By Tracy D. Leeth, J.D., CEBS, Benefits Compliance Consultant, Cobbs Allen
Beginning in 2015, “applicable large employers” (with 50+ employees, counting part-timers on a prorated basis) must offer certain health coverage or be subject to a potential penalty under the Affordable Care Act (ACA). There are two types of penalties §4980H(a) and §4980H(b) which may be triggered if at least one full-time employee receives a subsidy through the public Exchange.
An employer must offer “minimum essential coverage” (health plan) to at least 70 percent of full-time employees (for 2015, and at least 95 percent thereafter) and their child dependents to avoid the §4980H(a) $2,000 penalty. When triggered, this annual penalty amount is assessed monthly at a rate of $166.67 on each full-time employee minus the first 80 employees (for 2015, and 30 thereafter).
However, an employer’s health plan must be more generous in terms of plan value and employee affordability, in order to prevent exposure to the §4980H(b) penalty. Typically, employer-sponsored plans meet the 60 percent minimum value threshold. Affordability requires that an employee be charged no more than 9.5 percent of income.
A plan that fails ACA’s minimum value and/or affordability tests can expose the employer to a $3,000 penalty (assessed monthly at $250) per full time employee who receives a subsidy through the Exchange.
Generally, subsidies are available to individuals who meet income qualifications of up to 400 percent of the federal poverty level.
Quantify service hours for adjunct faculty members
In addition to the typical challenges of interpreting and applying these requirements, many higher education institutions face a unique set of circumstances – determining whether their adjunct faculty members are full-time for ACA purposes. “Full-time” is defined as averaging 30 or more service hours weekly (or 130 hours monthly).
Traditionally, schools do not track hours for their exempt-adjunct faculty members, whose compensation is based on classes/credits taught, not on the time utilized for non-classroom/contact activities, like student counseling, grading papers and class preparation. Those schools are now challenged to develop a strategy to quantify service hours. Under a typical scenario, adjunct faculty members are hired to teach one to four classes per academic session and may “flex” to pick up an additional shift based on availability. Having a schedule subject to change limits the employer’s ability to predict if and when an employee will work full-time under ACA.
Additionally, service hours for each class may vary by session. This dynamic is prevalent for schools with less structured learning environments, such as those that offer asynchronous distance learning. For example, in lieu of webinars, some classes are taught via discussion threads that students are required to initiate and respond to per the class curriculum. The amount of faculty interaction is based on the students’ work, thereby increasing the potential variance in service hours by class and by session. These circumstances can create a challenge for determining full-time status of adjunct faculty, which makes ACA budget and administrative planning difficult.
The government agencies acknowledge this challenge in the preamble of the final regulations for the Employer Shared Responsibility provision and provide that “[u]ntil further guidance is issued, employers of adjunct faculty, are required to use a reasonable method of crediting hours of service that is consistent with section 4980H.” In addition, the final regulations provide an optional bright line rule applying the formula of “2 1/4 hours of service per week for each hour of teaching or classroom time (in other words, in addition to crediting an hour of service for each hour teaching in the classroom, this method would credit an additional 1 1/4 hours for activities such as class preparation and grading) [and adding] hour[s] of service per week for each additional hour outside of the classroom the faculty member spends performing duties he or she is required to perform (such as required office hours or required attendance at faculty meetings). This method can be relied upon at least through the end of 2015.” Any future guidance that alters this method will include a transition period of at least six months so that schools can prepare accordingly.
However, some schools find this ratio of contact to non-contact hours excessive and are developing more appropriate methods that meet the reasonableness standard. The final regulations disclose that “[a] method of crediting hours is not reasonable if it takes into account only a portion of an employee’s hours of service with the effect of characterizing, as a non-fulltime employee, an employee in a position that traditionally involves at least 30 hours of service per week. . . Whether another method of crediting hours of service in these situations is reasonable is based on the relevant facts and circumstances.” Furthermore, “[t]he course loads assigned to other faculty members may [or may not] be a relevant factor in an employer’s determination of the number of hours of service to be credited to an adjunct faculty member. . . [A] wide variation of work patterns, duties, and circumstances apply in different institutions, academic disciplines, and departments, and apply to different courses and individuals, [which] might factor into the reasonableness of a particular method of crediting hours of service in particular circumstances.”
