The Affordable Care Act: 2014 and Beyond

163751742In its attempt to reach orbit, the Affordable Care Act has undergone a bumpy ride in terms of both altitude and velocity. The insurance exchanges (now called marketplaces) have seen technological challenges; they are not very consumer-oriented and the building of payment arrangements are somewhat behind schedule, hence many visitors have not actually enrolled. Large employers with many contingent workers who are not offered coverage under the company health plan should be following these events on the exchanges. The best way to avoid problems with contingent workers with respect to healthcare is to ensure that such workers have other viable healthcare options, either through the health plan of a temporary staffing company, state/federal insurance exchanges, or the individual market. Contingent workers with medical problems and with no other options are more likely to seek coverage from the buyers of their services.

Buyers and sellers of contingent labor services should continue to follow the ACA’s treatment of healthcare arrangements for their contingent workers. In guidance issued almost a year ago, the IRS indicated its presumption that temporary staffing agencies are the common law employers of their leased workers. Nevertheless, the IRS indicated that the true common law employer is ultimately responsible for compliance with the pay-or-play rules. Thus, there is some risk that a buyer of contingent labor services could later be found to be the “true” common law employer and thus found retroactively to have had an obligation to offer coverage to such employees. The guidance does not yet contemplate the possibility that the temporary staffing agency and the buyer might contractually arrange for pay-or-play responsibility to be on the staffing company. Nevertheless, such contractual treatment is likely to evolve into a best practice. Hopefully, as these arrangements evolve, they will be recognized and accepted in designating the responsible party for pay-or-play.

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Many large companies that have utilized staffing agency workers have adopted benefit plan provisions designed to limit risk of benefit liability in the event such workers are later reclassified as common law employees. Typically, benefit plans exclude eligibility for workers who are not treated as W-2 employees. While this arrangement has been found to limit retroactive benefit liability, it is likely of little use in limiting ACA pay-or-play liability.

Another concern of large employers pertains to their variable hour and seasonal employees. Such individuals are true common law W-2 employees who are not offered coverage under the company plan because they occupy an excluded classification, such as part-time or temporary. Nevertheless, the ACA requires that an employee who works on average 30 or more hours per week must be offered coverage within 90 days of attaining such work status. Various methods have been proposed for measuring whether such an employee should be offered coverage. These rules are enforced by the IRS and it is conceivable that employers improperly measuring or calculating an employee’s average work hours could later be challenged on the failure to offer coverage. This could result in either a demand for retroactive coverage by the individual or, perhaps worse, imposition of the pay-or-play penalty on the entire company. Employers are required to offer coverage to at least 95 percent of their full-time employees. A large employer that is later found to have offered coverage to only 94 percent of its full-time employees could be hit with a penalty in the millions. It is mathematically possible to miss this threshold by a single individual, permitting a new definition of the phrase “six million dollar man.”

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Charles Stevens
Charles Stevens is a partner with Michael Best & Friedrich.

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