May 5, 2014, Cabinet Discussion
The General Rules
Determining Full-time Employees
Issues for the District and Trust to Consider

Health Care Reform: Employer Shared Responsibility Requirements and the

Impacts on the District and Trust

May 5, 2014, Cabinet Discussion

On February 10, 2014, the federal government issued the final regulations implementing the statute for employer shared responsibility under health reform. While it is true that technically the Everett School District (“District”) is the “employer” subject to the regulations, there are potential impacts on the Everett School Employee Benefit Trust (“Trust”).

The General Rules

Starting January 1, 2015, any employer employing ≥50 full-time employees must offer health coverage to full-time employees by the first day of the month after three full calendar months of employment or pay a penalty. Employees in part-time positions and volunteers need not be offered coverage.

An employer may be subject to a penalty tax for (1) failing to offer minimum essential health care coverage to substantially all full-time of its full-time employees (and their dependent children) (the “No Coverage Penalty), or (2) offers employer-sponsored coverage that is not “affordable” (exceeds a specified percentage of the employee’s household income) or does not offer “minimum value” (the plan’s share of the total allowed cost of benefits is not at least 60%) (the “Insufficient Coverage Penalty”).

The No Coverage Penalty is equal to a yearly maximum of $2,120 multiplied by the number of full-time employees minus 30 (80 for 2015), while the Insufficient Coverage Penalty is equal to a yearly maximum of $3,180 for each full-time employee receiving the federal subsidy. These penalty amounts are calculated monthly.

With respect to the Insufficient Coverage Penalty, we understand that the District, through the Trust, provides health benefits to those employees employed .333 FTE and above, and the coverage meets the minimum value and affordability requirements. With respect to those employees .333 FTE and above, it is highly unlikely the District would be subject to an Insufficient Coverage Penalty.

Determining Full-time Employees

The No Coverage Penalty and the Insufficient Coverage Penalty hinge on whether an employer offers coverage to full-time employees. An employee is considered to be full-time if the employee works at least 30 hours per week in any month, and 130 hours of service per month is equivalent to 30 hours of service per week.

The regulations clarify how employers can use a monthly measurement period to determine whether an employee is full-time in “real-time,” and the usage of a look-back period for certain groups of employees. The regulations confirm that variable hour employees are those whose full-time status is uncertain upon hire, defines “seasonal employees” as an employee who is hired into a position for six months or less around the same time each year, and defines “part-time employee” as a new employee reasonably expected to work <30 hours per week on average during the initial measurement period. If any of these non-full-time employees average 30 or more hours per week during an initial measurement period, the employer must provide health insurance coverage to these employees during what’s called a subsequent “stability period” of at least six months.

Lastly, rehired employees are treated as new employees for purposes of the measurement periods if the rehired employee leave had a break in service ≥26 weeks.

Issues for the District and Trust to Consider

Risk Tolerance. The District faces a number of choices in how it deals with the employer shared responsibility requirements. The least amount of risk involves providing affordable health insurance coverage to all employees soon after hiring the employees. This approach has the least risk for penalty liability and is the simplest to administer, but is the most costly. At the other end of the spectrum, the District could use the regulations to maximize flexibility, resulting in high administrative burdens and potentially triggering some penalties.

FTE Required for Coverage. Because the District already provides benefits to all employees working .333 FTE and above, it is close to the low risk end of the spectrum and may not wish to change current practices. However, this coverage makes employees ineligible for federal subsidies if they were to purchase coverage in the Washington Marketplace. SEIU has raised this issue in Trust meetings previously, and has asked for this issue to be considered. If a change in coverage were to occur, such as by requiring that the employee work .75 FTE before being offered health insurance coverage, it may have an adverse impact on the cost of the plans offered through the Trust since rating methodology currently includes all those eligible for Trust health insurance coverage.

Variable and Part-Time Employees. The HR department is going to have to adopt a framework for counting the hours of some employees, such as coaches and daily substitutes, to determine whether and when coverage will have to be provided to them in order to avoid penalties. These issues are currently being discussed amongst the District and Trust counsel, and ultimately will require extensive “person hours” to implement the new and on-going framework.

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