Keeping in mind the reasonableness standard, some schools have decided to track actual hours. This method may require the purchase of time-tracking software, as well as costs to communicate and train staff. If applied correctly, this method would provide the most accurate information. Also, it will provide the school with data to evaluate over a period of one to two semesters or longer to standardize a calculation for projected hours as an alternative method in the future.
Another approach is to survey the adjunct faculty population for input on their work hours. However, employers should consider the liability of receiving this information and creating expectations. An employer that does not want to be held hostage to the data may not want to ask the question.
Determine full-time status
Once a school has settled on a reasonable approach to quantify service hours, those hours must be tallied to determine if the 30-hour weekly average (or 130 hours monthly) is met.
The regulations allow employers to choose between two methods to measure full-time status of ongoing employees — the monthly method and the look back method.
The selected method must be used for all employees with the exception of a few specified classes of employees who may be treated differently, such as hourly paid and salaried employees.
The monthly measurement method requires an employer to offer coverage for the months during which the employee is full-time. This approach is recommended for employers who can project full-time status for its workforce, or who are comfortable taking the conservative approach – of extending eligibility to employees who may work slightly less than 130 hours monthly – to avoid the risk of penalties.
On the other hand, employers who cannot project hours for a significant portion of employees or want to reduce the number of full-time employees may find value in adopting the look back. Under this method, an employer uses historical data over an extended period of time to determine full-time status. For example, an employer tracking hours over a 12-month period must offer coverage only to employees who accumulate at least 1,560 hours during that time. A disadvantage of the look back method is the administrative burden and complexity of the rules, such a special treatment for rehires and employees returning from a leave or period with no service hours for up to 26 weeks. Schools should work with their benefits consultant to familiarize themselves with the requirements and devise a suitable approach. An employer who finds the task administratively overwhelming may outsource the tracking and offset cost by the savings from the resulting reduction in full-time employees.
The rules described above for determining full-time status for ongoing employees differ from treatment of new hires. In the case of a new hire, an employer must determine at the employee’s start date whether they expect the individual to work full-time. The regulations state that “an educational organization cannot take into account the potential for, or likelihood of, an employment break period in determining its expectation of future hours of service.”
The employer must offer coverage to full-time employees by no later than the first day of the fourth calendar month to avoid potential ACA penalties. However, if the employer cannot reasonably determine whether they expect the new hire to average 30 hours weekly, they may use the look back approach and delay offering coverage until the end of the initial measurement period if the employee qualifies as full-time. The look back method for new hires is slightly different than the rules for ongoing employees. Again, advice from industry experts is highly recommended.
Limit adjunct faculty to part-time
Once a school has a sense of the number of adjunct instructors working full-time, they may evaluate whether it makes sense to maintain those hours or limit schedules for some or all of those employees to under the 30-hour weekly average (or 130 hours monthly) and reduce their obligation to offer health coverage.
Schools that are limiting weekly service hours to less than 30 have amended their faculty loading policies. For example, they may state that adjunct faculty can be scheduled for no more than three courses per academic session or six to nine credit hours (based on a ratio of three to four non-contact hours per credit/course hour). To offset this reduction, excess courses may be assigned to non-adjunct faculty members or other part-time adjunct faculty instructors. Further solutions include additional offloads to other staff members, applying team teaching assignments in laboratories, using fewer adjunct faculty instructors during shorter summer sessions, and assigning non-teaching duties to adjunct faculty between sessions.
Some employers are adding a provision in their adjunct faculty’s employment teaching agreement specifying that the position has a 25-hour work week maximum and does not include eligibility in the employer’s health plan.
The employer expects the employee to perform his or her job duties within these parameters, and may subject him or her to disciplinary action or termination for below-standard work, including lack of efficiency. Such agreements should be reviewed by an experienced employment law attorney and applied consistently by the employer. Another strategy is to implement a policy requiring adjuncts to notify their supervisor for approval if they work in excess of 25 hours weekly, so that employers may control hours or be on notice when an employee may qualify as full-time.
Employers considering a circumvention strategy as described above, should be aware of potential risks. First, ACA §4980H(b) penalties could prove costly if full-time adjunct faculty members receive Exchange subsidies. And if the size of the adjunct faculty population is significant, their eligibility exclusion could put the school at risk for the more costly §4980H(a) penalty.
