The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees in order to avoid possible penalties. Because this employer mandate has been criticized as burdensome for employers and an impediment to business growth, it seems likely that its repeal will be part of any Republican plan to repeal and replace the ACA.
If the employer mandate is repealed, many ALEs will likely want to modify their plan designs to go back to pre-ACA eligibility rules (for example, requiring employees to have a 40-hour per week work schedule to be eligible for benefits). Employers may also consider increasing the amount that employees are required to contribute for group health plan coverage.
When making plan design changes, employers should review their compliance obligations under the Employee Retirement Income Security Act (ERISA) and the ACA mandates that may remain intact
EMPLOYER MANDATE RULES
Under the ACA’s employer mandate provisions, ALEs that do not offer affordable, minimum value health coverage to their full-time employees may be subject to penalties if any full-time employee receives a subsidy for health coverage through an Exchange.
These employer mandate provisions, which are also known as the “employer shared responsibility” or “pay or play” rules, only apply to ALEs, which are employers with, on average, at least 50 full-time employees, including full-time equivalent employees (FTEs), during the preceding calendar year.
| The employer mandate rules took effect for most ALEs beginning on Jan. 1, 2015. However, medium-sized ALEs (those with fewer than 100 full-time and FTE employees in 2014) generally had an additional year, until 2016, to comply with the employer mandate rules, if they satisfied specific criteria to qualify for this delay.
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For purposes of the ACA’s employer mandate, a full-time employee means an employee who works an average of 30 or more hours per week.
The Internal Revenue Service (IRS) provided ALEs with two methods to determine whether employees are full time under the employer shared responsibility rules—the monthly measurement method and the look-back measurement method.
| Monthly Measurement Method |
Under this method, an employee’s full-time status for a calendar month is determined based on hours of service for that month. |
| Look-back Measurement Method |
The look-back measurement method involves:
- A measurement period for counting hours of service;
- An optional administrative period that allows time for enrollment and disenrollment; and
- A stability period during which coverage is provided if the employee averages full-time hours during the prior measurement period.
If an employee had, on average, at least 30 hours of service per week during the measurement period, the ALE must treat the employee as a full-time employee for the stability period. This rule applies regardless of the employee’s number of hours of service during the stability period, as long as he or she remains an employee, unless a special rule applies.
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To comply with the ACA’s employer mandate, many ALEs were required to expand their health plan’s eligibility criteria to include employees who work 30 or more hours per week. ALEs that use the look-back measurement method have also implemented complex systems for tracking and measuring employee hours in order to identify the employees who must be offered coverage.
In addition, to satisfy the ACA’s affordability requirement (9.5 percent, as adjusted from year-to-year), ALEs have analyzed their employees’ premium contribution rates and made adjustments when necessary.
CURRENT STATUS OF EMPLOYER MANDATE
At this time, the ACA, including its employer mandate rules, remains intact as a federal law. Proposed legislation to repeal and replace the ACA is currently making its way through the federal legislative process. The current bill that is being considered by Congress, which is referred to as the American Health Care Act (AHCA), would reduce the penalties for failing to comply with the ACA’s employer mandate to zero beginning in 2016. This change would effectively repeal the ACA’s employer mandate (although it would technically still exist).
| ACA Reporting: The AHCA would not repeal the ACA’s employer reporting requirements under Internal Revenue Code (Code) Sections 6055 and 6056. Under these tax provisions, ALEs are required to report on full-time employee offers of coverage and employers with self-insured health plans must report on minimum essential coverage. Under the AHCA, employers would still be obligated to report and subject to penalties for failing to report until the proposed AHCA tax credit system is effective in 2020. Starting in 2020, employers would report offers of coverage on employees’ Forms W-2. |
The AHCA’s future is still uncertain. The bill has been amended several times and will likely be subject to additional revisions in the near future. Since the bill has not been signed into law, the ACA’s employer mandate, and its penalty provisions, remain intact. However, because the employer mandate has been criticized as burdensome for employers and an impediment to business growth, it seems likely that its repeal will be part of any Republican plan to repeal and replace the ACA.
