Can employers get around the Affordable Care Act‘s employer mandate provisions by cutting employees’ hours below the requirement for full-time employees?
This is a question that employers, lawmakers and the American public alike have been asking since the health care reform law went into effect. And now, thanks to the US District Court for the Southern District of New York’s decision to hear the Marin vs. Dave & Buster’s case, it looks like we may be closer than ever to having a definitive answer.
Marin vs. Dave & Buster’s is a class action lawsuit in that claims the company violated federal law by purposefully reducing employees’ hours so that they would no longer be eligible for health benefits. On February 9, 2016, the court rejected Dave & Buster’s motion to dismiss the case, which makes it the first time a federal court will hear arguments on the issue.
The Affordable Care Act (ACA) requires all applicable large employers (those with 50 or more full-time equivalent employees) will be required to offer coverage in accordance with its employer shared responsibility, or “employer mandate,” provisions. ALEs that don’t comply with these requirements will be subject to costly penalties. For the purposes of the Affordable Care Act, “full-time employees” are defined as those who perform an average of at least 30 hours of service per week, or at least 130 hours of service per month.
But it’s not just the ACA at play in this case. Section 510 of the Employee Retirement Income Security Act of 1974 (ERISA) states that it’s unlawful for an employer to interfere with an employee’s right to health benefits to which they are entitled under the plan. The Marin v. Dave & Buster’s case marks the first one to use ERISA to challenge the policy of “right-sizing” an organization’s workforce to minimize their health care costs under the ACA.
Employers should carefully watch the progression of this case, as it will set the precedent for how courts will treat employers who have implemented similar policies. This case is the first of its kind, and will set a precedent for other employers who are considering or have implemented similar strategies for their employees’ work hours as a result of the ACA.
Right-sizing isn’t the only strategy available to employers interested in minimizing the impact the ACA has on their business, however. Below are two alternative strategies employers can choose to implement instead:
Measurement periods provide employers with the time to determine, in advance of the point at which the employer must start offering coverage, which employees are eligible for coverage (i.e. qualify as full-time employees). An employee’s status (full-time or part-time), as determined by the measurement period, would then be in effect for the accompanying stability period, regardless of a change in the hours the employee worked.
Employers who choose to use measurement periods can set these periods for as short as three months, or as long as 12 months. A longer measurement period is often attractive because it may reduce the number of plan-eligible FTEs based on the hours worked over this extended period of time. Employers should keep in mind, however, that longer measurement periods must, by law, be accompanied by longer stability periods, which could mean an employer may be required to continue covering someone long after they’ve changed to part-time status.
While these two types of plans are certainly the lowest cost options, only offering an MEC plan is not necessarily an advisable course of action. MEC plans are relatively “skimpy” plans that could saddle an employee with significant out of pocket expenses if they encounter a serious and expensive medical condition, and could even lead to bankruptcy. Instead, employers who want to offer MEC plans should also offer other plan options. If an employee still chooses an MEC plan, then the responsibility remains with the employee.
For additional strategies to mitigate the impact of the ACA on your business and to determine your business’ risk of incurring significant ACA-related costs, check out our post: Preparing For The ACA In 2016: Employer Strategies
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.