The Affordable Care Act—Countdown to Compliance for Employers, Week 16: So What, Exactly, is an “Offer of Coverage”?
Written By Alden J. Bianchi and Edward A. Lenz
Whether an employer makes the requisite offer of group health plan coverage is critical to the application of the Affordable Care Act’s employer shared responsibility rules as reflected in final implementing regulations issued earlier this year (and see here for a useful IRS summary of those rules). The rules are codified in a newly added provision of the Internal Revenue Code, i.e., Code § 4980H. Generally, Code § 4980H imposes penalties or “assessable payments” where “at least one full-time employee” qualifies for subsidized coverage from a public exchange, and either:
- An “applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan . . . for any month,” or
- “An applicable large employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan . . .” but that coverage is either unaffordable or fails to provide minimum value.
There is no shortage of commentary on the particulars of the Code § 4980H assessable payments. Surprisingly little attention has been paid however—either by the regulators or the commentators—to what, exactly, it means to make an offer of coverage.
In at least one instance, the Treasury Department and IRS let us know what an offer of coverage is not, when they clarified that an employer cannot foreclose the possibility of all penalties by providing coverage to all its full-time employees at no cost. (Their views are set out in the preamble to a May 3, 2013 proposed regulation dealing with minimum value.
As we have noted on many occasions, the challenges of complying with the employer shared responsibility rules affects employers differently depending on industry and workforce demographics. For employers with large stable workforces to whom robust major medical benefits are widely offered, these rules will have all the challenges of a speed bump. These employers have been making offers of coverage in many cases for decades, and their compliance with applicable law, while rarely perfect, is generally good or at least good enough. But for employers with high turnover and large cohorts of contingent and temporary workers, these rules are game-changing. And offers of coverage, at least to sometimes significant portions of their workforce, are new.
There is likely a good reason why the particulars of what constitutes an offer of coverage has attracted little attention. While compliance with the ACA’s employer shared responsibility rules is tested based on whether an offer of coverage is made, other Federal laws (principally ERISA) speak to what it means to make such an offer. In a recently published set of questions and answers, we have endeavored to shed some light on the topic. While these Q&As nominally address the staffing industry, their application is far more universal. They include (at least as we see it) three important takeaways:
- While not required, it may well fast become a best practice to obtain written waivers from employees who turn down an employer’s offer of group health plan coverage. This issue arose early on in the implementation of the 2006 Massachusetts health care reform law. Despite less than solid statutory support, the regulators imposed this requirement on audit, much to the dismay and annoyance of the audit targets.
- Compliance with the ERISA plan document and summary plan requirements has historically been—to be kind—“spotty.” The ACA has raised the bar here. Employers would be well advised to pay attention. The ERISA “wrap document” will in all likelihood become the de facto standard. (This despite that, in the view of some, recent judicial authority has cast some doubt on the practice of combining the plan document and the summary plan description by making liberal use of incorporation by reference.)
- Additional and very explicit disclosures are a very good idea in cases where employers seek to use novel or aggressive plan designs. (See our August 18 post for a description of the sorts of designs we have in mind.) While these arrangements may work like a charm for an employer trying to limit its exposure under Code § 4980H, the consequence to employees for failing to understand the terms of the coverage they have enrolled in can be—to be kind—suboptimal.