Affordability Safe Harbors

The IRS lowered the affordability percentage for 2022 –even if you do not increase your premiums for 2022, your health plan may no longer be affordable. To avoid exposure to a shared responsibility penalty, it is important to reevaluate your health plan contribution structure.

The ACA requires employers with 50 or more employees (i.e., Applicable Large Employers (ALE’s)) to provide affordable coverage to employees working 30 or more hours per week or may be liable for a penalty. Determining affordability is based on looking only at the employee share of the lowest-cost monthly premium for self-only minimum value coverage. It does not include any additional cost for family coverage and if an employer offers more than one health coverage option, affordability applies to the lowest-cost minimum value option. The final “employer shared responsibility regulations include three optional safe harbors that an employer may use.

FEDERAL POVERTY LEVEL (FPL):

The federal poverty level safe harbor requires just one calculation. Under this safe harbor, coverage is affordable if the employee’s monthly cost for self-only coverage under the plan does not exceed the federal poverty level for a single individual. The employer can ignore the employee’s actual hours and wages, which is very helpful when calculating premiums for a workforce with fluctuating schedules and compensation. But, the federal poverty level safe harbor often results in high-cost sharing by the employer and relatively low premiums for employees. In 2021, the FPL for calendar year plans $12,760 x 9.83% = $1,254.31/12 =$104.52/mo is the maximum monthly employee-only premium cost to be affordable for employee-only coverage. However, the FPL for 2021 non-calendar year plans may be different. HHS posts the FPL compensation amount annually by February, so the FPL used to calculate the Safe Harbor in December 2020 for a 1/1/2021 plan year, $12,760 was the only FPL compensation level amount available. Whereas, in February 2021, the FPL compensation level is $12,880 9.83%($12,880)=$1,266.10/12 =$105.50/month. Therefore, the FPL for 2022 calendar year plans is $103.14/month ($12,880 x .0961=$1,237.77/12=$103.14) Federal regulations allow employers to select the applicable FPL compensation amount by looking back 6 months before the first day of their plan year. If that look-back period reaches into a prior calendar year and two different FPL compensation amounts (and corresponding FPL affordability safe harbor contribution amounts) are available (one from the prior year and the other from the current year), the employer can choose between the two calculations in applying the FPL affordability safe harbor.

W-2 SAFE HARBOR:

Under the W-2 safe harbor, an employer looks at each employee’s W-2 for the calendar year (as reported in Box 1). To be affordable, the employee’s required premiums for the employer’s lowest-cost self-only coverage cannot exceed 9.83% for 2021 (9.61% for 2022) of that employee’s W-2 wages. This requires a retrospective analysis of each employee’s W-2 wages. In other words, you don’t know whether you passed the test until it’s too late. Alternatively, an employer could attempt to use the W-2 safe harbor at the beginning of the year by setting premium rates which would ensure that employee contributions would fall below the required threshold. However, it’s very risky to set employee contribution rates based on W-2 wages that cannot be determined until after the end of the year, especially for employees with fluctuating schedules and income. Note: W-2 Box 1 income does not include 401k and cafeteria plan deductions, therefore it’s not equivalent to using the employee’s salary or gross pay.

RATE OF PAY SAFE HARBOR:

Rate of pay safe harbor avoids the retrospective analysis of each hourly employee’s W-2 wages because it allows you to assume a rate of 130 hours per calendar month times the employee’s hourly rate of pay. To be affordable, the employee’s required premiums for the employer’s lowest-cost self-only coverage cannot exceed 9.83% for 2021 (9.61% for 2022) of that rate (i.e., 130 hours times the employee’s hourly rate of pay). However, if an employee’s hourly rate of pay is reduced during the year, there are significant limitations on the use of this safe harbor and the calculation of employee premiums. Further, the rate of pay safe harbor is not available for any month that a non-hourly employee’s compensation is reduced, including due to a reduction in work hours. Also, as a practical matter, rate of pay safe harbor cannot be used for tipped employees, commissions or similar compensation arrangements where income fluctuates on a monthly basis.

If you need help in determining whether your plan is affordable or which safe harbor may be best, send an email to: inquiry@compliancerundown.com with the subject line “Affordability Calculator”.

