addition to changing a policy year, employers should change the plan years of their cafeteria plans to allow employees to make pre-tax elections for the new coverage period. Also, if desired, employers should change the policy years of their other underlying benefit plans. Employers with 50-99 full-time employees relying on transition relief for the employer penalty until 2016 should not change their plan years along with their policy years.
Brian McLaughlin is vice president of USI Affinity's Benefits Solutions Group.