AFFORDABLE CARE ACT REQUIREMENTS (HEALTH CARE REFORM)

1. AFFORDABLE CARE ACT REQUIREMENTS (HEALTH CARE REFORM) Affordable Care Act Session Two

2. Agenda Full-time employees • Defining and tracking hours of service • Rules affecting how/when coverage must be offered Choosing a measurement method • Monthly measurement method • General description and illustrations • Break in service rules • Change in status rules • Look-back measurement method • General description and illustrations • Break in service rules • Change in status rules • Special unpaid leave rules • Educational organization rules

3. Full-Time Employees • Employer shared responsibility rules under Section 4980H define full-time as 30 hours of serviceper week (or 130 per month) • IRS has defined an hour of service as: • Each hour an employee is paid, or entitled to payment, for the performance of duties for the employer; and • Each hour for which an employee is paid, or entitled to payment, for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence NOTE • Do not include worker’s compensation or unemployment, but do generally include disability (STD/LTD) • If using the look-back measurement method, remember rules regarding special unpaid leave (FMLA, USERRA, jury duty) and educational organizations

4. Full-Time Employees • Hourly versus Non-Hourly Employees • Calculate actual hours of service • Use on of the equivalency methods • Days-worked equivalency method:  employee is credited with 8 hours of service for each day the employee would be credited with at least one hour of service; or • Weeks-worked equivalency method:  employee is credited with 40 hours of service per week for each week employee would be credited with at least 1 hour of service • Use a reasonable method of crediting hours of service that is consistent with Section 4980H • Whatever method is used (e.g. number of hours per task or event) must not understate hours resulting in employee who is working full-time being treated as part-time

5. Full-Time Employees • Common Issues • Tracking for salaried positions that might change to hourly at a later date • On-call hours • Coaches, drivers paid per mile, pay per unit • Staffing agency/PEO employees (who is the common law employer?)

6. Full-Time Employees Temporary/Short-Term/Intern Positions • No special provisions or exceptions were provided for short-term/temporary, high-turnover or paid intern positions. They are to be measured for full-time status just like any other employee • Some situations under which coverage may not need to be offered • Employed 3 months or less (limited non-assessment period) • Be careful of coinciding waiting period rules • Seasonal (generally 6 months or less during similar timeframe each year) • Truly “variable hour” rather than being expected to have full-time hours

7. Full-Time Employees Rules affecting when/how coverage must be offered • ACA waiting period rule • Coverage must be effective no more than 90 calendar days from date of plan eligibility • Exception for use of the look-back measurement method • Nondiscrimination rules • In general, 4980H rules do not require the same coverage, waiting period or contribution amounts be applied for all employees; however nondiscrimination rules prohibit structures that favor the highly compensated individuals • Controlled group (Section 414) rules • Hours for employees working at multiple locations have to be combined when determining full-time status, and the employer (location) that employs the employee for the most hours in any particular month is on the hook if the employee is full-time

8. Full-Time Employees Rules affecting when/how coverage must be offered • Specific 4980H Regulations • “Limited Non-Assessment Period” - penalty does not apply if minimum value coverage is made available by first of month following three full calendar months • Applies only once during an “employment period” • Second time employee achieves full-time status, coverage must be made available as soon as “administratively practicable” • Exception for use of the look-back measurement method so long as minimum value coverage is offered no later than 13 + a partial month beyond date of hire for employees determined to be full-time • Break in service rules may require returning/rehired employees to be treated as a “continuing employee”; cannot be subjected to a new waiting period or initial measurement period

9. Choosing a Measurement Method

10. Measurement Method Choosing a Measurement Method • Employers have the option to determine full-time status on a monthly basis or by using the look-back measurement method (averaging hours of service over a 3-12 month measurement period) • Generally, an employer may only differentiate (1) between using the monthly method versus the look-back measurement method, or (2) the length or dates for the measurement/stability period for the following categories of employees: • Hourly vs. salaried employees • Union vs. non-union employees (or employees under separate collectively bargained agreements) • Employees in different states • Different entities within a controlled group or affiliated service group

11. Monthly Measurement Method

12. Monthly Measurement Method • Full-time status is measured on a monthly basis • If employee achieves 130 or more hours of service during the month, the employee is considered full-time • If employee achieves less 130 hours of service during the month, the employee is considered part-time • Each month, the employer needs to assess who is full-time and part-time and offer/terminate coverage accordingly • This method is generally more flexible and most appropriate for employees that have steady full-time and part-time staffing from month-to-month rather than changing back and forth

13. Monthly Measurement Method Weekly Rule • Generally full-time status is handled per calendar month • Optional “Weekly Rule” - to better align things with the employer’s payroll cycles • Use 30 hours of service per week as the benchmark and those achieving either 120 or 150 hours of service will be considered full-time based on the number of weeks in the payroll cycle “…full-time employee status for certain calendar months is based on hours of service over four-week periods and for certain other calendar months on hours of service over five-week periods. In general, the period measured for the month must contain either the week that includes the first day of the month or the week that includes the last day of the month, but not both. For this purpose, week means any period of seven consecutive calendar days applied consistently by the applicable large employer member for each calendar month of the year. For calendar months calculated using four week periods, an employee with at least 120 hours of service is a full-time employee, and for calendar months calculated using five week periods, an employee with at least 150 hours of service is a full-time employee.”

