ACA Affordability Safe Harbors

Q: Does an employer have to use the same safe harbor for all of their employees?

A: An employer may choose to use one safe harbor for all of its employees or to use different safe harbors for employees in different categories, provided that the categories used are reasonable and the employer uses one safe harbor on a uniform and consistent basis for all employees in a particular category. If an applicable large employer offers multiple health care coverage options, the affordability test for a particular employee applies to the lowest-cost self-only coverage option that provides minimum value and that is available to that employee.

Additional Resources:

Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act

“The Five Ws, and One H of Affordable Care Act (ACA) Affordability Safe Harbors” Alera Group, 23 Sept. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-affordable-care-act-aca-affordability-safe-harbors-092320/.

Leave of Absence & Employee Benefits

Q: I have an employee whom is out on FMLA due to an injury outside of work. If he chooses to decline insurance at open enrollment and then comes back to work later this year, would he be able to re-instate his insurance at that time?

A: Yes. When an employee is on FMLA they do not have to continue their benefits and upon return to work, all benefits must be restored without requalification. (Even if the employee chooses not to retain coverage during leave, the employer is obligated to restore coverage upon reinstatement). Or stated another way, an employee is free to stop their benefits while on FLMA at any time and then have them reinstated upon return.

The “rule” behind this is found here: §825.209   Maintenance of employee benefits.

(e) An employee may choose not to retain group health plan coverage during FMLA leave. However, when an employee returns from leave, the employee is entitled to be reinstated on the same terms as prior to taking the leave, including family or dependent coverages, without any qualifying period, physical examination, exclusion of pre-existing conditions, etc. See §825.212(c).

Q: We are a small employer (35 employees) and are not required to give FMLA leave; however we have elected to do so for our one employee who is due to give birth in the beginning of October. The company does plan to cover our portion of the medical benefits and during the period that she does not draw a paycheck, she will pay her portion of benefits directly to us. When does leave officially start and what the best practice is notify the employee of this start?

A: Let’s start with the basics. An employer who is not subject to FMLA, can provide a leave of absence (LOA). This LOA however, would not be a “protected” leave (e.g. requiring benefits to continue) under the federal FMLA law. Therefore, the first consideration is to check with the insurance carriers. In general, when on an unpaid, unprotected LOA, this is considered zero hours worked. If the plan’s eligibility requirement is 30 hours/week, they would no longer be eligible for benefits and COBRA should be offered due to a reduction in hours. TIP: An employer will want to verify whether their carriers will allow benefits to be maintained for someone on an unprotected LOA.  (If self-funded, check with the stop-loss carrier.)

NOTE: All employers, regardless of size, should have a formal, written LOA policy in their employee handbook. This policy would outline the LOA “rules” (e.g., what qualifies, when it starts, if PTO has to be used first, how long permitted, payment schedule & late payment rules, etc.), which would ensure not only that their employees are aware of their “rights” but also to ensure it is applied on a uniform and consistent basis, to avoid employee relations issues & discrimination claims (an employment law issue).

An employer not subject to FMLA, could follow the guidelines for FMLA (Family and Medical Leave Act Employer Guide), assuming approval is obtained from carriers. Otherwise, again, coverage would terminate and COBRA offered when the employee is no longer working full-time.

Additional Resources:

“The Five Ws, and One H of Health Reimbursement Arrangement (HRAs)” Alera Group, 25 Aug. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-health-reimbursement-arrangement-hras-082520/.


Understanding Wrap Plan Documents & Summary Plan Descriptions

Many employers do not fully understand Employee Retirement Income Security Act (ERISA), how it impacts business and employees, and the possible risks it presents. Employers face strict deadlines and liability under ERISA law and failure to comply with ERISA requirements can lead to costly government penalties and even employee lawsuits. According to a U.S. Department of Labor (DOL) audit report for the 2019 fiscal year, 67% of investigations resulted in penalties or required other corrective action.

One requirement under Section 402 of ERISA is that all employers who offer group health and welfare benefits to their employees, maintain a written plan document, and distribute summary plan descriptions (SPD) to plan participants.

