The Affordable Care Act (ACA) outlines specific mandates for the minimum value and affordability of healthcare plan premiums based on full-time, seasonal and variable hour employee classifications. Starting January 1, 2015, these mandates greatly impact businesses with variable hour and seasonal employees in addition to full-time workers.
Consider the following scenarios:
- Employee elects healthcare coverage but, shortly into the year, realizes he really can’t afford it.
- Employee elects coverage because she worked full-time last year, but this year her hours have dropped and so has her paycheck.
- Employee elects coverage but has spotty attendance due to a disability. Since the hours are paid leave under a short-term disability program, they still count as hours of service, and no “break-in service” is occurring for health reform purposes.
What can and what should an employer do in these cases? Can employees drop their coverages or will the law prohibit that? How can an employer collect premiums from people with low paychecks? When does the law and the insurance carrier allow coverage to end? Who is exposed to lose money?
Administration of health reform rules can be daunting when you are unsure how to comply. Due to the various working agreements and scenarios that can arise from both change of status employees and full-timers with variable hours in industries like healthcare, for example, there’s a lot to learn.
An Employee’s Change of Status
In general, an employee who has earned health plan coverage due to meeting full-time hours last year, and who has elected coverage this year, must be kept on the medical plan for the complete annual benefits cycle. When that employee’s situation changes, a number of scenarios can surface.
Dropping or Re-Joining Coverage. Even if the variable hour employee wants to drop coverage, the fact that he is still eligible means he can’t drop coverage. The IRS rules that allow tax-favored payment of health plan costs only allow an employee to drop coverage if he has both a certain type of life event and an actual loss of eligibility. If an employee’s hours drop and his pay is lower, he still cannot drop the election. What happens if his wife loses her job? Again, he still cannot change his election.
An employer may consider offering coverage not on a tax-preferred basis, but it is not advisable because when the employee wants to re-join, the employer will be required to provide him coverage under the ACA, even though the carrier is not required to permit re-entry except at annual enrollment. In this scenario, the employer would have to self-insure all medical claims of that employee and his covered family members with no insurance and no stop loss/reinsurance protection, creating a situation of unlimited coverage at the employer’s expense.
Low Employee Paycheck. If the employee’s hours are so low that his paycheck won’t cover his share of the premium, is the employer still required to “carry” the employee? When an employee builds up a premium debt, the employer will not wish to operate as a bank. The insurance carrier and administrator expect to be paid, and to pay claims only while coverage is in effect. And what if there is no paycheck for some period of time during intermittent absences?
One solution could be to require the employee to pay their share of the premium when their paycheck is insufficient.
While an employee is not allowed to simply drop the coverage under the law, he is allowed to simply decide not to pay. The premium due date and termination for non-payment gives employees a chance to drop their coverage even when the IRS doesn’t allow it, but it’s important to keep the following parameters in mind:
- An employer can require payment by check (ideally certified or cashier’s check for the employer’s protection) by the first of the month following an insufficient paycheck.
- The employer’s plan must allow a 30-day grace period for payment, similar to what is allowed for COBRA.
- When coverage is terminated, the date of termination can vary. While technically the employer could terminate retroactively back to the last day the employee paid (it is not a rescission under federal law), many carriers will only allow an employer to terminate as of the first of the month. Some carriers may not allow retroactive termination from an insured plan; and yet other carriers will allow retroactive termination, but will not refund the paid premiums back to the employer.
- No continuation of coverage must be offered. When coverage ends this way, with failure to pay-it is not a COBRA continuation event. (The hours reduction will not be either, since it did not trigger the loss of coverage.)
Full-time Employees with Variable Hours
Companies with full-time employees whose hours fluctuate widely, due to their scheduling desires or business needs, will each have a different standard. The IRS now allows for optional cafeteria plan wording that allows a presumed full-time employee to drop coverage when moving to a part-time (variable hour) role. Allowing the election to drop coverage, though, is not recommended due to “adverse selection;” i.e., healthy people are more likely to drop coverage, leaving the less healthy on the plan. What if the employee wants to re-join later? Again, the carrier or reinsurer will usually not permit that.
When any employee loses coverage, healthcare providers face potential exposure to unpaid bills or at least to collection of receivables, including premiums. Healthcare providers want a consistent population of covered persons when insurance coverage has been presented by a patient. This could lead providers to increase their emphasis on not allowing retroactive coverage termination when network contracts renew.
Early Education Is Key
Educating employees about the change in status rules is a fiduciary obligation under both the Employee Retirement Income Security Act (ERISA) and many states’ common law affecting non-ERISA plans. Advance notification and continued transparency can reduce enrollment by employees who don’t believe consistent payment is possible.
HUB offers employers the following tips:
- Health plan eligibility wording should clearly state premium payment rules in both health plan documentation as well as the corporate benefit guide and enrollment materials. The information ideally also would be disclosed in any forms designating employees as variable hour or seasonal, so they know what to expect.
- Be sure the employees who lose coverage clearly understand the rules about not being able to rejoin the group plan and the fact that they may also face an individual mandate penalty. Giving advice in that regard on a personal financial decision is not recommended. Be sure not to give advice about their ability to possibly get a policy on the insurance exchange - the facts of each employee’s situation may not exactly line up with those rules.
To learn more, contact a HUB specialist today.