PPACA § 1558: Trap for the Unwary

Last week, the U.S. Department of the Treasury (“Treasury”) made a major announcement that indicated the employer responsibility penalties established by the PPACA (“Patient Protection and Affordable Care Act”) will be delayed until 2015. Some initial observations pertaining to the delay can be found here.

Most employers are likely anxious to determine the answer to one question: how much additional time will be provided to employers to institute changes that are prudent under the PPACA? The initial reaction of many employers may be that the delay will provide a full additional year to institute such changes; however, this view may not be correct. If it is necessary for an employer to reduce employee hours to minimize the impact of the PPACA’s employer responsibility penalties, then changes may need to be made no later than January 1, 2014.

To oversimplify things, the PPACA’s employer responsibility penalties leave employers with three choices. First, an employer could provide all employees that work over 30 hours a week with “affordable” health insurance coverage that provides “minimum value.” Second, an employer could choose to pay the employer responsibility penalties established under the PPACA. Third, an employer could reduce the hours of all employees that are not provided with health insurance so that they average less than 30 hours of service per week, subject to considerations under ERISA § 510 for non-governmental employers. Although the penalty provisions will not be applicable until 2015, § 1558 of the PPACA (herein “the discrimination provision”) may force employers that wish to take advantage of the third option to reduce employee hours before January 1, 2014.

Nondiscrimination Provision

If one or more of an employer’s employees obtain a subsidy through an exchange and the employer subsequently reduces the hours of the employees that obtain subsidies, then the nondiscrimination provision of the PPACA may apply. Under the law, if an employee feels that she has been discriminated against because of her attainment of a subsidy from an exchange, she may file a complaint with the Department of Labor’s Occupational Safety and Administration (“OSHA”). Subsequently, OSHA will investigate the complaint and may require various forms of relief if discrimination is discovered, such as restoration of the employee to their previous position (presumably including restoration of reduced hours), back pay with interest, and restoration of benefits. Further, employers could be required to pay attorney fees and other expenses incurred by OSHA in investigating the complaint.

The PPACA contains several nondiscrimination provisions that went into effect the day the PPACA became law, which occurred on March 23, 2010. The nondiscrimination provision that bars discrimination against individuals that have received a subsidy from the exchanges also went into effect on March 23, 2010; however, the provision cannot have an effect until the exchanges are operational and individuals are able to receive subsidies from the exchanges, which will not occur until January 1, 2014.

Subsidy Eligible Employees

The nondiscrimination provision will only apply if an employer’s employees obtain a subsidy from the exchanges. Individuals will be eligible for a subsidy if they have a household income ranging from 100% to 400% of the federal poverty line, but an individual can only obtain a subsidy if their employer does not provide “affordable” health insurance coverage that meets a “minimum value” requirement—a discussion of the affordability element can be found here.

Even if an employer’s employees are eligible to receive a subsidy, employees must actually utilize the exchanges to receive a subsidy; however, employees are likely to do so because they will receive notices about the exchanges and they will be enticed to utilize the exchanges. Both the federal government and private organizations will be working to educate Americans about the exchanges. A discussion of the newly launched HealthCare.gov, which was redesigned to provide information about the exchanges, can be found here, and a discussion of the efforts of a private organization working to educate individuals about the exchanges can be found here . Further, the individual mandate has not been delayed and will motivate individuals to obtain insurance, and the subsidies available through the exchanges for individuals near the federal poverty line will be generous—a general discussion of the high likelihood that individuals eligible for subsidies through the exchanges will use the exchanges can be found here . For these reasons, an eligible employee will likely utilize the exchanges and obtain a subsidy, which will trigger applicability of the PPACA’s nondiscrimination provision.

The Bottom Line

Based upon current guidance, it appears that PPACA § 1558 will substantially curtail the ability of employers to reduce hours to minimize the impact of the PPACA shared responsibility penalties. For all intents and purposes,  PPACA § 1558 will become operational on January 1, 2014, necessitating that any staffing modifications be made prior to that date.  Moreover, unless Treasury provides for transition measurement periods for 2015 (similar to those previously available for 2014), staffing changes will need to be made sooner than later, notwithstanding the relief granted by Treasury last week.  This blog will provide additional information on this subject once Treasury issues guidance regarding the required measurement period for 2015.


 

About Jim Hamilton

I am an employee benefits partner with Bose McKinney & Evans LLP. My broad-based practice covers health and welfare arrangements, insurance, executive compensation and federal and state taxation. Among other areas, I have specific experience with PPACA, HIPAA, COBRA, ERISA and numerous other state and federal laws affecting employee benefit plans.
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