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Multiemployer health plans subject to collective bargaining agreements have unique concerns
The Affordable Care Act’s (ACA’s) pay-or-play or “shared responsibility” mandate requires large employers to provide minimum essential coverage and affordable, minimum value (or better) health coverage to their full-time employees and their eligible children—or pay a penalty (potentially $2,000 or $3,000 per eligible employee). These provisions went into effect on Jan. 1, 2015, for employers with more than 100 full-time employees or their equivalent (in part-time workers’ combined hours). In one of many last-minute adjustments to the legislation, employers with 50 to 100 full-time or equivalent employees were granted an additional year, until 2016, to comply.
Multiemployer benefit plans, including labor union and Taft-Hartley plans, have a unique operational structure that sets them apart from the much more common single-employer-sponsored health coverage. This has raised a number of concerns and questions around how pay-or-play applies to them. The provisions encompass a number of mandatory bargaining issues, including whether or not to provide health insurance, choosing the type of coverage and dealing with employee costs.
The Treasury Department’s February 2014 final rule on the pay-or-play mandate helped diminish some lingering concerns among employers. The regulations provide that employers will not be subject to penalty for employees otherwise eligible for coverage under a multiemployer plan if:
• The employer is required to make contributions to a multiemployer plan under a collective bargaining agreement (CBA).
• The plan offers affordable coverage that provides minimum value to plan members—and to their eligible children.
This is the case regardless of whether the eligible employee is, in fact, covered under the multiemployer plan.
Multiemployer plan coverage to which the employer contributes is considered coverage offered “on behalf of the employer.” Therefore, the mandate is satisfied because there is an obligation to contribute to the plan, and the plan controls the eligibility. Furthermore, an employer is treated as offering coverage for all employees under whose multiemployer plan it is required to contribute, even full-time employees who never satisfy that plan’s eligibility rules and are never offered coverage. So employers making contributions to the plan (who arguably never have control over the plan’s eligibility rules) are protected as long as they are making contributions. That the plan may not actually provide coverage does not mean the employer has failed to offer the coverage.
Under the final rule, employers that contribute to multiemployer plans are generally protected from a penalty for a specific full-time employee based on the following criteria:
• The employer is required to contribute to a multiemployer plan on behalf of that employee pursuant to a CBA or participation agreement.
• Coverage is offered under the multiemployer plan to employees (and the employees’ children under age 26) who meet the plan’s eligibility rules.
• The coverage offered by the plan qualifies as affordable and provides minimum value.
Not every multiemployer plan will meet the three criteria, however, so it’s important for plans and contributing employers to thoroughly examine their particular situation and discuss whether these rules apply in specific situations related to dependent coverage, affordability, minimum value and employees who are not covered.
Coverage of Adult Children
The plan must cover children through the end of the month in which they reach the age of 26. The final rule allows a one-year good-faith period for plan sponsors to add dependent/adult child coverage to the plan if the plan does not currently cover them. If in 2015, trustees add dependent/adult child coverage effective for the 2016 plan year, employers are not liable for the employer penalty solely for failing to offer this coverage.
The plan’s coverage must be considered affordable. Affordability is measured based on the employee’s contribution for self-only coverage. Therefore, as long as a participant does not pay anything for self-only coverage under a multiemployer plan, the plan would be deemed affordable.
The final rule also states that coverage under a multiemployer plan will be considered affordable if an employee’s required contribution toward self-only coverage under the plan does not exceed 9.5 percent of that employee’s wages reported to the multiemployer plan. Wages may be determined based on actual wages, or on an hourly wage rate under the applicable CBA.
In general, a plan provides minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is at least 60 percent of those costs. Most multiemployer plan coverage meets or exceeds the 60 percent test.
Employees Not Covered
Large employers that contribute to multiemployer plans for some employees often have other employees who are not covered under the multiemployer plan. These employees should be taken into account when the employer reviews how they provide coverage to all full-time or equivalent employees. The multiemployer rule protects the employer with respect to its employees for whom it has signed a CBA or participation agreement, but it does not change the employer’s responsibilities to provide coverage to those other employees or else pay the penalty.
By way of example, a large employer may have a category of employees that belong to a union and are eligible for coverage under a multiemployer plan. In addition, that employer may also have a group of employees not in a union and subject to a CBA. The employer will not be subject to penalties under the employer mandate for the union employees regardless of whether they qualify for coverage under the multiemployer plan as long as the employer makes the required contributions to the plan, and the plan is otherwise compliant with the criteria mentioned above.
On the other hand, the employer will be subject to penalties for the non-union employees if the employer does not offer compliant coverage to those unrepresented employees and their eligible children.
Employers should be proactive and ask the plan provider or union for confirmation that the plan satisfies the three employer mandate provisions. They can also seek the help of experts on the subject. Even with the Treasury Department’s interim guidance, employers are still obligated to make sure pay-or-play mandates are met. That said, as long as an employer’s CBA requires it to make contributions on behalf of full-time employees, they should be able to avoid penalties.
Likewise, multiemployer plan trustees should make a point to communicate the three criteria to contributing employers. Armed with this information, contributing employers can be confident that they have met the requirements. What’s more, this information will enable them to complete the reporting forms that must be filed with the IRS in 2016 to reflect offers of coverage in 2015.
Michael Jordan is president of labor and strategic accounts at MagnaCare, an administrator of self-insured health plans for employers in New York and New Jersey.
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