The plan document must clearly identify certain information and provisions about the plan benefits, including the responsibilities for the operation and administration of the plan. Whereas the summary (of the) plan document (SPD) also referred to as a summary plan description, is the primary vehicle for informing participants and beneficiaries about their rights and benefits.”

Many employers make an incorrect assumption that the documents (e.g., coverage certificate or plan booklet) they received from their insurance carrier or third-party administrator (TPA) satisfies ERISA’s plan document requirements. It is true, these documents generally include detailed descriptions of the benefits available under the plan however, they do not contain everything that is required to satisfy ERISA’s plan document requirements. Group insurance policies are written to cover the legal needs of the insurance carrier, not to satisfy the requirements of ERISA, or to provide legal protection to the Employer.

ERISA’s requirements are the responsibility of the employer and plan administrator, not the insurance company. If the insurance booklets do not satisfy ERISA’s requirements, it is the employer that violates ERISA, not the insurance company.

 A Wrap Plan Document Fills the Gaps

A Wrap Plan Document is an umbrella document that wraps around existing carrier documents to ensure the required provisions and language to comply with ERISA are provided.  It contains legalese.  This umbrella document incorporates all other welfare plans, insurance contracts (medical, dental, vision, etc.) and other relevant documents to create one “plan”, generally referred to as ABC Company’s Health & Welfare Benefit Plan. The Wrap Plan Document provides additional legal protection for the employer and plan fiduciaries and can simplify plan administration.

A Wrap Summary Plan Description is a Summary [of the Wrap] Plan Document written in language that can be understood by the typical participant. It wraps around the carrier certificate of coverage or other benefit plan documents, to ensure ERISA’s requirements which are often missing from carrier documents are included. To be compliant, the Wrap SPD and accompanying benefit plan component documents must be distributed to plan participant at specific times.

The benefits available under a wrap plan document (e.g., ABC Company’s Health & Welfare Benefit Plan) are still governed by the insurance carrier’s policies. The wrap document simply supplements the information necessary to comply with ERISA—filling the gaps left by the insurance carrier’s (or TPAs) plan booklets.

Resources:

“The Five Ws, and One H of Wrap Documents.” Alera Group, 10 Aug. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-wrap-documents-081020/.

Summer Interns & Employee Benefits

internswantedwsj

The term “intern” is a common word which most everyone understands is a person who works (sometimes unpaid) for a temporary period of time for a company.  The classification of “intern” however is not something recognized by the ACA; they are not defined for ACA purposes. Rather, for Applicable Large Employers (ALEs) to avoid exposure to employer shared responsibility penalties, all their W-2 employees should be classified on their start date as either full-time (FT), part-time (PT), variable hour (VH) or seasonal depending on the facts and offered benefits accordingly.

Can’t they just be classified as Seasonal?

Although it is true, the ACA does not require an ALE to offer coverage to a “seasonal” employee, seasonal is not synonymous with ‘intern’ so it is imperative to understand how the ACA defines seasonal, to avoid exposure to penalties.

Per Treas. Reg. 54.4980H-1(a)(38) the term seasonal employee means “an employee who is hired into a position for which the customary annual employment is six months or less”. 

Customary” means “that by the nature of the position an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter” [Emphasis added]

Examples:

  • Ski resort instructor hired each year from November until March
  • A cattle ranch who hires extra ranch hands during foaling season, April – Sept.

However, there are no special pay or play rules for internships. Therefore, when deciding how to classify an “intern”, a key part of the seasonal definition that needs to be considered is “approximately the same part of the year”.

An employer who only hires temporary, full-time positions (i.e. interns) at a specific time of the year (e.g. summer) and they work for less than six months, it may be possible to classify them as seasonal. However, an employer who hires interns at various times of the year, those interns may not satisfy the seasonal definition.

Why does it matter?

An ALE mislabeling their interns as seasonal and not offering coverage for any month in which they were required to be treated as full time, may face ACA noncompliance penalties. i.e.  If the interns are less than 5% of the employee population, $321.67 per month, the §4980H(b) penalty in 2020. If they make up more than 5%, there is exposure to the §4980H(a) penalty, 1/12($2,570) per month x total number of full-time employees minus 30.