REPEAL’S IMPACT ON EMPLOYERS
If the ACA’s employer mandate is repealed, ALEs will no longer be required to provide affordable, minimum value coverage to their full-time employees in order to avoid possible penalties. Many ALEs will likely want to modify their plan designs to go back to pre-ACA eligibility rules. Possible modifications that ALEs may consider include:
- Changing health plan eligibility rules so that only employees who have a full-time work schedule (for example, 40 hours per week) are eligible for coverage;
- Eliminating health plan coverage for employees who are part time, seasonal or temporary;
- No longer using the monthly or look-back measurement method to track employee hours and make eligibility determinations; and
- Increasing the amount that employees who elect group health plan coverage are required to contribute.
| Effective Date of AHCA Repeal: The AHCA would effectively nullify the employer mandate by eliminating potential penalties effective Jan. 1, 2016. Because the employer mandate took effect for some employers in 2015, penalties could technically still apply for the 2015 calendar year, although it is unclear whether the IRS would pursue these penalties under the Trump administration. Also, an audit report released by Treasury Inspector General for Tax Administration (TIGTA) reveals that, due to system and operational problems, the IRS has been unable to identify the employers that are potentially subject to an employer mandate penalty or to assess any penalties. |
It is difficult to predict whether federal agencies, such as the IRS and DOL, will issue guidance in the event the ACA’s employer mandate is repealed in order to help ALEs work through the changes. Even if federal agencies plan on issuing implementation guidance, it may take a while before it is available. In the meantime, ALEs will likely want to make changes to their health plans. In general, ALEs that are considering changes to their health plan’s design and administration should consider their compliance obligations under ERISA and the ACA mandates that may remain intact.
ERISA Rules
Making Plan Changes
In general, under ERISA, employers may amend, or make changes to, their health plans at any time, provided those changes do not violate other federal laws. An employer’s decisions about plan design, including who is eligible for coverage, are generally viewed as “settlor” functions that are not subject to ERISA’s rules that require fiduciaries to act solely in the interests of plan participants or beneficiaries. Thus, employers may make decisions about plan design based on their business interests, even if those decisions negatively impact plan participants or beneficiaries.
Although most employers implement plan design changes at the start of the plan year, an employer may change the terms of its health plan during the plan year. Employers with insured plans should review their insurance documents and consult with their carriers, if necessary, before making mid-year plan design changes. The following are two types of mid-plan year design changes that an ALE may consider making if the employer mandate is repealed:
Change the plan’s eligibility rules to raise the number of hours needed to be a full-time employee who is eligible for plan coverage. Changing the plan’s eligibility rules is not a “qualifying event” for COBRA purposes, so individuals who would lose coverage because they are no longer eligible are not entitled to elect federal COBRA continuation coverage. These individuals would, however, be eligible for a special enrollment period under an ACA Exchange or another employer’s group health plan.
Increase the amount that employees are required to pay for coverage. If employees pay their health insurance premiums on a pre-tax basis, the Code Section 125 rules limit when they can change their elections during the plan year. Certain mid-year changes are permissible (for example, automatic increases or decreases to employees’ contributions for insignificant cost changes). Also, if the cost increases significantly during a plan year, the plan may allow participants to make an election change, including dropping coverage in certain situations.
| Compliance Concern—Vested Benefits: Unlike retirement plan benefits, welfare benefits (for example, group health plans) are not subject to ERISA’s vesting requirements. Because welfare benefits are not vested under ERISA, they can be amended or changed at any time, as a general rule. However, there are some circumstances when group health plan benefits may vest under the terms of the plan documents. The case law on this issue generally provides that, once a participant satisfies all of the plan’s conditions for receiving a benefit, those benefits cannot be reduced or eliminated for that participant. The application of this rule depends on the specific facts of each situation, including the terms of the plan document. Employers that are making changes to their eligibility rules, particularly mid-year changes, may want to consult with their legal counsel regarding any vested benefit concerns. |
Communicating Changes to Participants
Any changes that are made to plan design must be formally adopted by the plan sponsor as part of the health plan’s documentation. These changes also must be communicated to participants through either an updated summary plan description (SPD) or a summary of material modifications (SMM).