14. Monthly Measurement Method • Challenging to track and administer if more than a handful of employees change status from month-to-month (enroll/terminate coverage…offer COBRA) • Example – Coverage 1st of month following 60 days (from date of full-time status) and coverage terminated at end of month with <130 hours of service Coverage effective for any subsequent month the employee achieves full-time status (one-time limited non-assessment period)

15. Monthly Measurement Method Break in Service An employee returning to work following a period of unpaid absence (including a termination) may need to be treated as a continuing employee • Break in Service rule: • If an employee has a break of service of at least 13 consecutive weeks (26 consecutive weeks for educational organizations), employee can be treated as a new employee • “Rule of Parity” – employee can be treated as new employee if the break in service is (1) at least 4 weeks long, and (2) longer than the weeks of employment prior to the break • If employee must be treated as a continuing employee: • For a full-time employee covered before the break in service, coverage must be reinstated as soon as administratively possible; employer may not impose a new waiting period without risk of penalty • “As soon as administratively possible” = 1st of the month following return to service

16. Monthly Measurement Method Change in Status • Employer may add or drop coverage on a monthly basis in accordance with the employee’s status as full-time or part-time each month • Employer must also consider the plan eligibility rules regarding waiting periods and coverage termination dates

17. LOOK-BACK MEASUREMENT METHOD Look-Back Measurement Method

18. Look-Back Measurement Method • Employers may average hours of service over a period of 3-12 months (the employer’s choice) to determine full-time status • If employee achieves full-time status, the employee must then be treated as eligible for coverage for a corresponding stability period (generally matching the length of the measurement period) • If employee does not achieve full-time status, the employee is not offered coverage for a corresponding stability period (generally matching the length of the measurement period) • This method is generally most appropriate for employers with numerous variable hour and/or seasonal employees

19. Look-Back Measurement Method • Two Applicable Cycles • Standard Cycle • Generally applies to all ongoing employees (or at least all hourly employees) • Ongoing employees = an employee who has worked at least one standard measurement period • Initial Cycle • New hires are generally measured separately until they have been employed for one full standard measurement period • New employee initial measurement period of 3-12 months may be applied only to variable hour, seasonal or part-time employees (more later)

20. Look-Back Measurement Method Standard Cycle for Ongoing Employees • Measurement Period • Employers can choose a measurement period of 3-12 months • Can be set to align with payroll cycle • Administrative Period • Up to a 90 calendar day administrative period between the end of the measurement period and the beginning of the stability period • Stability Period • Must be at least as long as the measurement period, but no less than 6 months • Because the stability period must be at least 6 months, very few employers will find it advantageous to measure for anything less than 6 months • Employees who are full-time based on the previous measurement period must be treated as full-time for a stability period of at least equal length unless employment is terminated or employee fails to make employee contributions (nonpayment) • Must align with calendar months • Employers typically align the stability period with their plan year

21. Look-Back Measurement Method Standard Cycle for Ongoing Employees Example: 12 month measurement/stability periods • Plan Year and Standard Stability Period = Jan 1 – Dec 31 • Standard Administration Period = Nov 1 – Dec 31 • Standard Measurement Period = Nov 1 – Oct 31

22. Look-Back Measurement Method 1560 hours of service 1560 hours of service 1560 hours of service

23. Look-Back Measurement Method Initial Cycle for New Employees • Generally, full-time new hires must be offered coverage within 90 calendar days (waiting period rule) • Until the employee is employed for one full standard measurement period, eligibility is determined on a monthly basis • Once employed for one full standard measurement period, they are subject to the ongoing standard measurement/stability period

24. Look-Back Measurement Method Initial Cycle for New Employees • Variable hour, seasonal and part-time employees may be subjected to an initial measurement period based on date of hire • Provides an alternative to the 90-day waiting period rule • Allows employer to measure the employee for up to 12 months to determine whether the employee is full-time before being required to make an offer of coverage • All employees are then transitioned into the standard measurement/stability cycle with the rest of the ongoing employees • Variable hour = based on the facts and circumstances at start date, cannot be determined that the employee is reasonably expected to average at least 30 hours of service per week for entire measurement period • Seasonal = customary annual employment of 6 months or less (generally starts and ends at the same time each year)