Another consideration in limiting adjunct faculty service hours is the administrative challenges. Specifically, an employer must develop and apply a consistent approach and effective communication strategy to set and strictly monitor work hours. Buy-in from operations and other managers is crucial. A manager’s lack of following protocol can result in unexpected ACA penalties on the employer.
Furthermore, potential legal issues discourage some schools from taking this approach. Employers should base employment changes on valid business reasons to defend against challenges regarding state laws, ERISA §510, FLSA §18C, ADA, Title VII, and other litigation. Further considerations may include fulfilling WARN Act obligations and increasing unemployment claims and experience rating.
Lastly, such treatment of adjunct faculty members can impact employee recruiting, retaining, morale and productivity. While some instructors have coverage through other plans, such as another employer, Medicare, TriCare, or a spouse’s employer’s plan, those without coverage are more motivated now than ever to pursue coverage due to ACA’s individual mandate. Beginning in 2014, individuals must have health coverage or be subject to a potential penalty – the greater of $95 or 1 percent of income (in 2014; and $352 or 2 percent of income in 2015, increasing thereafter).
Offer health coverage to adjunct faculty members
Upon determining that some or all adjunct faculty members qualify as full-time, the employer has to make a choice as to whether to offer health coverage to avoid potential ACA penalties.
Since this employee population is not covered by the plan traditionally, employers must weigh the costs and benefits of extending eligibility to them.
Regardless of their decisions, employers must budget for additional expenses. If coverage is extended to this population, employers may have to subsidize part of the cost. Some schools may find that offering their current health plan to adjunct faculty is cost-prohibitive. As an alternative, the school may redesign its current plan or implement a less costly (less benefit-rich) plan, which is becoming popular in the marketplace due to the need for certain employers, like schools, to expand eligibility in accordance with ACA requirements. These skinny or bronze plans are priced so low that some employers can charge employees 100 percent of the cost and still meet affordability standards. In situations where this is not the case, an employer may consider assuming the risk of the §4980H(b) penalty if cost is unaffordable for only a handful of employees. This strategy may prove cost-effective for the program overall.
In most cases, employers are finding that offering health coverage is less costly than paying the §4980H(a) penalty for not providing coverage. Additionally, offering coverage to adjunct faculty can provide both the employer and employee with other benefits, such as tax savings, and improved recruiting and retaining.
Ultimately, the best solution for an employer will depend on its workforce dynamics, appetite for risk, budget and other constraints. With application of the ACA penalties upon us in 2015, the time to act is now. For-profit schools must work with their trusted advisors to evaluate projected costs for each option and implement a strategy and cost-effective health plan to address current and future requirement. Schools should monitor the outcomes and stay abreast of future legal guidance, to reevaluate their decisions during 2015 and determine whether to stay the course or make a mid-year change in strategy.
Tracy Leeth is a Benefits Compliance Consultant at Cobbs Allen, where she advises on health care reform and other employee benefit legislation, including ERISA, HIPAA, and COBRA and the impact of these legal requirements on her employer clients. She works closely with the Account Management teams and clients to collaborate on compliant renewal strategies and other projects to meet and exceed client goals and objectives.
She holds the Certified Employee Benefit Specialist (CEBS) designation and sits on the Board of the Birmingham Chapter of ISCEBS. In addition, she is an active member of the National Association of Health Underwriters, including the local chapters AAHU and BAHU.
Tracy frequently speaks to business groups on all matters relating to employee benefits and health care reform.
Prior to joining Cobbs Allen, Tracy spent eight years at an international brokerage firm, where she worked with a variety of employers on plan design, rate negotiation, market trends and benchmarking, contract review and compliance issues. Tracy graduated from the University of South Alabama, where she earned her Bachelor of Science in accounting with an emphasis in taxation. She received her Juris Doctorate degree from the University of Alabama School of Law, and is a member of the Alabama State Bar, as well as the District of Columbia Bar.
Contact Information: Tracy D. Leeth, J.D., CEBS // Benefits Compliance Consultant // Cobbs Allen // 115 Office Park Drive Birmingham, AL 35223 // Phone: 205-874-3617 // firstname.lastname@example.org