Question: How do reductions in hours, furloughs, layoff pay, and premium shortfalls caused by COVID-19 affect employee eligibility for active health benefits?

Short Answer: The default position is that a reduction in hours to part-time work will cause a loss of eligibility for active health plan coverage, but multiple potential exceptions may apply.

Default Position: Active Coverage Terminates from Reduction in Hours to Part-Time Work

Most employer-sponsored group health plans provide health plan eligibility for employees who work full-time—typically set at 30 hours per week to match the ACA employer mandate definition of full-time. Some plans offer eligibility at a reduced hours threshold, such as 20 hours per week.

Regardless of the plan’s eligibility hours threshold, the default position is that active coverage will terminate for employees not working sufficient hours to meet the plan’s requirement. Where employees lose active coverage caused by a reduction in hours, they experience a COBRA qualifying event.

Exception #1: Protected Leave Under FMLA (or Similar State Law)

Employers must maintain group health plan coverage for an employee on FMLA, CFRA, PDL, or other state equivalent leave in the same manner as if the employee were active.  This means the employee remains on active coverage (i.e., not COBRA), and the employee cannot be required to pay more than the active employee-share of the premium.

For full details, see:

• Newfront Health Benefits While on Leave Guide

• Health Benefits During a Protected Leave

Exception #2: ALE Subject to ACA Employer Mandate Utilizing Look-Back Measurement Method to Determine Full-Time Status

The standard measurement and stability period rules will continue to apply to an employee who has experienced a reduction in hours, is furloughed, or is on a leave of absence.

The look-back measurement method will therefore preserve full-time status for at least the remainder of the current stability period (generally plan year) for those employees who tested as full-time during the prior measurement period.

• Key Point #1: An employee who is in a stability period as full-time and experiences a change in employment status to working part-time hours will nonetheless remain full-time for ACA purposes the duration of the current stability period.  The employee’s full-time status is kept “stable” for the entire stability period regardless of how many hours per week the employee is currently working.

• Key Point #2: Employees who do not average at least 30 hours of service over the full standard measurement period (i.e., generally do not reach 1,560 hours of service in the typical 12-month standard measurement period) can be removed from coverage as of the start of the new stability period (generally the start of the new plan year) because the employee will be treated as part-time for ACA purposes for the duration of that stability period.  This will be a COBRA qualifying event as of the end of the plan year in which the employee loses coverage (loss of coverage caused by a reduction in hours).

For full details, see:

• Loss of Health Plan Eligibility Caused by Move to Part-Time Work

• Non-Protected Leave Rules Under the ACA Look-Back Measurement Method

Exception #3: Non-Protected Leave Policy

Many employers have a policy in place to continue active coverage for a set period for employees on a non-protected leave.  Carriers will generally agree to this extension of active coverage before offering COBRA provided the extension does not exceed six months.

Employers can classify a furlough as a leave for these purposes and continue active coverage under the non-protected leave policy.

A common approach for non-protected leave policies is to continue active coverage until the later of:

• The end of the legally required period for protected leave (if any); or

• Six months following the start of the leave.

At the end of that period, active coverage will terminate, and COBRA is offered based on the reduction of hours. This approach needs to be approved by the insurance carriers (or stop-loss providers for self-insured plans).

For full details, see:

• Newfront Health Benefits While on Leave Guide

• Health Benefits During a Protected Leave

Exception #4: Layoff Pay and LOA Pay is Hours of Service for ALEs

The ACA employer mandate provides that each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer counts as an hour of service. This is the standard rule that applies to active duties.

However, the hours of service definition also extends to inactive payments.  Hours of service includes 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:

1. Vacation,

2. Holiday,

3. Illness,

4. Incapacity (including disability)

5. Layoff

6. Jury duty,

7. Military duty, or

8. Leave of absence.

Accordingly, employer payments to employees during a period of layoff or leave of absence will continue to count as hours of service for employees in determining full-time status for active health plan eligibility.

For full details, see:

• Newfront Health Benefits While on Leave Guide

• Newfront ACA Employer Mandate Pay or Play and ACA Reporting Guide

Premium Shortfalls if Active Coverage Continues: Taking Employee Contributions Where There is Insufficient Pay to Cover the Employee-Share of the Premium

Where active coverage continues by reason of any of the exceptions above, the other issue is how the employee will continue to pay for active coverage despite not having enough regular earnings to cover the employee-share of the premium through the paycheck.  This can occur as a result of the look-back measurement method where an employee can be locked into full-time status through the stability period despite working reduced hours thar are not sufficient pay to cover the employee-share of the premium.

The ACA employer mandate regulations provide that the employer can charge the employee in the same manner as COBRA for any amount owed after the salary reduction contribution.  If the employee fails to timely pay the remaining balance, the employer can drop the employee from coverage for the rest of the plan year without exposing the company to any potential ACA employer mandate pay or play penalties.

