Employers, Employees Await Definitions Related to PPACA's Employer Penalties

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Anticipating how the Treasury Department might define “full-time employee” and “hours of service” in implementing the employer penalty provisions of the Patient Protection and Affordable Care Act has become a high-stakes waiting game, practitioners representing employer and employee interests tell BNA.

Employers are concerned that the regulations be written in such a way as to help them avoid substantial monetary penalties. Employee interest groups want employer penalty regulations that leave no loopholes that could undermine PPACA's statutory goal of achieving near-universal health insurance coverage.

Employers want regulations that do not limit their flexibility in providing cost-effective health benefits, Gretchen K. Young, senior vice president for health policy at the ERISA Industry Committee, told BNA Aug. 20.

Steven Kreisberg, director of collective bargaining and health care policy at the American Federation of State, County and Municipal Employees, AFL-CIO, said AFSCME opposes any type of de minimis test in implementing the employer penalty provisions. “There are de minimis tests in many other statutes, but it's certainly nothing we would support,” Kreisberg told BNA Aug. 21. “We would be very much opposed to creating those kinds of loopholes,” he said.

In Notice 2011-36, the Treasury Department and Internal Revenue Service asked for public comments on critical definitions, including “hours of service” and “full-time employee,” that will be the basis of future proposed guidance on PPACA's employer penalty provisions under tax code sections 4980H(a) and 4980H(b), which take effect in 2014 (62 BTM 148, 5/10/11).

“An employer would not be permitted to use the days-worked or weeks-worked equivalency method if the result would be to substantially understate an employee's hours of service in a manner that would cause that employee not to be treated as full-time,” Notice 2011-36 said.

Employer and employee interest groups are especially interested in how Treasury and IRS will interpret the words “substantially all” mentioned in the notice. “It is contemplated that the proposed regulations would make clear that an employer offering coverage to all, or substantially all, of its full-time employees would not be subject to the § 4980H(a) assessable payment provisions,” the notice said.

Decoding Definitions

Some employers also are trying to decode the meaning of the parenthetical phrase “and their dependents” in the employer penalty provisions.

Under PPACA, large employers, defined as having 50 or more full-time employees and/or full-time equivalents in the previous business year, are potentially liable for two separate penalties. One penalty, under Section 4980H(a), would apply if a large employer does not offer health benefits to its “full-time employees (and their dependents)” and has any full-time employees who qualify for and are receiving federal tax credits or federal subsidies to buy health insurance through a PPACA-authorized exchange.

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A separate penalty, under Section 4980H(b), can be assessed on large employers for offering health benefits to their “full-time employees (and their dependents)” that are not affordable or that do not provide a certain minimum level of benefits if those employers have any full-time employees who are receiving federal tax credits or other federal subsidies to buy health insurance through a PPACA exchange.

'Substantially All'

Employers are keenly interested in guidance from Treasury and IRS on the meaning of “substantially all” and clarification on where the agencies will draw the line between the two penalties, Young said. If an employer with 50,000 full-time employees fails to offer health coverage to 1,000 of those employees, she said, is the employer providing coverage to “substantially all” of its full-time employees, or is the penalty test for not offering coverage a “100 percent or nothing” test?

“If they are going to follow a 'substantially all' model for the penalty, where are they going to draw that line?” Young asked.

Kreisberg described the concept of “substantially all” as “theoretical nonsense.”

“We should call that what it is,” he said. If someone says “'substantially complying,' what you're saying is some people are not worthy of having insurance,” Kreisberg said.

“When we adopted the Affordable Care Act as a nation, we basically said that everybody should be covered,” he added.

Key Definitions

When AFSCME commented on Notice 2011-36, it emphasized its concerns about how the definitions of “full-time employee” and “hours of service” would be applied to public school district employees, a category in which it has about 250,000 members, Kreisberg said.

AFSCME proposed that, for school districts and other industries that operate on a partial-year calendar of 30 weeks, rather than 52 weeks, a full-time employee be defined as someone who works at least 30 hours a week during those 30 weeks.

Many of AFSCME's members with those hours of service are eligible for health benefits now, Kreisberg said. “We certainly wanted that reality to be recognized in the operation of the Affordable Care Act,” he said.

Another concern is how Treasury and IRS will interpret language in the employer penalty provisions that appears nowhere else in the statute, Young said.

“It says under 4980H(a) and (b) this is a penalty if employers do not offer coverage to their full-time employees and, in parentheses, their dependents. The question is: What does that mean?” she said.

Vestige of Inconsistencies

Young said she believes that the parenthetical language is a vestige of inconsistencies and errors that occurred when the House and Senate hurriedly merged their respective health care reform bills in 2010.

“There is no provision in the Affordable Care Act specifically mandating that employers provide family coverage,” she said. “This would be an oblique way of requiring such coverage and could result in a significant expense for employers that were forced to offer family coverage even on an employee-pay-all basis.”

Interpreting and implementing the employer penalty provisions under PPACA present a challenge for everybody, including the federal government, Young said.

Getting guidance out to employers as soon as possible is critical, she added.

Kreisberg said receiving guidance from Treasury and IRS is critical, but the first quarter of 2013 would not be too late.

By Florence Olsen