It is possible under the right circumstances for an intern to be seasonal, however, intern is not synonymous with seasonal employee.

Employee Benefits

If interns are hired with the intent to work 30 or more hours a week on average, then they are full-time employees even if their employment is temporary.  Thus, for an ALE to avoid a shared responsibility penalty, they would need to be offered ACA compatible coverage after the applicable waiting period but no later than the 91st day of employment.

Options to Consider

  1. Exclude interns from coverage (if they make up fewer than 5% of the employer’s full-time population) and accept the risk exposure to the §4980H(b) penalty for any month in which the intern is required to be treated full-full time.
  2. Offer interns the same coverage as permanent, full-time employees. (Many interns, if they are college students may be on their parent’s insurance and are uninterested in paying for their own coverage.)
  3. Establish a separate class for interns with a longer waiting period than the permanent, full-time employees (e.g. the 91st date of employment) with the intent of the intern not working longer than 90 days and not ever becoming eligible for benefits.

Note: This option requires carrier approval (some carrier’s systems are not set up to handle mid-month enrollment, nor prorate premiums) and the employer would want to continue to perform applicable nondiscrimination testing to ensure it doesn’t negatively affect the testing.

FT, PT, VH or seasonal are the only classification options for ACA purposes. Misclassifying an intern (i.e. failing to treat them as FT for ACA purposes) may expose an ALE to ACA penalties.

 

Texas Senate Bill 1264: Protecting consumers from surprise medical bills

surprise

A new senate bill in Texas went into effect 1/1/2020 — Senate Bill 1264: Protecting consumers from surprise medical bills. This law is applicable to all fully insured major medical plans issued in Texas, plus state employees or those with plans via the Teacher Retirement System (TRS).

What does it do?

Bans doctors and providers from sending balance bills (e.g. person goes to an in-network provider for surgery and receives an out-of-network (OON) bill from an anesthesiologist for the amount insurance didn’t cover) to patients in two situations:

  1. Someone has surgery or gets treatment at an in-network hospital or facility but gets care from an ER doctor, anesthesiologist, radiologist, or other provider who doesn’t have a contract with their health insurance plan.
  2. Someone gets treatment for an emergency at an out-of-network hospital or emergency facility.

Under the new law, in these scenarios, the health care provider must apply for arbitration or mediation to resolve the outstanding balance with insurers, they may not balance bill the patient.

What does this mean? 

The law is meant to help keep the patient out of the middle whereas previously, these “surprise” bills were up for the patient to resolve or risk being sent to collections for non-payment. Now, if a patient receives a “balance bill” from unknowingly receiving care for services received on or after 1/1/2020 from an out-of-network provider (Scenario 1 above) or in an emergency situation (Scenario 2), if their plan is fully insured*, the first step is still always to contact the health plan (e.g. call the number on the back of their id card) to ensure the claim was processed correctly. It may simply be a matter of the carrier needing to reprocess the claim.

Remember though, their visit to an emergency room (ER) must be a true emergency, (i.e. an illness or injury which places their health or life in serious jeopardy and treatment cannot be delayed such as difficulty breathing, chest pain, severe bleeding, broken bone or a head injury) not merely something that is urgent (i.e. sore throat, sprain, rashes). If they go to the ER for a non-emergency and it’s is an out-of-network facility, this new law will not be applicable.

However, if for some reason their insurance carrier is not able to be helpful, (e.g. it’s not a claims processing issue, it’s the radiologist sending a balance bill) there is a form for a consumer to fill out to get help with a “surprise bill” from TDI (Texas Department of Insurance). Remember a carrier does not have influence over how an OON provider handles their billing process. An OON provider is not under contract with an insurance carrier.

Additional information about SB 1264 may be found on TDI’s website.

*If one is unsure whether their health insurance plan is fully insured and subject to this new law, insurance cards for state-regulated plans have either “DOI” (department of insurance) or “TDI” printed on them. Click here for health plan ID card examples showing TDI or DOI.