If you have questions about the above or need help with another employee benefits administration question, please contact us! We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

MEDICAL LOSS RATIO (MLR) REBATES

👉Who does this apply to?

Fully-insured health plans only. This does not apply to self-funded health plans or policies for “excepted benefits” such as stand-alone dental or vision coverage.

👉Summary of MLR rebates

The ACA requires health insurers to spend a minimum percentage of their premium dollars, or MLR, on medical care and health care quality improvement.

This percentage is:

-85 percent for issuers in the large group market; and

-80 percent for issuers in the small and individual group markets.

Issuers that do not meet these requirements must pay rebates to the policyholder by Sept 30 of each year, and are based upon aggregated market data in each state, not upon a particular group health plan’s experience.

👉How should employers handle MLR rebates?

Determine which plan or policy is covered by the rebate they received. (The issuer should include policy information as part of the rebate.)

👉Decide how much of the rebate must be paid to plan participants, and how much the employer may keep

-If the plan documents do not specify otherwise, the portion of the rebate that will be considered “plan assets” is the same percent of the total premium that was paid by participants and must be paid to or for the benefit of plan participants.

e.g. If ER contributes 55% of total premiums, EE contributes 45%, then 45% of the MLR rebate is plan assets

👉Must or should the rebate be allocated to both prior year and current year participants?

In most cases, an employer probably can decide to allocate the rebate among only current employee participants, rather than having to track down former employees and send them checks.

👉Decide how the rebate be paid or used

Rebates for plan participants can either be paid to or for the benefit of participants or can be used to pay for benefit enhancements adopted by the plan sponsor.

Common examples:

-Pay the rebate to current employees by including the amount in their paychecks and withholding taxes

-Reduce employees next month’s premiums by the rebate amount

👉When must the rebate be paid?

The “plan asset” portion must be paid within 3 months of the date the employer receives the check from the insurer, or the employer must establish a trust to hold plan assets. 

If you have questions about the above, or need help with another employee benefits administration question, please contact us! We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Open Enrollment Compliance Reminders & Considerations

Open enrollment can be a stressful time for employers. Planning well in advance and ensuring there is time to strategize and set new goals can help alleviate the missteps.

Open enrollment is also a perfect time to address compliance, especially this year with the relaxed regulations that many employers adapted based on their workforce needs.

Prior to open enrollment employers may also need to determine if changes made for the 2021 plan can or will continue in 2022.

Here is a list of open enrollment compliance reminders & considerations:

(Download checklist)

COBRA Beneficiaries

  • Are you notifying COBRA beneficiaries of election opportunities? The “Outbreak Period” has relaxed the timing for elections. Therefore, anyone who is still eligible to elect COBRA will need to receive the open enrollment materials.
  • COBRA beneficiaries have the same rights as similarly situated active employees.

Evergreen/Default Elections

  • How is your election process communicated?
  • Do your plan documents allow for evergreen elections?
  • If you offer an FSA, are you requiring an annual election?

ACA – Offers of Coverage

  • How are offers of coverage being documented?
  • Are you able to provide proof of employees who waive benefits?
  • If you are an ALE, can you confirm that at least one of the health plans offered satisfies the ACA’s affordability standard? (9.83% for 2021 plan years)

Are you providing the mandatory notices?

-CHIPRA                                          
-Medicare Part D
-Wellness Notices
-Summary of Benefits & Coverage (SBC)
-HIPAA Special Enrollment Rights
-HIPAA Privacy Notice
-WCHRA
-Initial COBRA Notice
-Notice of Patient Protections

Open Enrollment Guide

  • Is there a disclaimer indicating that if there are discrepancies between the open enrollment guide, summary plan description & plan document that the plan document will control?

⭐ TIP: Include language in the guide about it also being the Summary of Material Modification (SMM). This prevents the need to create a separate SMM. ⭐

Electronic Disclosure

  • If you are providing your documents electronically, do all employees use a computer as an integral part of their duties? If not, have you received affirmative consent to provide them electronically?

HIPAA Privacy

  • Enrollment data may be considered “PHI” under HIPAA.
  • Do you have a HIPAA Policy & Procedure manual?
  • Are business associate agreements in place?