ERISA provides generous deadlines for communicating plan design changes to participants—the deadline is 210 days following the close of the plan year in which the amendment was adopted, except that notice of material reductions in benefits and services generally must be given no later than 60 days after the date of the adoption of the modification. However, to help avoid benefits disputes and possible litigation, employers should communicate changes to their health plans’ eligibility rules as soon as possible, and before the changes take effect, as a best practice.
In addition, federal courts have addressed what information an employer is required to provide to plan participants when it is considering whether to make a plan amendment. These cases often arise in the context of retirement plan benefits, but the same ERISA fiduciary principles would also apply to welfare plan benefits, such as group health plan coverage. In general, most courts have ruled that ERISA plan fiduciaries (that is, plan sponsors) have a duty to provide truthful information about potential plan amendments when participants ask about the possibility of plan changes.
Other ACA Reforms
When considering plan design changes, employers should remember that many ACA reforms will likely remain in place even if the employer mandate is repealed, including the following ACA reforms that impact plan eligibility.
| ACA Reform |
Description |
| Waiting Period Limits |
The ACA prohibits group health plans from applying any waiting period that exceeds 90 days. A “waiting period” is the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll in the plan becomes effective. This waiting period limit does not require an employer to offer coverage to any particular employee or class of employees, including part-time employees. It only prevents an otherwise eligible employee (or dependent) from having to wait more than 90 days before coverage under a group health plan becomes effective. |
| Dependent Coverage to Age 26 |
The ACA requires group health plans and health insurance issuers that provide dependent coverage to children on their parents’ plans to make coverage available until the adult child reaches age 26. This provision does not require plans and issuers to offer dependent coverage at all. It only requires plans that otherwise offer dependent coverage to make that coverage available until the adult child reaches age 26. |
| Prohibition on Rescissions |
The ACA prohibits group health plans and health insurance issuers from rescinding coverage for covered individuals, except in the case of fraud or intentional misrepresentation of a material fact. A “rescission” is a cancellation or discontinuance of coverage that has a retroactive effect (such as one that treats a policy as void from the time of enrollment). Thus, as a general rule, changes to a health plan’s eligibility rules should be effective on a prospective basis only. |
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Employee Drug Use Reaches 12-year High
The positive drug test rate for the U.S. workforce was 4.2 percent in 2016, according to the Drug Testing Index (DTI) released by Quest Diagnostics. This represents a 5 percent increase over the positive rate in 2015, and the largest single-year positive rate since 2004.
The DTI analyzed over 10 million workforce drug test results from 2016 and categorized employees into three categories, including employees with federally mandated drug tests, the general workforce and the combined U.S. workforce. Here are additional details about the DTI’s findings for specific drug types:
- Marijuana—The positive test rate for marijuana increased nearly 75 percent in oral fluid testing, which is used in the general workforce. Federally mandated marijuana tests only utilize urine tests, and the positive test rate increased 10 percent in 2016.
- Cocaine—Positive test rates for cocaine in post-accident drug tests were more than twice as high as pre-employment screenings.
- Amphetamines—Positive test rates for amphetamines have risen 64 percent between 2012 and 2016 for the general workforce. Quest Diagnostics attributes this increase to the prevalence of prescription drugs, including Adderall.
In order to create a safe, productive workplace, you need to watch out for potential drug use at your business.
Political Discussions Hurt Job Performance
Many people can get worked up about politics, but a new survey from the American Psychological Association (APA) has shown that political discussions in the workplace can have a big impact on your employees’ job performance.
