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3/12/2015
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ACA – COBRA Events & Measurement Periods
ACA – COBRA Events & Measurement Periods
March 26, 2015
LouAnne Drenckhahn, CEBS, SPHRHuman Resources & Compliance Consultant
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AGENDA
The potential penalties employers may face in 2015 and beyond
How to determine who is a “full‐time employee” for purposes of PPACA
How COBRA works with ACA measurement periods
Employer Shared Responsibility
Applies to “Applicable Large Employers” (ALE) 1/1/2015
Penalty #1 – The “Big” Penalty
o If the employer fails to offer coverage to 95% of PPACA full‐time employees (70% for 2015)
o $2,000 times the number of PPACA full‐time employees (minus the first 30**)(Indexed to $2,080 for 2015)
Penalty #2
o If the employer offers coverage but the coverage fails the “minimum value” or “affordability” standard $3,000 for each PPACA full‐time employee affected that goes to Marketplace and receives a subsidy (Indexed to $3,120 for 2015)
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PPACA “Full‐Time Employee”
What is a “full‐time employee” according to PPACA?
o An employee who with respect to any month is employed on average at least 30 hours per week (130 hours per month)
o Only a full‐time employee who obtains coverage and receives a subsidy through an Exchange can trigger a penalty
o PPACA envisions month‐to‐month determination
This creates unpredictability and administration challenges
IRS outlined potential safe harbors
Determining Hours of Service
Hourly employeeso Actual hours worked plus paid time off (e.g. vacation, holiday, illness,
incapacity/disability, layoff, jury duty, military leave or special unpaid leave of absence)
Non‐hourly employeeso Actual hours worked plus paid time off (same as hourly employees),
or
o Days‐worked equivalency (8 hours per day)
o Weeks‐worked equivalency (40 hours per week)
o Cannot use days‐worked or weeks‐worked equivalency if result would substantially understate employee’s hours of service
(example – employee who works three 10 hour days)
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Determining Hours of Service
Employers of Educational Organizations
o Unique because typically operate on academic year
o Two methods for determining hours of service during an “employment break” Determine the average hours of service per week for the employee during the measurement period excluding the employment break and use that average for the entire measurement period
Impute hours of service for the employee at a rate equal to the average weekly hours of service for the weeks that are not part of an employment break
Not required to take into account more than 501 hours of service for all employment breaks during a single calendar year
Determining Hours of Service
Special Unpaid Leaves
o Includes leave under FMLA, USERRA or jury duty
o Employer can neutralize the effect of the special unpaid leave in one of two ways Exclude the period of special unpaid leave apply that average to the entire measurement period
Impute hours of service during the period at a rate equal to the average weekly hours for weeks that are not part of the special unpaid leave
Hours of service worked outside the U.S. not counted
Special rules for rehires or breaks in service
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Breaks in Service & Leaves of Absence
Two methods to determine if the employee is a “continuing employee”
o Break of 13 or more consecutive weeks Employee resumes employment after a period of at least 13 consecutive weeks when the employee did not have an hour of service, the employer can treat as a new employee
Break of 26 or more weeks if educational organization
o Rule of parity An employee can be treated as a new employee if the period (measured in weeks) during which no services are performed is at least four week long and exceeds the number of weeks of employment immediately preceding the period during which no services were performed
Different Categories of Employees
Ongoing employee
New Employeeo New employee expected to work 30+ hours – PPACA full‐time employee
o New variable‐hour employee
o New seasonal employee
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New Variable Hour & Seasonal Employees
New seasonal employees are treated the same as new variable hour employees for purposes of the safe harbor
Employers must assume new variable‐hour employees will work for entire initial measurement period
If a new employee is expected initially to work 30 hours per week, he/she could still be a variable hour employee if, based on facts and circumstances at start date,
– Working more than 30 is expected to be limited duration
– Employer cannot determine at start date that he/she is reasonably expected to work on average at least 30 per week over the initial measurement period (i.e., hired full‐time in Nov for retail sales then move to part‐time in Jan)
Different Time Periods
Measurement period
o Standard measurement period
o Initial measurement period
Stability period
Administrative period
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Ongoing Employees – Standard Measurement Period
Standard Measurement period for Ongoing Employees
o At least 3 but not more than 12 consecutive calendar months
o Employer can choose the length and start/end dates
o Must be uniform for all employees in same category (e.g., union v non‐union, salaried v hourly, place of employment in different states
Ongoing Employees – Stability Period
Stability period for Ongoing Employeeso The “hold period” for which an employee’s status (determined