Here’s a quick summary of those standard COBRA premium payment rules that will apply:

• Grace period for making premium payments. The employer must provide a 30-day grace period for making premium payments after the date due.  (Note: a plan may either (a) continue coverage during the payment grace period and then retroactively cancel it for nonpayment, or (b) if the plan allows retroactive reinstatement, cancel coverage and retroactively reinstate it upon payment of the required premiums.)

• Premium shortfalls. If the employee makes a premium payment that is short by an “insignificant amount,” the employer may either (a) deem the payment to be a full payment of the required plan premiums, or (b) send the participant a notice of the deficiency and provide a reasonable period for repayment of the deficiency (e.g., 30 days). If the employee does not make full payment within such reasonable period of time, the employer may terminate such participant’s plan coverage.  A premium payment shortfall is “insignificant” if it is less than or equal to the lesser of (a) $50, or (b) 10% of the premium required by the plan.

By following this approach, the company will be treated as having offered coverage to the employee under the ACA employer mandate even if the employee is dropped from coverage for failure to timely pay the balance of the required premium outside of payroll.

For full details, see:

• Newfront ACA Employer Mandate Pay or Play and ACA Reporting Guide

Reminder: Exchange Subsidies Available

Employees who are no longer able to maintain active coverage may have access to subsidies (i.e., the §36B premium tax credit, cost-sharing subsidies) available on the Exchange.

Exchange subsidies are generally available to individuals with household income up to 400% of the federal poverty line.  That generally includes household income as high as $104,800 in 2020 for a family of four.  For California residents, household income can be as high as $154,500 for a family of four in 2020 on Covered California.

For full details, see:

• gov: Subsidized Coverage Overview

• gov: Subsidies Calculator

• gov: Special Enrollment Events

• Covered California: Subsidy Eligibility Thresholds

• Covered California: Special Enrollment Events

Regulations

Treas. Reg. §54.4980H-3(g):

(g) Nonpayment or late payment of premiums. An applicable large employer member will not be treated as failing to offer to a full-time employee (and his or her dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for an employee whose coverage under the plan is terminated during the coverage period solely due to the employee failing to make a timely payment of the employee portion of the premium. This treatment continues only through the end of the coverage period (typically the plan year). For this purpose, the rules in §54.4980B-8, Q&A-5(a), (c), (d) and (e) apply under this section to the payment for coverage with respect to a full-time employee in the same manner that they apply to payment for COBRA continuation coverage under §54.4980B-8.

78 Fed. Reg. 218, 232 (Jan. 2, 2013):

1. Offer of Coverage in the Case of Nonpayment or Late Payment of Premiums

Some commenters noted that in certain instances the employee share of the premium is not collected through withholding from the employee’s salary but instead is billed to the employee. This may arise, for example, with respect to tipped employees, and may apply with respect to employees who were full-time employees during a measurement period but who work very few hours during the corresponding stability period. These commenters stated that in some instances employees do not pay their share of the premium on a timely basis and requested guidance on whether the employer would still be required to continue to provide coverage to those employees to avoid potential liability under section 4980H. The proposed regulations provide that, if an employee enrolls in coverage but fails to pay the employee’s share of the premium on a timely basis, the employer is not required to provide coverage for the period for which the premium is not timely paid, and that employer is treated as having offered that employee coverage for the remainder of the coverage period (typically the remainder of the plan year) for purposes of section 4980H. The regulations generally adopt the provisions applicable for purposes of payment for COBRA continuation coverage under Q&A–5 of § 54.4980B–8, which generally provides a 30-day grace period for payment and also provides rules with respect to timely payments that are not significantly less than the amount required to be paid and for responding to requests by health care providers for confirmation of coverage during the grace period.

Treas. Reg. §54.4980B-8, Q/A-5(d):

(d) If timely payment is made to the plan in an amount that is not significantly less than the amount the plan requires to be paid for a period of coverage, then the amount paid is deemed to satisfy the plan’s requirement for the amount that must be paid, unless the plan notifies the qualified beneficiary of the amount of the deficiency and grants a reasonable period of time for payment of the deficiency to be made. For this purpose, as a safe harbor, 30 days after the date the notice is provided is deemed to be a reasonable period of time. An amount is not significantly less than the amount the plan requires to be paid for a period of coverage if and only if the shortfall is no greater than the lesser of the following two amounts:

(1) Fifty dollars (or such other amount as the Commissioner may provide in a revenue ruling, notice, or other guidance published in the Internal Revenue Bulletin (see §601.601(d)(2)(ii) of this chapter)); or

(2) 10 percent of the amount the plan requires to be paid.