25. Look-Back Measurement Method Initial Cycle for variable hour, seasonal or part-time new hires • Initial measurement period (3-12 months) • Must generally match the standard measurement period • Optional rule to accommodate 13+ rule below • Administrative period (13+ month rule) • New employees earning full-time status during initial measurement period must be offered coverage no later than 13 months plus a partial month after the date of hire • Using a 12-month measurement period will only allow a 1-month administrative period • Option to use an 11-month measurement period and a 2-month administrative period • Stability period • Must match the standard stability period

26. Look-Back Measurement Method Full-time New Hire

27. Look-Back Measurement Method Variable Hour New Hire

28. Look-Back Measurement Method Break in Service An employee returning to work following a period of unpaid absence (including a termination) may need to be treated as a continuing employee • Break in Service rule: • If an employee has a break of service of at least 13 consecutive weeks (26 consecutive weeks for educational organizations), employee can be treated as a new employee • “Rule of Parity” – employee can be treated as new employee if the break in service is (1) at least 4 weeks long, and (2) longer than the weeks of employment prior to the break • If employee must be treated as a continuing employee: • For an employee subjected to a measurement/stability period, the measurement/stability periods should continue as if the break in service never occurred

29. Look-Back Measurement Method Break in Service (continued) • Unpaid leave of absence (still considered an employee) • “New employee” – break of more than 13 weeks • If full-time based on previous measurement period, offer of coverage must continue through the break and continue to be offered through the remainder of the stability period • Measurement of hours can start over upon resumption of services • “Continuing employee” – break of less than 13 weeks • If full-time based on previous measurement period, offer of coverage must continue through the break and continue to be offered through the remainder of the stability period • Measurement of hours continues as if it had never stopped, but 0 hours of service is credited during the break

30. Look-Back Measurement Method Break in Service (continued) • Termination of employment and then rehire • “New employee” – break of more than 13 weeks • Coverage, if any, may be terminated upon termination of employment • Measurement of hours can start over upon resumption of services   • “Continuing employee” – break of less than 13 weeks • If full-time based on previous measurement period, coverage, if any may be terminated upon termination of employment, but must be reinstated no later than 1st of the month following rehire and must continue to be offered through the remainder of the stability period • Measurement of hours continues as if it had never stopped, but 0 hours of service is credited during the break  

31. Look-Back Measurement Method Change in Status Rules • Change prior to first stability period • Full-time to part-time handled monthly • Part-time to full-time, must be offered coverage after applying waiting period from date of status change or beginning with first stability period, whichever occurs first • Change within a stability period • Generally, a change in status does not affect coverage through the end of the current stability period, but rather is captured in the next stability period • Part-time to full-time or vice versa • Optional rule for employee originally hired as full-time (and offered coverage within the required 90 calendar days) that is then moved to part-time • Employer may choose to terminate coverage the 1st of the 4th month following the status change so long as the employee averages less than 30 hours of service per week for the 3 months following the status change • Employer may choose not to take advantage of this option and always capture status changes in the subsequent stability periods for ease of administration

32. Look-Back Measurement Method Change in Status Rules (continued) • Upon a reduction in hours, employer has the option to terminate coverage and offer COBRA • This would satisfy the requirement under 4980H(a) to offer coverage • This likely fails the 4980H(b) requirements to offer “affordable” coverage

33. Look-Back Measurement Method Averaging service for special unpaid leave • To prevent periods of special unpaid leave from reducing an employee's hours of service during a measurement period • Special unpaid leave is unpaid leave under the FMLA, under the USERRA, or for jury duty • The employer can treat special unpaid leave in one of two ways: • Determine average hours of service by excluding any periods of special unpaid leave during the measurement period and applying that average for the remaining measurement period • Impute hours of service during the periods of special unpaid leave at a rate equal to the average weekly hours of service for weeks that are not part of a period of special unpaid leave

34. Look-Back Measurement Method 1170 hours over 9 months = 130 hours per month Employee considered full-time during measurement period 270 hours 900 hours

35. Look-Back Measurement Method Employees of Educational Organizations • Special rules apply to prevent breaks in the school year from causing an otherwise full-time employee to be determined ineligible for benefits using the look-back measurement method • Employer can determine the employee's hours of service by: • Excluding any employment break period occurring during the measurement period and applying that average for the remaining measurement period; or • Imputing hours of service for the break period at a rate equal to the average weekly hours of service for weeks that are not part of the break period • However, an educational organization is not required to take into account more than 501 hours of service for all break periods occurring in a single calendar year