‘Tis the Open Enrollment Season – Don’t Forget About Those on COBRA

COBRA OE

‘Tis the season for not only the holidays, but many employers are in the midst of open enrollment.  There’s so much to think about that it’s easy to forget important tasks, like notifying COBRA participants.

Have you sent COBRA open enrollment kits notifying your COBRA participants* of the new plan options and rates?

If  “Ummm….what?” is your first thought, keep reading……

COBRA regulations provide that COBRA participants (i.e. qualified beneficiaries) have the same health insurance rights during open enrollment as their former employer’s active employees. So although, a qualified beneficiary was only entitled to continue the coverage in place immediately before the qualifying event,  COBRA participants at open enrollment may:

  1. Add/drop coverage
  2. Add/drop dependents
  3. Switch from one group health plan to another
  4. Switch to another benefit package within the same plan

to the same extent that similarly situated active employees can.

Therefore, COBRA participants must also receive an open enrollment packet containing not only any updated information about the plans and changes to rates but also all required open enrollment disclosures.

Avoid a Common Pitfall

Many employers use a COBRA administrator and believe they automatically send all required notices on their behalf. However, COBRA open enrollment packets are generally an opt-in service, often for an additional fee.  Ultimately it is the employer who is responsible for ensuring participants receive the information, so it is worth reaching out to your COBRA administrator if you are not sure whether they’ve been sent.

While open enrollment may be winding down for many, don’t be caught off guard. To be compliant, it’s important that employers, remember to notify COBRA participants of open enrollment, as if they are active employees. Employers who fail to communicate open enrollment options to COBRA participants, may be exposed to legal action, including expensive lawsuits and penalties.

*For the purposes of Open Enrollment, COBRA Participants are individuals currently enrolled and paying for COBRA, individuals in their 60-day election period, and individuals who have elected, but not yet paid for, COBRA.

Spouse’s Open Enrollment – Can I drop my employer’s plan?

 

3AAD19E0-733F-4430-B8E4-66E8C19DA078Q: It is open enrollment at my spouse’s employer. If my spouse adds me to their medical plan can I drop my coverage on my employer’s plan, even though it’s outside of our open enrollment?

A: The IRS has rules (26 CFR § 1.125-4 – Permitted election changes) on what changes to pretax elections outside of open enrollment are permissible. It’s these rules which are used to create an employer’s Section 125/Cafeteria plan. An employer may design their plan to be as permissive as the IRS (which in my experience is the norm) but there is no requirement to recognize all of the permitted election changes. So, your employer’s Section 125/Cafeteria plan document is where one should look for which rules are permissible for an employee, based on your employer’s plan design.

That being said, assuming your employer is using an “off the shelf” plan and are as permissive as what the IRS allows, then yes, change in coverage under another employer’s plan is a permissible midyear change event allowing you to decrease or revoke your election if you have elected corresponding coverage under your spouse’s plan.

So assuming your employer’s S.125/Cafeteria plan recognizes “change in coverage under another employer plan” as a permissible mid year change event, if you enroll in medical coverage under your spouses plan during their open enrollment, you may drop your employer’s medical plan. The IRS allows open enrollment under another employer plan/different plan year to be a permissible midyear change event to help resolve “election gridlock”. Otherwise an employee would have to have double coverage or go without coverage for a period of time in order to “synch” up with the plan they want to be enrolled in.

However, keep in mind, the ‘consistency rule’ always applies with any midyear event. Which means the election change must be on account of and corresponds with the change on the other employers plan. e.g. if only enrolling in spouse’s medical, you couldn’t also drop your dental coverage

Reminder: Nondiscrimination Testing Required for Cafeteria Plans

reminder finger

Employers, regardless of size, who provide a cafeteria plan (also known as a Section 125 plan) are required to perform nondiscrimination testing (NDT) as of the last day of their plan year. 

Definition: In general, Section 125(d)(1) defines the term “cafeteria plan” as a written plan under which— (A) all participants are employees, and (B) the participants may choose among 2 or more benefits consisting of cash and qualified benefits. 

