Ratwik, Roszak & Maloney, P.A. 730 Second Avenue South, Suite 300 Minneapolis, Minnesota 55402 (612) 339-0060 Fax (612) 339-0038 www.ratwiklaw.com The Indirect Impact the Healthcare Reform on COBRA and FMLA Administration Christian R. Shafer crs@ratwiklaw.com SW/WC Business Conference April 14, 2015 I. THE AFFORDABLE CARE ACT AND THE COBRA A. Individuals Eligible for COBRA Coverage may Enroll in a Health Insurance Exchange Program Outside of the Normal Enrollment Window. Both the federal and Minnesota health insurance exchange have special enrollment periods to allow those who experience certain triggering events, like loss of minimum essential coverage, to purchase insurance through the exchange outside of the regular, open enrollment period. 45 C.F.R. 155.420(d). B. Potential Loss of Coverage. 1. COBRA coverage relates back to the original qualifying event (e.g., job loss, reduction in hours, etc.) NOTE: The purpose of this presentation, and the accompanying materials, is to inform you of interesting and important legal developments. While current as of the date of presentation, the information given today may be superseded by court decisions and legislative amendments. We cannot render legal advice without an awareness and analysis of the facts of a particular situation. If you have questions about the application of concepts discussed in the presentation or addressed in this outline, you should consult your legal counsel. 2015 Ratwik, Roszak & Maloney, P.A.
2. Insurance purchased through a healthcare exchange may have a waiting period. 3. COBRA notice may not be provided immediately upon termination of coverage. C. New COBRA Notices. The U.S. Department of Labor recently issued a new COBRA notice for employers to use that reflects the new options employees and their dependents now have. Model notices are available on http://www.dol.gov/ebsa/cobra.html. II. THE AFFORDABLE CARE ACT AND THE FMLA A. The ACA did not Alter the FMLA. B. Employers must Consider FMLA Leave when Determining Whether an Employee is Full Time for Purposes of Insurance Eligibility. 1. FMLA leave is special unpaid leave for ACA purposes. a. So is jury duty leave and USERRA leave. 26 C.F.R. 54.4980H- 1(a)(44). 2. Counting FMLA leave in the look-back measurement period. a. Employers must compute the average hours of service during a measurement period after excluding any special unpaid leave during that measurement period. 26 C.F.R. 54.4980H- 3(d)(6)(i)(B). b. Alternatively, employers can credit the employee with the average number of hours worked during the weeks not on special unpaid leave during the FMLA leave period. Id. i. Example: During a 16 week measurement period, Alice takes 2 weeks of unpaid FMLA leave. Instead of dividing her total hours worked by 16, her employer would divide her total hours by 14 for purposes of determining whether she is a full time employee eligible for health coverage. Alternatively, Alice s employer could credit her with the average number of hours she worked in the other 14 weeks for those two weeks. 2
c. The net result is that an employee who is full time before going on FMLA leave is likely to be considered full time during the FMLA leave and upon returning from FMLA leave. C. Special Rules for Breaks in Service 1. Breaks in Service Rule for Non-Educational Institutions: a. The special unpaid leave averaging rule does not apply if an employee has a break in service (not credited with any hours of service) for a period of 13 consecutive weeks. 26 C.F.R. 54.4980H-3(d)(6)(i)(B). b. Once the employee resumes services, the employer may treat that employee as a new hire and need not exclude special unpaid leave when calculating hours. Instead they may use the initial measurement period. i. Example: Bob was a full-time employee. He took 9 weeks of unpaid FMLA leave. After 9 weeks, Bob s FMLA leave was exhausted but he was still unable to come to work. Bob took an additional 7 weeks of unpaid leave before resuming work. All 16 weeks occurred during a stability period during which his employer must maintain his insurance coverage. When he resumes services after 16 weeks Bob may be treated as a new employee and apply an initial measurement period to determine whether Bob will be eligible for health insurance during the next stability period. 2. Breaks in Service Rule for Educational Institutions: a. The special unpaid leave averaging rule does not apply if an employee has a break in service (not credited with any hours of service) for a period of 26 consecutive weeks. See 26 C.F.R. 54.4980H-3(d)(6)(ii)(B). b. Once the employee resumes services after a 26-week break in service, the employer may treat that employee as a new employee and use the initial measurement period. c. If the employee had a break in service that was less than 26 weeks, the educational organization employer determines the employee s average hours of service for a measurement period by computing 3
