Health Care Reform. Handling Changes in Employment Status

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1 Designated Full-Time Position Change to a measured variable hour position not reasonably expected to work 30 hours, NEW EMPLOYEE If a designated full-time new employee experiences a reduction in hours associated with a status change due to a change in employment status but has not been employed for a full standard measurement period applicable to the second position (including service in the first position), the status of the employee as a full-time or non-full-time employee for 4980H purposes will be determined on the basis of hours of service in each month. This is assuming the reduction in hours falls below the stated health plan eligibility provisions. The employer has the following options available to them in handling this situation: 1. Terminate the coverage and offer COBRA at the time of the reduction in hours or to the end if the stability period and then determine ongoing full-time or non-full-time status based on the monthly measurement period through the end of the stability period or until the employee completes a full measurement period. Once a full measurement period is completed, status for the next stability period will be based on the employee s hours of service during the completed measurement period. 2. If an employee has been a designated full-time employee from the start of employment through the time the employee experiences the reduction in hours, a safe harbor is allowed that permits the employer to use the monthly measurement method beginning with first day of the month following three full calendar months following the change in status. The option to use a monthly measurement period applies only if: The employee was offered affordable minimum value coverage from the start of employment (or no later than the first day of the month following three full calendar months of employment) up through the time that the employee s hours were reduced; and, During each of the three full calendar months following the reduction in hours, the employee actually had an average of less than 30 hours of service per week. Page 1 of 8

2 For the first three months following the reduction in hours, the employee s status will be determined based upon the employee s status during the applicable stability period(s). The employer may continue to use the monthly measurement method for the remainder of the stability period and possibly for the entire next stability period (which is through the end of the first full measurement period following the reduction in hours, plus the associated administrative period). Employers may use this rule even if the employee moves to a position that the employer does not otherwise use the monthly measurement method. After the end of the first full measurement period, the employer must apply the look-back method. BLA Comment: A penalty under 4980H(a) may still apply to any month in which the employee averaged 30 or more hours per week (130 hours in a month) and coverage was not offered. If COBRA is offered, the coverage would not meet the affordability requirements of 4980H(b), unless subsidized. The employer penalty assumes the employee declines the COBRA offer, obtains coverage on the exchange and receives a subsidy. The situation may also arise where the employee s reduction in hours may cause the employee contribution to become a burden and essentially unaffordable for the employee based on the salary of the part-time position. If the employees fails to pay the employee contribution, the coverage will be terminated and the COBRA election right will be lost. It s important to remember that the loss of minimal essential coverage also triggers a special enrollment event for the exchange, however a special enrollment event is not triggered when coverage is lost due to failure to pay premiums. Change to a measured variable hour position not reasonably expected to work 30 hours ONGOING EMPLOYEE If a full-time benefit eligible ongoing employee who has been employee longer than one measurement period experiences a reduction in hours due to a change in employment status then the employee s status as a full-time or non-full-time employee is determined solely under the look-back measurement method applicable to the second position as of the date of transfer, including all hours of service in the first position. If the employee s measured hours during the applicable measurement period are insufficient for the employee to continue coverage COBRA would be offered due to loss of coverage due to a reduction in hours being a COBRA qualifying event. Page 2 of 8

3 Measured Variable Hour Position A variable hour employee changes to a designated full-time position (benefit eligible) within the initial measurement period (NEW EMPLOYEE) If a part-time, variable hour, or seasonal employee moves during the initial measurement period into a designated full-time position, then in general, the employer must make an offer of affordable, minimum value coverage that will take effect no later than the first day of the month following three full calendar months following the change in employment status. However, if the employee does qualify as a full-time employee based on the employee s hours of service during the initial measurement period, then coverage must be offered by the first day of the first month following the end of that measurement period, including any associated administrative period, if that date is earlier than the first day of the month following three full calendar months following the change in employment status An variable hour employee experiences a change in hours during a stability period (ONGOING EMPLOYEE) If an ongoing variable hour employee experiences a change in employment status before the end of a stability period, the change itself will not affect the status of the employee as a measured full-time employee (or a measured non-full-time employee) for the remainder of the stability period, if the result of the change in status is solely due to an increase or decrease in the number of hours worked and not a change to a position that would be eligible for benefits if the employee were originally hired into that position. For example, if an ongoing employee working 22 hours per week is not treated as a non-full-time employee during a stability period because the employee s hours of service during the prior measurement period were insufficient for an offer of coverage and the employee experiences a change in employment status that involves an increased level of hours of service (now working 34 hours per week in the same position), the treatment of the employee as a non-full-time employee during the remainder of the stability period is unaffected. As stated above, the employee is unaffected only if the result of the change in status is solely due to the increase in the number of hours worked and not a change to a position. Similarly, if an ongoing employee is treated as a full-time employee during a stability period because the employee s hours of service during the prior measurement period were sufficient for full-timeemployee treatment (working 37 hours per week), and the employee experiences a change in status that involves a lower level of hours of service (a reduction in hours to 25 hours per week in the same Page 3 of 8