Correcting/Changing Participant Elections

  • Pre-tax elections are irrevocable after the plan year has started unless the participant. experiences another permissible midyear change in status event (e.g., marriage).
  • Pre-tax elections are required by the IRS to be prospective in most situations.
  • Retroactive election changes are rarely permitted under the tax code.

If you have questions about the above or need help with an employee benefits administration question, please contact us. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

REMINDER – PCORI Fees Due July 31, 2021

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Background:

The Affordable Care Act (ACA) imposes a Patient-Centered Outcomes Research Institute (PCORI) fee for all self-funded medical plans* ending on or before September 30, 2029. If the plan is fully insured, the insurance carrier pays the fee on behalf of the plan sponsor (employer). If the plan is self-insured, the plan sponsor has the obligation to file Form 720 with the IRS by 7/31/2021.

NOTE: Health reimbursement arrangements (HRAs) are considered a self-insured health plan and are subject to PCORI fees. When an employer has an HRA with a fully insured medical plan, it’s considered two separate plans. The carrier pays the PCORI fee for the medical plan and the plan sponsor pays the fee for the HRA. When the employer has an HRA with a self-insured medical plan, they may be treated as one plan for purposes of calculating the PCORI fee.  

*PCORI Fees do not apply to

  • Plans providing HIPAA-excepted benefits e.g. stand-alone dental, vision, health FSAs (if other group health coverage is available and the employer contributes $500 or less)
  • Health Savings Accounts (HSAs)
  • Wellness programs, EAPs, disease management programs that do not provide significant benefits for medical care
  • Stop-loss insurance policies

Calculating the fee:

The amount of PCORI fees due for a self-insured medical plan is based upon the average number of covered lives (i.e. employees, dependents, COBRA participants, and covered retirees) under the self-insured medical plan and the applicable ERISA plan year (see table below).

The amount of PCORI fees due for an HRA is based upon the average number of covered employees (not belly buttons) under the HRA and the applicable plan or policy year.

There are 3 acceptable methods for calculating the average number of covered lives:

  1. Actual Count Method – A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the plan year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method – A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method – An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Once the average number is calculated, Form 720 is what is used to report and pay to the IRS the amount of the PCORI fee due.

2019 New & Renewal Plan Dates Fee per average covered life When fee must be paid
January 1, 2019 through December 31, 2019 $2.54 July 31, 2020
February 1, 2019 through January 31, 2020 $2.54 July 31, 2021
March 1, 2019 through February 28, 2020 $2.54 July 31, 2021
April 1, 2019 through March 31, 2020 $2.54 July 31, 2021
May 1, 2019 through April 30, 2020 $2.54 July 31, 2021
June 1, 2019 through May 31, 2020 $2.54 July 31, 2021
July 1, 2019 through June 30, 2020 $2.54 July 31, 2021
August 1, 2019 through July 31, 2020 $2.54 July 31, 2021
September 1, 2019 through August 31, 2020 $2.54 July 31, 2021
October 1, 2019 through September 30, 2020 $2.54 July 31, 2021
November 1, 2019 through October 31, 2020 $2.66 July 31, 2021
December 1, 2019 through November 30, 2020 $2.66 July 31, 2021
2020 New & Renewal Plan Dates Fee per average covered life When fee must be paid
January 1, 2020 through December 31, 2020 $2.66 July 31, 2021
February 1, 2020 through January 31, 2021 $2.66 July 31, 2022
March 1, 2020 through February 28, 2021 $2.66 July 31, 2022
April 1, 2020 through March 31, 2021 $2.66 July 31, 2022
May 1, 2020 through April 30, 2021 $2.66 July 31, 2022
June 1, 2020 through May 31, 2021 $2.66 July 31, 2022
July 1, 2020 through June 30, 2021 $2.66 July 31, 2022
August 1, 2020 through July 31, 2021 $2.66 July 31, 2022
September 1, 2020 through August 31, 2021 $2.66 July 31, 2022
October 1, 2020 through September 30, 2021 $2.66 July 31, 2022
November 1, 2020 through September 30, 2029 PCORI fee increases by rate of Medical inflation per average covered life (To be announced)