the average of hours after excluding special unpaid leave AND any employment beak period during that measurement period. 26 C.F.R. 54.4980H-3(d)(6)(ii)(B). Alternatively an employer can credit the employee her average hours during the special unpaid leave and an employment break period. Id. i. An employment break period is a period of at least four consecutive weeks, disregarding special unpaid leave, measured in weeks, during which an employee of an educational organization is not credited with hours of service. 26 C.F.R. 54.4980H-1(a)(17). ii. This provision appears to be intended to preserve educational organization employees full-time status following summer break. The provision, however, could have much more far reaching implications, especially regarding substitute teachers who work a few weeks at a time. For example, if a substitute teacher does not have an hour of service for four weeks, that time is excluded as an employment break period and the average hours after excluding that period will likely be above 30 per week. d. Anti-abuse rule. The regulations contain an anti-abuse rule that prohibits employers from requiring or request an employee to work an hour of service in order to defeat the averaging method for employment break periods. 26 C.F.R. 54.4980H- 3(d)(6)(ii)(B)(iv). III. So What Does That All Mean? A. Goals of the ACA 1. Prohibition against insurance companies dropping or refusing coverage to people with pre-existing conditions 2. A community rating system, so that a person s cost is based on the average health costs in a community rather than on the individual cost 3. Medicaid Expansion 4. Exchanges for individuals to buy health insurance if they do not have access to employer-sponsored health care 4
5. Subsidies for low-income health insurance purchasers 6. Penalties for individuals who do not have health insurance (the Individual Mandate) and some employers that do not offer health insurance (Employer shared-responsibility) B. Employer Obligations. Applicable large employers must offer health insurance that meets certain coverage and cost requirements to full time employees or else face a tax assessment. 26 C.F.R. 54.4980H-5(a). 1. An employer is an applicable large employer if it has 50 or more full time equivalent employees. 26 C.F.R. 54.4980H-2(b). 2. Full-time employees work an average of 30 hours a week for a calendar month. 26 C.F.R. 54.4980H-1(a)(21); 26 C.F.R. 54.4980H-2(c). a. The term hours of service means each hour for which an employee is paid or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military leave, or leave of absence. 26 C.F.R. 54.4980H-1(a)(24)(i). This means that even if an employee is not working, he or she may still be a full-time employee. b. Monthly Equivalency. Full-time status can also be determined by looking at how many hours of service an employee has per month. 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week. 26 C.F.R. 54.4980H-1(a)(24)(ii). c. For employees paid on a non-hourly basis, an employer must calculate hours by using one of the following methods: i. Using actual hours of service from records of hours worked and hours for which payment is made or due; ii. Using a days-worked equivalency whereby the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service; or 5
iii. Using a weeks-worked equivalency whereby the employee is credited with 40 hours of service for which the employee would be required to be credited with at least on hour of service. 26 C.F.R. 54.4980H-3(b)(3)(i)(A)-(C). C. How to Determine Whether an Employee is Full Time for Purposes of Health Insurance Eligiblity 1. The Monthly Measurement Method. Under the monthly measurement method, determine each employee s status by counting the employee s hours of service for each calendar month. 26 C.F.R. 54.4980H-3(c)(1). 2. Look-back Measurement Method. Using the look-back method, the employer determines an employee s hours of service over a set period of time in the past. If he or she is a full-time employee based on past hours of service, the employer must offer that employee health insurance for a set period of time, regardless of how many hours of service the employee has performed more recently. a. Standard Measurement Period. The employer looks back at the standard measurement period to determine hours of service for each employee. i. The standard measurement period is a period of at least three but not more than 12 consecutive months.... 26 C.F.R. 54.4980H-1(a)(46). ii. The standard measurement period may start on the first day of a payroll period. Special rules apply. 26 C.F.R. 54.4980H3-d(1)(ii). b. Stability Period. The stability period is the length of time the employee is eligible or ineligible for an offer of health insurance following a standard measurement period. The length of the stability period depends in part on the status of the employee determined during a standard measurement period. If the employer determines that an employee was employed on average at least 30 hours of service per week during the standard measurement period, then the employer must treat the employee as a full-time employee during a subsequent stability period. Regardless of the employee s number of hours of service during 6