The APA surveyed U.S. employees about the impact of political discussions after the 2016 presidential election, and found that these discussions have a detrimental effect on job performance and relationships with co-workers. The survey found that 40 percent of employees have experienced a negative outcome following a workplace political discussion, such as reduced productivity or difficulty getting work done. Additionally, 24 percent of employees said they avoid some co-workers solely because of their politics.
According to the APA, social networks and constant news reports can cause individuals to adopt an “us versus them” political mentality, which can lead to conflict. As a result, it’s important to encourage respect, collaboration and courtesy in your workplace to ensure that your employees feel supported and remain productive.
New Executive Order Aims to Improve Cyber Security
President Donald Trump recently signed an executive order to improve the country’s cyber security and protect key infrastructure from cyber attacks. The order also emphasized the importance of strengthening the cyber security of federal agencies. According to a survey from Thales Group, a cyber security company, 34 percent of federal agencies experienced a data breach in the last year, and 95 percent of agencies consider themselves vulnerable to cyber attacks.
The executive order did not create any ongoing cyber security requirements, but instead laid out goals to assess the current state of cyber defenses and develop deterrence strategies. Here are some of the requirements of the executive order:
- Federal agencies must draft reports on their ability to defend themselves against cyber threats.
- The departments of Energy and Homeland Security must assess potential vulnerabilities to the country’s electrical grids. The executive order specifically mentions that prolonged power outages could pose a threat to national security or damage the economy.
- Various federal agencies must review the cyber defense plans of U.S. allies in order to cooperate during international cyber attacks.
Apple Creates $1 Billion Fund to Support U.S. Manufacturing
Apple, the world’s largest technology company, recently announced that it will create a $1 billion fund to support U.S. manufacturing. Although the company is based in the United States, it has faced criticism for outsourcing most of its manufacturing and taking jobs from U.S. workers.
Apple’s CEO stated that one goal of the fund was to support smart manufacturing and to create a ripple effect in industries that support smart manufacturers. For more information on the manufacturing fund, visit Apple’s website.
DID YOU KNOW?
A U.S. Court of Appeals recently barred the Federal Aviation Administration (FAA) from requiring recreational drone owners to register their unmanned aircraft. The FAA had originally required recreational drones to be registered in order to help identify aircraft that posed a hazard, and to pass on safety information to operators. However, the court’s ruling will not impact the use of drones for commercial use, as these aircraft must still be registered with the FAA before they are used.
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On May 15, 2017, the Centers for Medicare and Medicaid Services (CMS) announced significant changes to the Small Business Health Options Program (SHOP) Exchanges under the Affordable Care Act (ACA). Under these changes:
- Employers would be able to obtain an eligibility determination for SHOP participation through www.HealthCare.gov.
- Employers would enroll directly with an insurance company offering SHOP plans, or with the assistance of an agent or broker registered with the Exchange, instead of enrolling online at www.HealthCare.gov.
CMS plans to issue regulations implementing these changes, effective Jan. 1, 2018.
ACTION STEPS
These changes apply in federally facilitated SHOPs (FF-SHOPs) and state-based SHOPs using the federal platform. State-based SHOPs could continue to provide online enrollment or adopt the federal direct enrollment approach.
SHOP Exchanges
The ACA required each state to establish an online competitive marketplace, called an Exchange, where individuals and small businesses may purchase health insurance, beginning in 2014. The SHOP is the Exchange component for small businesses.
Online enrollment in FF-SHOPs was previously delayed until Nov. 15, 2014, as a result of problems with implementation. Prior to Nov. 15, 2014, employers had been required to use a direct enrollment process, using an agent, broker or insurer to enroll their employees in FF-SHOP coverage for 2014 (similar to how most small employers previously got insurance).
Many state-based SHOP Exchanges chose to offer online enrollment earlier than the FF-SHOP, in 2014.