In other words, a cafeteria plan is what permits employees to pay for qualified benefits, such as group health insurance, on a pretax basis, reducing both the employees’ and the employer’s tax liability.

However, in order for the employer (and employee) to receive the tax advantages associated with a cafeteria plan, the Internal Revenue Code (IRC) requires testing to ensure highly compensated employees (defined as $125,000 for 2019 plan year testing) and other individuals key to the business (i.e. officers, more than 5% shareholders or spouse/dependent of the highly compensated employees or these key individuals) do not receive a more favorable tax treatment (i.e. does not discriminate in favor of highly compensated employees).

Although the Section 125 rules only require an employer test “as of the last day of the plan year”, corrections are not allowed to be made retroactively after the plan year ends. Therefore, best practice is for a plan to be tested more than once, allowing an employer to possibly make adjustments to ensure the plan passes at the end of the year to preserve the tax treatment for the highly compensated and key employees. Otherwise, if a plan fails (i.e. found discriminatory) at the end of the year, the affected employees would be taxed on their total election amount.

If you haven’t ran your nondiscrimination tests, now would be a good time to engage a qualified vendor or legal counsel to perform the applicable nondiscrimination testing and possibly detect potential problems that may be resolved before the end of the plan year.

NOTE:  In addition to Section 125 NDT, the IRS Code requires other nondiscrimination testing to be done annually too. For instance, employers who sponsor a health FSA, which is considered a self-insured health plan, would be subject to both Section 125 & Section 105(h) testing, their dependent care FSA would be subject to Code Section 125 & Section 129 NDT.

 

Turning 26 and Coverage On Parent’s Health Insurance

26th birthday

Background:

Under the Patient Protection and Affordable Care Act (ACA) plans and issuers that offer dependent child coverage must “continue to make such coverage available for an adult child until the child turns 26 years of age.” This requirement is regardless of the child’s dependent status, residency, student status, employment status or marital status.  This rule applies to all health plans in the individual market and to all employer health insurance plans. (29 CFR 2590.715-2714 – Eligibility of children until at least age 26.)

Termination of coverage:

The ACA requirement for adult coverage applies only until the date that child turns 26. However, some states have laws extending coverage through the end of the month the child turns 26, or until the end of the billing cycle or calendar year or possibly beyond age 26. Check with your carrier, or policy documents to verify when coverage for a child who turns age 26 ends.

COBRA:

In general, employees must notify the employer in writing within 60 days of their dependent turning 26. In turn, employers with 20 or more employees, must provide a notice of COBRA eligibility, enrollment forms, duration of coverage and terms of payment to the individuals who are no longer eligible for coverage as a dependent under their parents plan.  (Employers with 20 or fewer employees, may have similar obligation under State law e.g. Mini-Cobra, instead of under COBRA.)

Note:  

Most states have an exception to the limiting age for disabled children. For instance, for group policies issued in Texas, a child who is not capable of self-sustaining employment because of mental retardation or physical disability and who is chiefly dependent on their parents for support and maintenance must be allowed to remain on his or her parent’s insurance, without regard to age. The employee must provide to the insurer proof of the child’s incapacity and dependency:

(1)  not later than the 31st day after the date the child attains the limiting age;  and (2)  subsequently as the insurer requires, except that the insurer may not require proof more frequently than annually after the second anniversary of the date the child attains the limiting age.

(Sec. 1201.059. TERMINATION OF COVERAGE BASED ON AGE OF CHILD IN INDIVIDUAL, BLANKET, OR GROUP POLICY.)

Why does it matter?
  1. Financial benefit: Dependents represent a large portion of the cost of many employers’ health plans. Older children who have passed age 26 are often inadvertently included on an employee’s health plan because of a lack of understanding on the part of the employee or a lack of communication on the part of the employer, including not having a process to update the status of dependents.
  2. Rejected claims: Often, ineligibility isn’t determined until a dependent makes a very large claim, at which point the provider might deny coverage.

Ensuring dependents do not remain enrolled longer than they are eligible, protects not just the employer, but also the employee and his or her loved ones from future legal and financial risk.