the stability period, so long as he or she remains an employee. 26 C.F.R. 54.4980H-3(d)(1)(i). i. The stability period is a period selected by an applicable large employer... that immediately follows and is associated with a standard measurement period. 26 C.F.R. 54.4980H-1(a)(45). 3. If the employer determines that an employee was employed on average at least 30 hours of service per week during the standard measurement period, then the employer must treat the employee as a full-time employee during a subsequent stability period, regardless of the employee s number of hours of service during the stability period, so long as he or she remains an employee. 26 C.F.R. 54.4980H-3(d)(1)(i). a. This means that if the employee who was working full-time during the standard measurement period takes a long leave of absence during the stability period, the employee is still eligible for employee-sponsored health insurance during the stability period. 4. For an employee who was determined to be full time, the stability period must be at least six consecutive calendar month but no shorter in duration than the standard measurement period. 26 C.F.R. 54.4980H-3(d)(1)(iii). 5. If an employee was not employed an average of at least 30 hours of service per week during the standard measurement period, the applicable large employer may treat the employee as not a full-time employee during the stability period that follows, but is not longer than, the standard measurement period. 26 C.F.R. 54.4980H-3(d)(1)(iv). IV. How to Treat New Employees who are Likely to be Full Time under the Look- Back Method. A. For a new employee who is reasonably expected at the employee s start date to be a full-time employee and is not a seasonal employee, the employer determines the employee s status as full time based on the employee s hours of service for each calendar month. If the employee averages 30 hours of service or more for a calendar month, the employer must treat that employee as full-time for that month. 26 C.F.R. 54.4980H-3(d)(2)(1); 54.4980H-1(a)(30); 54.4980H- 1(a)(31). 1. The employer will continue to treat the employee as a new employee for one complete standard measurement period. After the employee has 7
completed a standard measurement period, the employee is deemed an ongoing employee and the employer can use the look-back method to determine eligibility for insurance going forward. 26 C.F.R. 54.4980H-3(d)(2)(1); 54.4980H-1(a)(30); 54.4980H-1(a)(31). 2. Whether an employee is reasonable expected to be full-time is based on the facts and circumstances at the employee s start date. Consider the following factors: a. Whether the employee is replacing an employee who was full time; b. The hours of service of employees in comparable positions; or c. Whether the position was advertised or otherwise communicated to the new hire as full time; d. An educational organization employer cannot take into account the potential for, or likelihood of, an employment break period (i.e. summer) in determining its expectation of future hours of service. B. Waiting Periods are Permissible. [W]ith respect to an employee how is reasonably expected at his or her start date to be a full-time employee (and is not a seasonal employee) an otherwise eligible employee (meaning an employee who is full time during a complete standard measurement period) need not be give coverage during a three month waiting period, provided that the employee is offered coverage by the employer no later than the first day of the fourth full calendar month of employment if the employee is still employed on that day. 26 C.F.R. 54.4980H-3(d)(2)(iii). This waiting period can be applied if the plan has a waiting period. See id (using the term otherwise eligible ). V. How to Treat New Employees Who Are Not Likely to Be Full Time. A. For new variable hour employees, new seasonal employees, and new part-time employees, an employer is permitted to use an initial measurement period of no less than three consecutive months and no more than 12 consecutive months. 26 C.F.R. 54.4980H-3(d)(3)(i). Note: this is permissive. The employer may use the same complete standard measurement period it uses for new hires it expects to be full time. 1. The initial measurement period begins: a. on the employee s start date; or 8
b. any date up to and including the first day of the first calendar month following the employee s start date; or c. the first day of the first payroll period starting on or after the employee s start date. (Special rules apply). 2. The employer measures the new employee s hours of service during the initial measurement period and determines whether the employee was employed on average at least 30 hours of service peer week during this period. 26 C.F.R. 54.4980H-3(d)(3)(i). 3. The stability period for such employees must be the same length as the stability period for ongoing employees. 26 C.F.R. 54.4980H-3(d)(3)(i). 4. For a new employee who averages at least 30 hours of service per week during the initial measurement period, the employer must treat the employee as a full-time employee during the stability period that begins after the initial measurement period. The stability period must be a period of at least six consecutive calendar months that is no shorter in duration than the initial measurement period. The stability period must begin immediately after the end of the measurement period and any applicable administrative period. 5. If the new employee does not average at least 30 hours of service per week during the initial measurement period, the employer may treat the employee as not a full-time period during the stability period that follows the initial measurement period. The stability period for such employees must not be more than one month longer that the initial measurement period and must not exceed the remainder of the first entire standard measurement period. The stability period must begin immediately after the end of the measurement period and any applicable administrative period. 9