How small-business issues are shaping politics and policy.
As written, the employer mandate in the Affordable Care Act — what the law calls “shared responsibility” — is complicated enough. Just to understand how the penalty applies practically requires a flow chart. But as the Internal Revenue Service has tried to interpret the mandate, the agency and the businesses and employees affected by the mandate are discovering that it is even more challenging than it reads. In some cases, the agency has resolved some of the confusion. But in others, the answers it has come up with have raised still more questions.
The Obama administration this month announced that it was pushing back enforcement of the mandate for a year, to give the I.R.S. time to write the rules on the law’s reporting requirements for businesses. But some people hoping to influence the regulations would like to see the agency reconsider some of the other regulations for the mandate it had already proposed. (Others, as we reported earlier, would like to see Congress rewrite the terms of the mandate.)
In the next week or two, The Agenda will take a close look at some of those issues.
The biggest appears to involve how a company determines whether employees whose hours fluctuate must be offered insurance. The Affordable Care Act sets that threshold at 30 hours, which the law deems a full-time schedule. Many companies, though, schedule a fraction of their work force on variable hours: some weeks, or months, a variable-hour employee may work, say, 35 hours; in others, 25 hours. In its preliminary rules, released late last year, the I.R.S. devised an approach to the problem of the variable-hour employee that it calls the “look-back measurement method.”
In essence, the proposed regulations would allow an employer to choose a measurement period of three months to a year in which to average the employee’s weekly hours. The measurement period would then be followed by a stability period that is at least as long as the measurement period. In practice, said Seth Perretta, an attorney representing several trade groups in the rule making, most employers would likely use a yearlong measurement period running from Oct. 15 through Oct. 14, which would then be followed by open enrollment. The stability period would run the following year.
If an employee’s schedule averaged out to full time during the measurement period, then the company would be obliged to offer health insurance in the stability period or pay a penalty. If the worker averaged less than 30 hours a week (or, technically, 130 hours a month), then the company need not offer insurance in the stability period. Either way, a new measurement period would begin immediately after the old one ended, and the process would begin again. (If the company anticipates that a new hire will work full-time, it must offer insurance by the start of the fourth month on the job.)
Some business groups, particularly retail and restaurant groups, worked with agency officials to craft the look-back rule. “I think they understood clearly that in the retail and chain restaurant industries, employees will often not fall into neat full- and part-time categories,” said Neil Trautwein, employee benefits policy counsel at the National Retail Federation. “Once you get away from manufacturing, it’s not an uncommon problem in the business world.”
But what happens when an employee goes from full-time to part-time? J.D. Piro, a senior vice president in charge of the health law group at the benefits consulting company Aon Hewitt, said the rules were unclear. “Do you get to keep your coverage?” he said. “Or do you follow the Cobra rules,” which govern what happens when an employee loses health insurance because of a reduction in hours or losing the job? “That’s what employers need guidance on — which rules take precedence.”
Mr. Perretta, however, said he believed that the I.R.S. had taken the position that the employee would keep the coverage through the end of the stability period. And if it turned out that the worker still managed to average a full-time schedule, which would be possible if he or she made the switch late in the period, the company would have to offer insurance in the next stability period as well or face the penalty. Under this interpretation, then, a full-time employee who switched to part-time in, say, August, would be entitled to an additional 16 months of insurance coverage.
“If you want to avoid the penalty for the folks on the margin who might end up working a full-time schedule, you end up having to assume the complicated machinery for all of the similarly situated” — that is, hourly — “full-time employees,” he said. “I think the I.R.S. will try to find other ways that employers can comply with pay or play without having to use as much machinery if they don’t want to.”
“The stability period is a tough time for employers,” said Mr. Trautwein of the retail federation. But, he added, “It’s a way of ensuring greater continuity of coverage. It’s a problem for employer plans if people are coming and going all the time. It’s also a problem for plans in the exchange.”
And of course, the issue cuts both ways. Workers who switch to full-time status may have to wait a year or more before the company must offer insurance. Families USA, which supports universal health insurance, argued that this is unfair, since the company must offer coverage to a new full-time employee by the fourth month. “Measurement and stability periods should be used to infer a status of variable-hour employees only,” wrote Cheryl Fish-Parcham, the organization’s deputy director of health policy, in a commenton the proposed rule. “Once an employee is no longer a variable-hour employee and is in a full-time position, he or she should be offered coverage within, at most, three calendar months.”
In other words, there’s plenty here for the I.R.S. to think about over the next year. In our next post, we will explore how the I.R.S. and stakeholders representing businesses and workers are wrestling with the employer’s obligation to make sure the insurance it offers employees is affordable.