Tips for completing Form 720 for PCORI fees:

An employer/plan sponsor needs to complete:

  • Company information and quarter ending “June 2021” (e.g. for 2020 plan year filing) – although the fee is paid annually, the tax period for the fee is the 2nd quarter of the year
  • Part II, IRS No. 133 Applicable self-insured health plans
    • Column (a), row (c) if plan ended before October 1, 2020, – enter “Avg. number of lives covered for self-insured health plans”

OR

    • Column (a) row (d) if plan ended on or after October 1, 2020 and before October 1, 2021 – enter “Avg. number of lives covered for self-insured health plans”

AND

    • Column (c) – enter total Fee (lives x $)
  • Part II, Line 2 – enter Total Tax (from calculation in IRS No. 133)
  • Part III, Line 3 – enter Total Tax (from Part II, Line 2)
  • Part III, Line 10 – enter Balance Due (from Part III, Line 3)
  • Signature section
  • Payment voucher with “2nd Quarter” checked,
    • Send the form, payment voucher, and check to:
      Department of the Treasury
      Internal Revenue Service
      Ogden, UT 84201-0009

If you have questions about the above, need help with calculating your PCORI fee obligation, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Summer Is Almost Here. Do We Have To Offer Our Interns Benefits?

Are interns eligible for benefits?

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 an Applicable Large Employer (ALE) to avoid exposure to the 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 an intern 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 non-compliance penalties. i.e. If the interns are less than 5% of the employee population, $338.33 per month, the §4980H(b) penalty in 2021. If they make up over 5%, there is exposure to the §4980H(a) penalty, 1/12($2,700) 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, an intern is not synonymous with a 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 their 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-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 never 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. Mis-classifying an intern (i.e. failing to treat them as FT for ACA purposes) may expose an ALE to ACA penalties.

If you have a question, we are here to help! Let us end your employee benefits compliance confusion. Send us an email today!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Affordable Care Act (ACA) Measurement Methods

The ACA has established rules on how to measure an employee’s hours to ensure an employee isn’t denied benefits based on a job title or classification of “part time” when in actuality they are working what the ACA considers full time (i.e. 30 hours a week or 130 hours a month). Part of these rules also includes when an employee must be offered benefits. 

Unfortunately, the measurement rules may be confusing, and often it’s easiest to understand the concept with an illustration (above). First, a few definitions:

  • Standard measurement period (SMP): a period of time (recommended is 12 months) for counting hours of service to determine full-time status for all ongoing employees
  • Ongoing employee: an employee who has been employed for at least one standard measurement period
  • Administrative period: allows time for enrollment and disenrollment, typically it’s 1 or 2 months
  • Standard Stability Period: when coverage must be provided if the employee averages full-time hours during the prior standard measurement period, this timeframe coincides with an employer’s plan year
  • Initial measurement period (IMP): lasts between three and 12 consecutive months, as chosen by the employer (we recommend 12), it begins on the first day of the calendar month following the employee’s start date
  • Initial stability period: when coverage must be provided if the employee averages full-time hours during their initial measurement period. If an employee does not average 30 hours/week during the IMP, the stability period cannot be more than one month longer than the IMP, typically this is the same length as the IMP

The above illustration is what these periods look like assuming a 1/1 plan year.

When an employee is hired as PT, their initial measurement period (IMP) starts the first day of the month after they were hired (e.g., date of hire 3/15/16, IMP starts 4/1/2016) and may last for up to 12 months (this diagram 11 months is used). During the IMP (e.g., 4/1/16 – 2/28/17) their hours are being tracked. At the end of the IMP (e.g., 2/28/2017), if the employee averaged 30 hours a week (or 130 hours a month) they must be offered benefits by the first day of their 13th month of employment which is the first date of their initial stability period (e.g., 5/1/2017). The employee also then must continue to be offered coverage for their entire initial stability period regardless of the number of hours they are working. 

