Need to provide medical coverage to everyone over 30 hours? Maybe not.

Who is a full-time employee? The answer might be worth millions of dollars.

On August 31, regulators issued long awaited guidance for employers on who must be treated as a full-time employee under the employer responsibility provisions of the Affordable Care Act. With over 700 employers on our CHROME Compass Platform, we are able to provide an initial assessment of the impact of this guidance on employers in various industries. The bottom line? At first blush, it appears that these regulations continue the trend of being "employer friendly". The mandated expansion of coverage to all employees above 30 hours a week has been the single largest budget issue for employers. This is especially true in multi-site retail, hospitality, staffing, and non-union manufacturing. The Look Back\Stability Safe Harbor outlined in the latest regulations potentially provides a means for employers to mitigate the costly effects of expanding coverage through at least the end of 2014. Like so many other things in the ACA however, navigating the most successful strategies to accomplish a particular outcome may be more complex than they appear.  In the same way that we have proven "Play or Pay" analysis to be an overly simplistic and largely unhelpful approach, a simplistic view of this latest regulation may leave employers with a strategy that is sub optimized (or even inconsistent) with their human resources and compensation strategies for segments of their population. Our Certified CHROME Compass Consultants are uniquely positioned to help their clients and prospects take advantage of the nuances created by this latest regulation. Let's take a brief look at several of the issues and definitions that create potential opportunity for many Employers for whom expanding coverage creates a budgetary challenge.

The regulation introduces several new definitions which will necessarily cause employers to thoughtfully reconsider their eligibility guidelines. In a nutshell, the regulations allow the employer to establish a Standard Measurement Period during which they will evaluate whether or not the Variable Hour Employee worked, on average, more than 30 hours a week. The Standard Measurement Period can be not less than three months or not greater than 12 months. If it is determined during the Standard Measurement Period that the employee worked more than 30 hours a week they must be eligible for medical benefits (or the employer is subject to a penalty). Furthermore, they must be offered benefits for the entire length of a Stability Period that is at least six months but not less than the total length of the Standard Measurement Period regardless of the average number of hours they work during this subsequent period. If they don't work more than an average of 30 hours a week during the Standard Measurement Period, then they can be excluded for coverage during the length of the associated Stability Period without the Employer being subject to a penalty – even if the employee enrolls in subsidized coverage in the Public Exchange during this period. Confused yet? Additionally, the employer has the ability to insert an Administrative Period that may neither reduce nor lengthen the Standard Measurement Period or the Stability Period. This Administrative Period can be up to 90 days.  The rules are slightly different for ongoing employees and newly hired employees after January 1, 2014.

Now that we have this guidance, what should an employer do? As we have continued to say since the passage of Health Care Reform, there is no single right or wrong answer. Rather, there are a number of viable strategies to implementing this provision, which need to be evaluated in light of the actual makeup of the employer's workforce and their human resources and budget objectives. Of particular interest to human resources executives will be the desire to balance between administrative simplicity and cost optimization. At least one of our CHROME Clients has already observed that they are likely to adopt a simplistic approach primarily driven by the fact that their existing benefits administration technology is not capable of tracking these issues.  But is the simplest answer the most correct answer? In what we feel is a departure from the apparently "one-size-fits-all" spirit and intent of the Affordable Care Act, this latest regulation allows the employer to use Measurement Periods and Stability Periods that differ either in length or in their starting and ending dates for different categories of employees. While the allowed categories are limited, it is interesting that one of the categories allows an employer to have different rules for employees of different entities or employees that are located in different states. Based upon our initial analysis with several existing CHROME Compass employers, we believe this provision creates some "opportunity" for employers to customize their eligibility guidelines to more specifically meet their human resources and cost objectives. The degree of customization will necessarily increase administrative complexity but the trade-off may be well worth the effort.  We have been making the observation for quite some time that Health Care Reform will place new requirements on employers’ benefits administration platforms, this regulation appears to highlight some of those new requirements.

What actions do employers need to take now? First of all, not all employers have a "Fair Access Index" exposure. Said another way, many employers are already offering coverage to all employees who work more than 30 hours a week. Over half (54.8%) of the employers on the CHROME Compass platform offer acceptable coverage to all of their employees above 30 hours. But for employers who don't, this regulation suggests some immediate analysis, and perhaps some changes in 2013, may be warranted.

The analysis begins by applying a dynamic computer model to hour and wage data for all likely variable hourly and seasonal employees over a 24 month period. Because ongoing employees and new hires can be treated differently, the model must perform analysis that segregates the current employee population by hire date. The dynamic model then illustrates the impact of different length measurement periods and stability periods for each population.  Because of the ability to analyze the employee data in separate categories, consultants also need  the ability to analyze the information to determine whether different periods by employee category might be worth the increased administrative complexity. Depending on the outcome of the analysis, it may be prudent for the employer to make some tactical changes in the way they classify employees in 2013, in order to better reinforce the position they would like to take of the Variable Hour Employees on January 1, 2014.

One of the critical definitions outlined in the regulation is for Variable Hour Employees. "For the purposes of this notice, a new employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.  A new employee who is expected to work initially at least 30 hours per week may be a variable hour employee if, based on the facts and circumstances at the start date, the period of employment at more than 30 hours per week is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week over the initial measurement ."  How does the employer currently refer to job classes that are likely to fit into the Variable Hour Employee definition? Does their current treatment reinforce the employer taking the desired position with regard to the facts and circumstances and the reasonable expectation that these employees will not work over 30 hours over the course of the initial measurement? How will typical employee turnover affect this analysis? What changes need to be made to recruitment materials, employee handbooks, and management training?

As we move closer to January 1, 2014, there will continue to be a series of regulations that we expect will be much like this one. They will provide much-needed clarification around the legislative mandates created by the Affordable Care Act. While these regulations may be complex, we believe they will also create opportunities for leading employers to pragmatically apply them to specifically meet their human resources and budget objectives. A consultant that has laid the groundwork in regards to the conceptual framework and issues brought on by ACA, supported by dynamic financial modeling, will be in the best position to guide their clients’ decision-making over these next 12 months. As always, ContinuousHealth is here to help. We are grateful for the opportunity to deploy our analytic tools across a wide variety of employer environments. Our Certified CHROME Compass Consultants continue to challenge us to provide the most relevant and useful planning platform available. We plan to continue to work tirelessly to be up to this challenge. 

This article was first featured in the September 19th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

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