4 position), the treatment of the employee as a full-time employee during the remainder of the stability period is unaffected. BLA Comment: In cases where hours are reduced, and even though the employee may be considered full-time for purposes of the 4980H penalties, the employee may not be considered benefit eligible based on the plan s eligibility guidelines. In that case the employer must still make an offer of affordable, minimum value coverage to avoid any possible penalties as the employee is still locked in for the remainder of the stability period. In this situation an offer of COBRA would normally be made due to the loss coverage/reduction of hours qualifying event. If the employer does not subsidize the COBRA premium to an affordable rate as defined by 4980H, a penalty could be applied if that employee were to decline the COBRA offer, obtain coverage on the exchange and receive a subsidy. Also, note an offer of COBRA does not preclude the employee from obtaining coverage on the exchange or their being subsidy eligible if the offer of COBRA is unaffordable. For this reason the employer will avoid the penalty for the offer of coverage (4980(a)) but could still be penalized for not offering affordable coverage (4980(b)). A variable hour employees measured hours are insufficient to continue coverage after having coverage during the prior stability period: If a variable hour employee s measured hours during the current measurement period are insufficient for that employee to continue coverage into the next stability period (assuming coverage was offered and accepted in the prior stability period), the employer would offer COBRA coverage due to the loss of coverage qualifying event. An ongoing variable hour employee goes out on an unpaid leave during a stability period: If an ongoing variable hour employee was identified as a full-time employee during the measurement period, has been offered and has accepted affordable, minimum value coverage and then goes out on an unpaid, non-fmla (non-userra and non-jury duty leave), that employee would remain an employee of the employer until they return from the leave, and would retain coverage to the end of the stability period. However, if the employee had no hours of service for a period of at least 13 consecutive weeks (26 weeks for educational organizations), the employer may treat the employee as a new hire when the employee returns. That means if the employee is a variable hour, seasonal or part time employee (non-benefit eligible), an initial measurement period may be used to determine full time status, i.e., treated the same as any new hired employee. If the employee is a designated full-time employee, the offer of coverage must be made first day of the month following three full calendar months. Page 4 of 8

5 BLA Comment: If the employee returns after 13 (or 26) weeks with no hours, the employee is not a continuing employee and the fact that the employee earned full time status for the entire stability period based on the hours worked in the prior standard measurement period is irrelevant because they had a break in service of at least 13 (or 26) consecutive weeks. Definitions/ Additional Information: Designated Full-Time Employee An employee who is not in a stability period or measurement period due to being benefit eligible and offered coverage the first day of the month following three full calendar months following the date of hire or a change in employment status from a Measured Variable Hour position to a Designated Full-Time position. Effect of COBRA coverage on eligibility for exchange coverage and premium tax credits Centers for Medicare and Medicaid Services (CMS) guidance clarified how an individual s COBRA coverage affects his or her eligibility to enroll in an exchange and receive premium tax credits. The guidance confirms that, during an exchange s open enrollment period or an applicable special enrollment period (SEP), an individual can voluntarily drop COBRA coverage in favor of coverage through the exchange, even if the COBRA coverage has not expired. In this case, an individual also may be determined eligible for premium tax credits. Outside of open enrollment, an individual whose COBRA coverage expires will qualify for a SEP and may also be eligible for a tax credit. But, according to the guidance, an individual who voluntarily drops coverage outside of the exchange s open enrollment period or otherwise applicable SEP will not qualify for the SEP Also, final regulations add an advance availability requirement that allows individuals to select a qualified health plan through the exchange up to 60 days before and after certain triggering events. The 60-day rule reflects concern about coordinating the timing of COBRA notices and elections with exchange coverage to avoid coverage gaps for individuals losing eligibility under an employer-sponsored plan. Thus, based on the guidance, it appears that a qualified beneficiary who elects COBRA generally will be able to enroll in an exchange during the exchange s annual open enrollment period, upon expiration of the COBRA maximum coverage period, or during an otherwise applicable SEP. Also note that employees who elect COBRA are not eligible for premium tax credits during the months in which they are enrolled in COBRA coverage. Page 5 of 8

