Agencies Issue FAQs on Automatic Enrollment, Waiting Periods and Employer Shared Responsibility under the ACA | Practical Law

Agencies Issue FAQs on Automatic Enrollment, Waiting Periods and Employer Shared Responsibility under the ACA | Practical Law

The Department of Labor (DOL), Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) issued frequently asked questions on Affordable Care Act (ACA) provisions governing automatic enrollment in health plans, employer shared responsibility and the 90-day limit on waiting periods for coverage.

Agencies Issue FAQs on Automatic Enrollment, Waiting Periods and Employer Shared Responsibility under the ACA

by PLC Employee Benefits & Executive Compensation
Published on 13 Feb 2012 • USA (National/Federal)
The Department of Labor (DOL), Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) issued frequently asked questions on Affordable Care Act (ACA) provisions governing automatic enrollment in health plans, employer shared responsibility and the 90-day limit on waiting periods for coverage.
On February 9, 2012, the DOL issued Technical Release 2012-01, providing answers to frequently asked questions from employers, insurers and others on Affordable Care Act (ACA) provisions governing:
  • Automatic enrollment in health plans under Section 18A of the Fair Labor Standards Act (FLSA).
  • Employer shared responsibility under IRC Section 4980H, a penalty tax for large employers that do not provide health coverage to full-time employees (FTEs).
  • The prohibition on waiting periods of more than 90 days, which begins in 2014.
The IRS issued a substantially identical version of this guidance (see IRS Notice 2012-17). The DOL, HHS and IRS (Departments) are working together to develop administrative guidance on these issues. The technical release discusses possible approaches being considered by the Departments for future regulations on these issues and notes that:
  • The DOL's automatic enrollment guidance will not be ready to take effect by 2014, as previously indicated by the DOL. Until final regulations under Section 18A of the FLSA are issued and become applicable, employers are not required to comply with automatic enrollment for health plans.
  • When the 90-day waiting period limit becomes effective in 2014, employers will not be required to offer coverage to part-time employees or any other particular category of employees. For example, large employers would not be penalized for limiting coverage to FTEs.
  • The 90-day waiting period will begin when an employee is otherwise eligible for coverage under the group health plan's terms. Other conditions on plan eligibility would generally be permitted (for example, a bona fide job category), provided they are not designed to avoid compliance with the 90-day waiting period limit.
  • The IRS intends to issue guidance allowing employers to use a "look-back/stability period safe harbor" of up to 12 months to determine whether an employee is an FTE for purposes of IRC Section 4980H.
  • Whether a newly-hired employee qualifies as an FTE under IRC Section 4980H will likely depend on whether:
    • at the time of hire the employee is reasonably expected to work an average of 30 or more hours per week annually; and
    • the employee's first three months at work are reasonably viewed as representative of the average hours the employee is expected to work annually.
  • Upcoming guidance on the relation between the employer shared responsibility provisions and the 90-day waiting period limit will likely provide that, at least for the first three months after an employee's hire date, an employer sponsoring a group health plan will not be subject to the employer penalty tax by failing to offer coverage during that period.

Practical Implications

The delay in the DOL's automatic enrollment guidance is good news for employers, who will have additional time to prepare for this requirement. As the technical release notes, the definition of FTE is a key issue to be addressed under the automatic enrollment guidance (other issues include the notice and opt-out requirements, and the decision of which plan benefit package and coverage employees should be automatically enrolled in if an employer maintains more than one package or coverage). Also, as the DOL acknowledges in the technical release, its guidance on automatic enrollment will need to be carefully coordinated with both the implementing rules for the 90-day limit on waiting periods and the employer shared responsibility penalty tax.
Comments on the technical release must be received by April 9, 2012, and may be directed to any of the three Departments.
For additional resources on the ACA, see Practice Notes, Affordable Care Act (ACA) Overview, Preexisting Condition Exclusions and Rescissions under the ACA and Ninety-day Limit on Waiting Periods under the ACA.