Ending Online Enrollment in FF-SHOPs
The changes announced by CMS will effectively end online enrollment in FF-SHOPs. Under the intended approach, however, employers would still obtain a determination of eligibility for SHOP participation by going to www.HealthCare.gov, which allows eligible employers to access the Small Business Health Care Tax Credit.
According to CMS, these changes are being made to promote insurance company and agent/broker participation and make it easier for small employers to offer SHOP plans to their employees, while maintaining access to the Small Business Health Care Tax Credit. CMS noted that insurance company and agent/broker participation, as well as overall enrollment in the FF-SHOP Exchanges, has been lower than anticipated and, at its current pace, is unlikely to reach expectations.
Impact for Employers Currently Using the SHOP Exchange
Employers can sign up for SHOP coverage taking effect in 2017 on www.HealthCare.gov until Nov. 15, 2017. In addition, employers that have enrolled in SHOP coverage for the 2017 plan year would be able to continue using www.HealthCare.gov in 2018 for enrollment and premium payment, until their current plan year ends and it’s time to renew.
States operating state-based SHOPs would be able to provide online enrollment, or could opt to direct small employers to insurance companies and SHOP-registered agents and brokers to directly enroll in SHOP plans.
IMPORTANT DATES
January 1, 2018
CMS plans to issue regulations ending online enrollment in FF-SHOPs, effective in 2018.
November 15, 2017
Employers can sign up online for SHOP coverage taking effect in 2017 until Nov. 15, 2017.
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OVERVIEW
The Occupational Safety and Health Administration’s (OSHA) electronic reporting rule requires certain establishments to report information electronically from their OSHA Forms 300, 300A and 301. The rule also requires OSHA to create a website that can be used to submit the required information. Under the rule, the first reports are due by July 1, 2017.
However, on a recent update to its recordkeeping webpage, OSHA indicated it will not be ready to receive electronic workplace injury and illness reports by the established deadline. No new reporting deadline has been adopted yet.
ACTION STEPS
OSHA has not officially delayed the July 1, 2017, deadline, but its website will not be ready to receive electronic reports from employers by this time.
Affected establishments should continue to record and report workplace injuries as required by law and should monitor these developments to learn whether a new reporting deadline will be adopted.
HIGHLIGHTS
- The rule requires OSHA to create and provide a secure website to transmit electronic information.
- Under the rule, OSHA will publicize the information received from the electronic reports.
- The final rule has met significant opposition and its validity is currently being challenged in federal court.
IMPORTANT DATES
May 12, 2016
OSHA issues its final electronic reporting rule. The first reporting deadline is set for July 1, 2017.
May 16, 2017
OSHA indicates its reporting website will not be ready to receive the first reports by the July 1 deadline.
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On May 2, 2017, the House of Representatives passed the Working Families Flexibility Act (also known as H.R. 1180). If approved, H.R. 1180 would authorize private employers to offer compensatory time instead of overtime pay for nonexempt employees who work more than 40 hours per week. H.R. 1180 still needs approval from the Senate and the executive branch before it becomes law.
Compensatory time off is already a common practice for many federal and state employers, but it is not currently allowed by the Fair Labor Standards Act (FLSA) for private employers. H.R. 1180 would amend the FLSA to allow this practice, if certain conditions are met.
ACTION STEPS
Because H.R. 1180 is not yet law, no action steps are currently required of any employers.
This Compliance Bulletin is provided for informational purposes only, to assist employers in understanding the changes H.R. 1180 would bring to current overtime compensation practices in the private sector.
Compensatory Time Off
Currently, the FLSA requires employers in the private sector to pay overtime wages to nonexempt employees for all hours of overtime worked. If approved, H.R. 1180 would amend the FLSA to allow private sector employers to provide either overtime pay or compensatory time off to nonexempt employees who work overtime hours.
