The Affordable Care Act—Countdown to Compliance for Employers, Week 40: Limited Non-assessment Periods under the Final Code § 4980H Regulations
Written by Alden J. Bianchi
Final regulations under Code § 4980H published in the Federal Register on February 12 include a new term—“limited non-assessment period”—which describes periods for which an applicable large employer (i.e., an employer with an average of 50 or more full-time and full-time equivalent employees on business days during the preceding calendar year) will not be subject to liability under Code § 4980H under circumstances where liability would otherwise attach. While the term is used to good effect (in our view) in the provisions governing the imposition of assessable payments, it also provides a brief but nevertheless useful tour of some of the final regulations’ key concepts.
Limited non-assessment periods include the following:
(1) The transition rule for an employer’s first year as an applicable large employer.
The final regulations provide, with respect to an employee who was not offered coverage at any point in the prior calendar year, that if an employer offers coverage on or before April 1 of the first year in which the employer is an applicable large employer, the employer will not be subject to an assessable payment (for January through March) under Code § 4980H(a) by reason of its failure to offer coverage to the employee for January through March of that year. And, if the coverage that is provided as of April 1 provides minimum value, the employer will not be subject to an assessable payment (for January through March) under Code § 4980H(b). However, if the employer does not offer coverage to the employee by April 1, the employer may be subject to a Code § 4980H(a) assessable payment for those initial calendar months in addition to any subsequent calendar months for which coverage is not offered. And if the employer offers coverage by April 1 but the coverage does not provide minimum value, the employer may be subject to a Code § 4980H(b) assessable payment for those initial calendar months (in addition to any subsequent calendar months for which coverage does not provide minimum value or is not affordable).
This rule applies only during the first year for which an employer is an applicable large employer (even if the employer later falls below the 50 employee threshold and then expands and again becomes an applicable large employer).
(2) The application of Code § 4980H for the three full calendar month period beginning with the first full calendar month in which an employee is first otherwise eligible for an offer of coverage under the monthly measurement method.
The final regulations allow employers two testing options for determining an employee’s status as a full-time employee: the “monthly measurement method” and the “look-back measurement method.” While the former, monthly measurement method, is not new, it was not fully fleshed out until the final rule. Under the monthly measurement method, an employer will not be subject to an assessable payment under Code § 4980H(a) with respect to an employee because of a failure to offer coverage to that employee before the end of the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage if the employee is offered coverage no later than the day after the end of that three-month period. (That the employee must “otherwise [be] eligible for an offer of coverage” means, among other things, that the coverage must already be in place.) If the coverage for which the employee is otherwise eligible provides minimum value, the employer is also not subject to an assessable payment under Code § 4980H(b).
This rule applies only once per period of employment of an employee and applies with respect to each of the three full calendar months for which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer. Accordingly, the relief may be available even if the employee terminates before that date (and before coverage is offered).
(3) Application of Code § 4980H during the initial three full calendar months of employment for an employee reasonably expected to be a full-time employee at the start date, under the look-back measurement method.
Unlike the rule described in item (2) above, this rule is not new. While the rule works in a manner similar to the rule described above, it serves as an important reminder that, in the case of an employee who is “reasonably expected at his or her start date to be a full-time employee,” coverage must be extended relatively quickly—i.e., “no later than the first day of the fourth full calendar month of employment if the employee is still employed on that day.”
(4) Failure to offer coverage during the initial measurement period to a new variable hour employee, seasonal employee or part-time employee determined to be employed on average at least 30 hours of service per week under the look-back measurement method.
In contrast to the employee identified in item (3) (i.e., one who “is reasonably expected at his or her start date to be a full-time employee”) this rule covers new variable hour, new seasonal, and new part-time employees. These are employees who need not be offered coverage (without risking exposure under Code § 4980H) during their initial measurement period.
(5) Application of Code § 4980H following an employee’s change in employment status to a full-time employee during the initial measurement period, under the look-back measurement method.
The proposed regulations included a change in employment status rule for a variable hour or seasonal employee who experiences a change in employment status during the initial measurement period such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be employed on average at least 30 hours of service per week. Generally, the employer will not be subject to an assessable payment for such an employee until the first day of the fourth full calendar month following the change in employment status if the employer provides coverage at the end of that period (and to avoid liability under section 4980H(b) the coverage provides minimum value) or, if earlier and the employee is a full-time employee based on the initial measurement period, the first day of the first month following the end of the initial measurement period (including any optional administrative period). The final regulations retain this rule but extend it to apply to any employee who has a change in employment status from part-time employee to full-time employee during the initial measurement period.
The final regulations also provide a special rule that applies when an employee experiences a change in employment status from full-time employee status to part-time employee status. Under this rule, the employer is allowed to apply the monthly measurement method to such an employee within three months of the change if the employee actually averages less than 30 hours of service per week for each of the months following the change in employment status and if the employer has offered the employee continuous coverage that provides minimum value from at least the fourth month of the employee’s employment. This rule would apply, for example, to an employee who was hired as a full-time employee (hence, was never tested under an initial measurement period), and who, in connection with a phased retirement program, reduces his or her hours below 30 per week.
(6) Application of Code § 4980H to the calendar month in which an employee’s start date occurs on a day other than the first day of the calendar month.
The final regulations include rules governing partial months of coverage. Generally, if an employer member fails to offer coverage to a full-time employee for any day of a calendar month, that employee is treated as not having been offered coverage during that entire month. However, in a calendar month in which a full-time employee’s employment terminates, if the employee would have been offered coverage if the employee had been employed for the entire month, the employee is treated as having been offered coverage during that month. Also, an applicable large employer member is not subject to an assessable payment under section 4980H with respect to an employee for the calendar month in which the employee’s start date occurs if the start date is on a date other than the first day of the calendar month.