Opt-Out Payments Top Concern on ACA's Employer Mandate

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Kristen Ricaurte Knebel

Feb. 22 — Health coverage opt-out payments and the special rehire rules under the ACA's employer mandate received the most ink from groups providing comments to the IRS and Treasury Department on December guidance that covered a hodgepodge of issues involving the health-care law.

The treatment of opt-out payments—funds employers give to workers only if they decline coverage under an employer-sponsored health plan—was a common concern among commenters, with the American Benefits Council and the National Business Group on Health voicing misgivings about the way the Internal Revenue Service and Treasury said in Notice 2015-87 that they intend to treat such payments.

The IRS and Treasury's plan to revisit the issue of the “special rehire rules” under the Affordable Care Act's employer mandate—in tax code Section 4980H—received positive reviews from the National Education Association, AFL-CIO and Service Employees International Union, but their comments suggest there are some kinks to work out before any new rules are finalized.

Among other issues addressed in the comment letters was the IRS and Treasury's intentions to adjust the 9.5 percent affordability threshold for employer-provided health-care coverage, with the ABC, NBGH, AFL-CIO and the National Coordinating Committee for Multiemployer Plans all giving it the thumbs-up.

On Dec. 16, the IRS and Treasury issued Notice 2015-87, which reiterated that some relief was available for reporting under Section 6056 related to coverage offered in the 2015 calendar year. The notice, which was in a question-and-answer format, also clarified some areas of the employer mandate—or shared-responsibility provisions—and other topics related to the ACA .

The comment letters were dated Feb. 18, which was the comment deadline.

Opt-Out Payments

While comments touched on an array of issues, Question 9 of the notice got a lot of attention. The question addressed how opt-out payments are taken into account when determining whether an employer has made an offer of affordable minimum value coverage.

In the notice, the IRS said that “it is generally appropriate to treat an unconditional opt-out arrangement” in the same way as a “salary reduction for purposes of determining an employee’s required contribution under” sections 36B and 5000A, as well as “any related consequences” under Section 4980H(b).

The ABC and the NBGH expressed concern over the proposed treatment of opt-out payments, with the former group calling the IRS and Treasury's analysis on this matter “flawed” and saying that the position taken in the notice neither benefits employers nor employees.

For its part, the NBGH said that the current position in the notice would limit the flexibility that plan sponsors have when designing a compensation and benefits package that meets the needs of its employees.

Educational Organizations

Question 15 of the notice—which addresses whether an employee who primarily performs services for one or more educational organizations but is an employee of a staffing agency or similar employer subject to the special hours-of-service-averaging rules for rehiring under Section 4980H—also received a lot of attention in comment letters.

The IRS and Treasury said in the notice that they're planning to amend the regulations under Section 4980H that provide special rules for rehiring and hours-of-service-averaging rules. In particular, the notice said that the agencies are planning on amending the regulations to provide that the special rules on an “employment break period” apply to both employees of educational organizations and employees “providing services primarily to one or more educational organizations for whom a meaningful opportunity to provide services during the entire year (to an educational organization or any other type of service recipient) is not made available.”

The National Education Association, the AFL-CIO and the Service Employees International Union all expressed support for the proposed changes, but took issue with the proposed terminology used in the notice. All three groups had concerns about two phrases in particular: the term “meaningful opportunity” and the requirement that the employee provide services “primarily” to one or more educational organizations.

The NEA said it strongly supports amending these regulations, but that the proposed changes in the notice “would unnecessarily create new inequities, administrative burdens, confusion, and conflicts.”

The SEIU and the AFL-CIO said in their letters that the use of the term “meaningful opportunity” could prove troublesome because a clear definition doesn't exist in the regulations or the statute. The absence of a clear definition could lead to “potential manipulation” or an “uneven application of the rule,” the SEIU said.

The AFL-CIO also had concerns over the condition that the services be “primarily” attributed to one or more educational organizations, a concern that the SEIU also had.

“We appreciate the need for third-party employers to know when the rule should apply if workers do not provide services only to educational organizations or when workers have breaks in service that are unrelated to the school calendars. In our view, the ‘primarily' concept while intended to provide guidance simply raises more questions,” the AFL-CIO said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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