February 10, 2015 – Employers Need to Review Health Plan Eligibility Provisions

February 10, 2015 – Employers Need to Review Health Plan Eligibility Provisions

For some employers, the reality of the employer shared responsibility requirements is setting in.  Many large employers (typically employers with 100 or more full-time equivalent employees) are now subject to the employer shared responsibility (a/k/a Play or Pay) penalties under Section 4980H of the Internal Revenue Code.  Other large employers will become subject to the penalties later this year (e.g., employers with 100 or more full-time equivalent employees that sponsor non-calendar year plans) or in 2016 (e.g., employers with more than 50 but less than 100 full-time equivalent employees).

Employers that either are or will become subject to the employer shared responsibility requirements should review their health plan eligibility provisions for consistency with their approach to those requirements.  [For purposes of this article, “health plan” means major medical coverage that constitutes minimum essential coverage (MEC).] 

In general, we recommend the health plan documentation describe eligibility in a manner that reflects the way in which full-time status is determined for purposes of Section 4980H, including those eligible because of a measurement period.  Specifically, employers should consider the following:

1. If the employer intends to offer coverage to all full-time employees (as defined under Section 4980H), the eligibility provisions of the health plan need to fully encompass all full-time employees (as defined under Section 4980H).  In general, we recommend the health plan documentation describe eligibility in a manner that reflects the way in which full-time status is determined for purposes of Section 4980H. 
2. If the employer intends to offer coverage to all full-time employees (as defined under Section 4980H) and previously used an hours threshold that was greater than 30 hours per week, has the health plan documentation been amended to reduce the hours threshold to 30 hours of service per week (or 130 hours of service per month)?  In general, we recommend the health plan documentation describe eligibility in a manner that reflects the way in which full-time status is determined for purposes of Section 4980H.

Note:  Keep in mind that the health plan documentation may consist of several different documents.  For insured plans, the documentation typically consists of the group insurance contract and the certificates of coverage.  For self-insured plans, the documentation typically consists of the written plan document and the Summary Plan Description.  In both cases, some employers have also adopted wrap plan or wrapper documentation that also describes eligibility.  All of the relevant documentation should be amended.

3. If the employer intends to use the look back measurement method to determine which employees are full-time employees for purposes of Section 4980H, and at least some employees are eligible for the health plan only if they are full-time employees, has the health plan documentation been amended to reflect the fact that “full-time status” for purposes of health plan eligibility is also determined using the look back measurement method?  If the health plan documentation merely provides that employees working at least 30 hours per week are eligible, the documentation likely does not accurately and/or fully describe the eligibility requirements needed to avoid penalties.  If the health plan documentation does describe or incorporate the look back measurement method, some employees will need to be offered coverage earlier than the point at which they average of 30 hours of service per week as determined under the look back measurement method.  In general, we recommend the health plan documentation describe eligibility in a manner that reflects the way in which full-time status is determined for purposes of Section 4980H, including those eligible because of a measurement period.

Suggestion:  Rather than describing all of the details regarding the look back measurement method in the plan documentation (e.g., the dates and lengths of the various measurement, administrative, and stability periods), we recommend the employer consider adopting a separate look back measurement policy that is incorporated by reference into the plan documentation.

4. If the employer intends to use the look back measurement method to determine which employees are full-time employees for purposes of Section 4980H, and at least some employees are eligible for the health plan as long as they are full-time employees, have adjustments been made to COBRA administration?  Given the fact that, in general, full-time status is fixed during the applicable stability period as long as the employee remains employed, COBRA administration will be different when a full-time employee experiences a reduction in hours during a stability period.  The reduction in hours does not immediately impact the employee’s coverage.  Employers should review their COBRA documentation and COBRA procedures to reflect the use of a look back measurement period and corresponding stability period.
5. How are other plans impacted by the changes made to the health plan’s eligibility requirements?  Do the eligibility requirements for other plans need to be adjusted to match the health plan’s eligibility requirements?  For instance, if health plan premiums are paid on a pre-tax basis through a Section 125 cafeteria plan, the cafeteria plan’s eligibility provision may need to be amended to ensure all employees who are eligible for the health plan are also eligible for the cafeteria plan (at least for purposes of premium payments).  Even if there is no requirement to adjust eligibility under another plan (e.g., dental plan, vision plan, health FSA), employers should consider whether they want to use uniform eligibility requirements for all health benefits, in which case other plans may need to be amended.

We are able to assist employers with any and all of the following tasks:

1. Review and, if necessary, amend health plan documentation.
2. Draft a look back measurement policy.
3. Review and, if necessary, adjust COBRA documentation and procedures.
4. Review impact of health plan eligibility on other plans and, if necessary, amend documentation for those plans.

Please contact us if you have any questions and/or you would like our assistance.

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