H.R. 1180 is proposing that compensatory time off be calculated at the rate of 1.5 hours of compensatory time off for every hour of overtime work. As it stands, H.R. 1180 would expire within five years of its enactment. In addition, the bill would limit the amount of compensatory time off eligible employees may receive to 160 hours.
H.R. 1180 would only apply to private sector employers, meaning that if it were to be adopted, it would not affect current compensatory time off requirements for public sector employees.
Voluntary Agreement and Usage
Under H.R. 1180, both employers and employees would have to agree to compensatory time off instead of overtime wages. In unionized environments, compensatory time off would have to be allowed by any applicable collective bargaining agreement. The agreement would need to be preserved in writing and take place before any compensatory time off begins to accrue.
Finally, the language of H.R. 1180 would prohibit employers from coercing or forcing employees to agree to receive or use compensatory time off instead of overtime wages. This means that employers would not be allowed to directly or indirectly intimidate, threaten or coerce (or attempt to intimidate, threaten or coerce) employees to agree to receive or use any accrued compensatory time off.
Eligibility
Under H.R. 1180, employees would be eligible to receive compensatory time off after 1,000 hours of continuous employment during the previous 12 months.
Payment for Unused Compensatory Time
H.R. 1180 would require employers to allow employees to use any earned compensatory time off within a reasonable period, as long as this does not unduly disrupt the employer’s operations.
However, employers would be required to provide monetary compensation to their employees for any compensatory time off that is not used by the end of the calendar year, although employers would be able to determine a different 12-month period as long as it remains consistent.
Unused compensatory time would need to be paid at a rate that would at least be equal to the employee’s regular wage rate. The employee’s regular rate would be the higher of:
- The regular wage rate at the time the overtime work was performed; or
- The regular wage rate at the time the unused compensatory time off must be paid.
Payment for unused compensatory time off would be required within a month of the end of the 12-month period.
More Information
We will continue to monitor the progress of this bill through the legislative process and update you as more information becomes available. In the meantime, contact Scurich Insurance for more information regarding the FLSA and overtime wage payment requirements.
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OSHA Program to Target Southern Auto Part Makers
OSHA has renewed a Regional Emphasis Program (REP) for auto part manufacturers in Alabama, Georgia and Mississippi. The REP was originally established to reduce workplace hazards in the auto parts industry, including electrical, struck-by, caught-in and crushing hazards.
Information released by OSHA revealed that the REP led to 46 safety inspections in 2016, which resulted in 143 violations. Now that the REP has been renewed, OSHA will continue to target auto parts manufacturers in the region for inspections.
Trump Administration Will Not Label China as a Currency Manipulator
President Donald Trump recently announced that his administration will not officially label China as a currency manipulator. This is a reversal from previous statements released by Trump, as he stated during his presidential campaign that he would take steps to label the country as a currency manipulator during his first days in office.
Many experts believe that the Chinese government artificially weakens its own currency to make its goods more affordable for American consumers. However, Trump recently stated that China hasn’t manipulated its currency in months, and that the current strength of the U.S. dollar is hurting exports of domestic goods.
This policy reversal is seen by some as a move to maintain China as an ally against North Korea after recent political unrest in the area. However, the decision to not label China as a currency manipulator has already had an impact. According to S&P Global Platts, an energy information provider, the stocks of 10 major U.S. steel producers fell after Trump’s announcement.
Cyber Insurance on the Rise in Manufacturing
Before now, cyber insurance has usually been purchased by consumer-facing businesses, such as health care providers, retailers and financial institutions. However, cyber attacks are now capable of taking control of manufacturing plants and products, and many businesses in the industry are purchasing cyber insurance policies to protect themselves.
According to Advisen, an insurance data provider, manufacturers paid nearly $37 million in cyber insurance premiums in 2016, an increase of 89 percent compared to 2015. Get in touch with us today at 831-661-5697 to discuss a cyber insurance policy and protect your business.
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