6 Employer Shared Responsibility Penalties 4980H(a) No offer of minimum essential coverage Any applicable large employer that fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for any month, and at least one full-time employee of the employer has been certified to the employer as having enrolled in a qualified exchange health plan where a subsidy is allowed or paid with respect to the employee, then there is an assessable payment imposed on the employer equal to $2,000 yearly (prorated monthly) times the number of individuals employed by the employer as full-time employees during any month coverage was not offered. 4980H(b)- Coverage offered is deemed not affordable Any applicable large employer that fails to offer to any of it s full-time employees the opportunity to enroll in affordable coverage (see safe harbor methods for determining affordability 4980H (b) below) under an eligible employer-sponsored plan for any month, and that full-time employee of the applicable large employer has been certified to the employer as having enrolled for such month in a qualified exchange health plan with respect to which an applicable premium tax credit or cost-sharing reduction (subsidy) is allowed or paid with respect to the employee, then there is hereby imposed on the employer an assessable payment equal to $3,000 yearly (prorated monthly) for that individual employed by the employer as full-time employees during any month affordable coverage was not offered. Health Insurance exchange special enrollment period A special enrollment period is the time during which you can enroll in an ACA-compliant plan (on or off-exchange) if you have a qualifying life event (see below). In most cases, the special enrollment period lasts for 60 days following the qualifying event. Health Insurance exchange special enrollment period life events Involuntary loss of other coverage that is qualified as minimum essential coverage Individual plan renewing outside of the regular open enrollment The exhaustion of COBRA benefits outside of open enrollment Becoming a dependent or gaining a dependent as a result or birth, adoption, or placement in foster care Marriage or Divorce Becoming a United States citizen A permanent move to an area where different qualified health plans (QHPs) are available Page 6 of 8

7 An error or problem with enrollment (or non-enrollment) that was the fault of the exchange, HHS, or an enrollment assister Employer-sponsored coverage reducing benefits such that it no longer provides minimum value, or becomes unaffordable Look-Back Measurement Method and Cafeteria Plan Election Change Rules An employer s use of the look-back measurement method may impact employees who may no longer want coverage after a change in employment status. For example, an employee who is locked into fulltime status during a stability period but switches to part-time status may wish to make a midyear election change to drop health coverage under the employer s plan, even though the employee is still eligible for coverage based on the locked-in full-time status. The IRS has expanded the permitted election change rules for cafeteria plans to allow cafeteria plans to permit employees in these situations to drop (revoke) coverage prospectively under group health plans that are not health FSAs and that provide minimum essential coverage. Beginning September 18, 2014, a plan may permit a participant whose hours of service are reduced below 30 hours per week as a result of a change in employment status to drop employer-sponsored health coverage midyear (whether or not eligibility for the coverage is affected) if the participant intends to enroll in another plan offering minimum essential coverage. Allowing the reduction of hours event is optional and will require a plan amendment. The amendment generally must be adopted on or before the last day of the plan year in which election changes are permitted on account of the event, and can be effective retroactively to the first day of that plan year, provided that the plan operates in accordance with the notice, and participants are informed of the amendment Measured Variable Hour An employee who is not reasonably expected to work 30 or more hours per week and who was not offered coverage the first day of the month following three full calendar months following the date of hire. These employees can qualify for coverage after completing a full measurement period and associated stability period assuming they average 30 hours or more of service during the measurement period. Reduction of Hours Must Result From Change in Employment Status The relief in IRS Notice requires that the employee have a change in his or her reasonably expected average hours of service from more than 30 hours per week to less than 30 hours per week as a result of a change in employment status. Thus, whether a reduction of hours has occurred can be determined on the basis of scheduled or expected hours, rather than actual hours worked. Note Page 7 of 8

8 that simply averaging fewer hours without a corresponding change in employment status (e.g., fulltime to part-time) may not trigger this event. While the employer shared responsibility rules were part of the rationale for this relief, this election change event is not limited to only situations involving plan designs that are intended to avoid potential employer penalties under Code 4980H. Safe harbor methods for determining affordability 4980H (b): 9.5% of an employee s W-2 wages (reduced for any salary reductions under a 401(k) plan or cafeteria plan) 9.5% of an employee s monthly wages (hourly rate x 130 hours per month) 9.5% of the Federal Poverty Level for a single individual Bernie Lowe & Associates, Inc. is not providing any legal advice with regard to compliance with the requirements of the Affordable Care Act ("ACA"). Bernie Lowe & Associates, Inc. makes no representation as to the impact of plan changes on a plan's grandfathered status or interpretation or implementation of any other provisions of ACA. Bernie Lowe & Associates, Inc. will not determine whether coverage is discriminatory or otherwise in violation of Internal Revenue Code Section 105(h). Page 8 of 8