These employees are also being measured during the SMP (e.g., 11/1/2016 – 10/31/2017) being used for all ongoing employees. If during the SMP they measure FT, the employee is eligible for benefits for the duration of the standard stability period (e.g., 1/1/2018 -12/31/2018), which means at the end of their IMP (e.g., 2/28/2017), benefits continue until the end of the standard stability period (12/31/2018). So, in the diagram above, on 4/30/2018 when the initial stability period ends, if from 11/1/16 – 10/31/17 (the standard measurement period) the employee measured full time, their benefits would continue until 12/31/2018. If, however, on 4/30/2018 the employee did not measure full time during the SMP (11/1/16 – 10/31/17) the employee would no longer be eligible for coverage. 

The other method that is available to use is the monthly measurement method, which means each month an employer determines whether an employee is/is not eligible for benefits based on the # of hours they worked the previous month and they would enroll/term accordingly monthly. Not a method that makes administrative sense for an hourly employee with fluctuating hours. 

Reference/Resource:

“The Five Ws, and One H of Affordable Care Act (ACA) Measurement Methods.” Alera Group, 23 Dec. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-affordable-care-act-aca-measurement-methods-102120/.

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/.

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.

 

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.

Did you receive a Medical Loss Ratio (MLR) Rebate?

check in the mail

Summary of Medical Loss Ratio (MLR) rebates

The ACA requires health insurers to spend a minimum percentage of their premium dollars, or MLR, on medical care and health care quality improvement. This percentage is:

  • 85 percent for issuers in the large group market; and
  • 80 percent for issuers in the small and individual group markets.

Issuers that do not meet these requirements must pay rebates to the policyholder (employer) by Sept 30 of each year and the rebates are based upon aggregated market data in each state, not upon a particular group health plan’s experience. In other words, even if a particular employer’s plan’s MLR was below the applicable required standard, they will not receive a rebate unless the particular insurance product they purchased in their market size in their state qualifies for an MLR rebate.

NOTE: Carriers are required to mail out MLR (medical loss ratio) rebates by September 30.

Who does this apply to?

  • Fully insured health plans only. This does not apply to self-funded health plans or to polices for “excepted benefits” such as stand-alone dental or vision coverage.

How should employer handle MLR rebates?

>>Determine which plan or policy is covered by the rebate they received. (The issuer should include policy information as part of the rebate.)

>>Decide how much of the rebate must be paid to plan participants, and how much the employer may keep.

  • If the plan documents do not specify otherwise, the portion of the rebate that will be considered “plan assets” is the same percent of the total premium that was paid by participants. Under ERISA, the portion of the rebate considered “plan assets” can only be used for the exclusive benefit of plan participants and beneficiaries and therefore, must be paid to or used for the benefit of plan participants (more on this below).

  e.g. If ER contributes 55% of total premiums, EE contributes 45%, then 45% of  the MLR rebate are plan assets

>>Must or should the rebate be allocated to both prior year and current year participants?

  • If the employer finds that the cost of distributing shares of a rebate to former participants approximates the amount of the proceeds, the employer may decide to allocate the portion of a rebate attributable to employee contributions only to current participants using a “reasonable, fair, and objective” method of allocation.  (Technical Rel. 2011-04)

>>Decide how the rebate be paid or used

  • If distributing cash payments to participants is not cost-effective (for example, the payments would be de minimis amounts, or would have tax consequences for participants) the employer may apply the rebate toward future premium payments (e.g. premium reduction) or benefit enhancements.
  • An employer may also “weight” the rebate so that employees who paid a larger share of the premium will receive a larger share of the rebate.

Distribution examples:

        1. Pay the rebate to current employees by including the amount in their paychecks and withholding taxes.
        2. Reduce employees next month’s premiums (e.g. premium reduction) by the rebate amount or discount to all employees participating in the plan at the time the rebate is distributed.

>>When must the rebate be paid to participants?

  • The “plan asset” portion must be paid within 3 months of the date the employer receives the check from the insurer, or the employer must establish a trust to hold plan assets.

If an employer receives a rebate, and part of the rebate is “plan assets,” the employer is required to return the appropriate amount to participants. There is no minimum amount (de minimis exception) below which employers do not have to comply with the MLR rebate rules.

Therefore, employers should review all relevant facts and circumstances when determining how the rebate will be distributed and ensure they have procedures in place for determining the amount of any MLR rebate issued by an insurer that would be considered “plan assets” and required to be provided to participants.