during the Standard Measurement Period) is locked‐in, regardless of the actual hours worked during the Stability Period
o If employee is determined to be full‐time during Standard Measurement Period, the Stability Period
Must be at least 6 consecutive calendar months
Cannot be shorter than the Standard Measurement Period
o If employee is determined not to be full‐time during the Standard Measurement Period, the Stability Period cannot be longer than the Standard measurement Period
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Ongoing Employees – Administrative Period
Administrative Period for Ongoing Employees
o An optional period after the end of the Standard Measurement Period, and before the beginning of the next Stability Period, during which the employer can perform administrative tasks, such as calculating the hours for the Standard Measurement Period, determining eligibility for coverage, providing enrollment materials, conducting open enrollment
o Cannot be longer than 90 days
o Will overlap the prior Stability Period so as not to create any gaps in coverage
Ongoing Employees – Example
Example for On‐going Employees
o Standard Measurement Period: November 1 – the following October 31
o Stability Period: January 1 – December 31
o Administrative Period: November 1 – December 31
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Ongoing Employees – Example
12 Month Standard Measurement Period
12 Month Standard Measurement Period
12 Month Standard Measurement Period
Admin Admin Admin
12 Month Stability Period 12 Month Stability Period
11/1/2014 11/1/2015 11/1/2016 11/1/2017
1/1/2016 1/1/2017 1/1/2018
Employees who worked an average of at least 30 hours per week during the Standard Measurement Period that runs from November 1, 2014 to October 31, 2015 are locked‐in as full‐time during the subsequent Stability Period that runs from January 1, 2016 through December 31, 2016 regardless of the actual amount of hours they work. They will be tested again during the Administrative period in November of 2016, based on the Standard Measurement Period that began November 1, 2015, for the Stability Period that begins January 1, 2017.
New Employees ‐ Expected to Work Full‐Time
New employees who are reasonably expected to work full‐time (30+ hours)
o Standard Measurement and Stability Periods do not apply
o Ok to not offer coverage to an employee (and his/her dependents) for up to 90 days following start date
o Failure to offer coverage to the employee (and his/her dependents) may subject the employer to penalties for those 90 days as well as any subsequent months during which coverage is not offered
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New Employees – Variable Hour & Seasonal
Initial Measurement Period for New Variable Hour and Seasonal
o At least 3 but not more than 12 consecutive calendar months beginning on any date between the employee’s start date and the first day of the first calendar month after the start date
o Employer can choose the length and start/end dates
o Must be uniform for all employees in same category
New Employees – Variable Hour & Seasonal
Stability period for New Variable Hour and Seasonal Employees
o If employee is determined to be full‐time during Initial Measurement Period, the Stability Period
Must be at least 6 consecutive calendar months
Cannot be shorter than the Initial Measurement Period
o If employee is determined not to be full‐time during the Initial Measurement Period, the Stability Period cannot exceed the remainder of the Standard Measurement Period (plus any associated Administrative Period) in which the Initial Measurement Period ends
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New Employees – Variable Hour & Seasonal
Administrative Period for New Variable Hour and Seasonal Employees
o An optional period of no longer than 90 days
o Initial Measurement Period plus Administrative Period cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the new employee’s start date
New Variable Hour Employee – Example
Example for New Variable Hour Employee
o Initial Measurement Period: 12 month period that begins on start/hire date
o Administrative Period: End of the Initial Measurement Period through the end of the first calendar month beginning on or after the end of the Initial Measurement Period
o Initial Stability Period if found to be full‐time: 12 month period following the end of the Administrative Period
o Standard Measurement Period for On‐going Employees: November 1 through the following October 31
o Stability Period for On‐going Employees: January 1 – December 31
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New Variable Hour Employee – Example
Example for New Variable Hour Employee ‐ continued
o Employee A is hired on May 10, 2015
o Initial Measurement Period: May 10, 2015 – May 9, 2016
o Administrative Period: May 9, 2016 – June 30, 2016
o Employee A works on average 30 hours per week from May 10, 2015 through May 9, 2016 (the Initial Measurement Period)
o Employee A only works an average of 28 hours per week from November 1, 2015 through October 31, 2016 (the first Standard Measurement Period after Employee A’s hire date)
New Variable Hour Employee – Example
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New Variable Hour Employee – Example
New Variable Hour Employee Example #2o Same facts as in the previous example, except that Employee A did not
average at least 30 hours per week during his Initial Measurement Period (May 10, 2015 through May 9, 2016, but did average at least 30 hours during the first Standard Measurement Period for on‐going employees after his hire date (November 1, 2015 through October 31, 2016)
o In this case, Employee A would be locked‐in as a part‐time employee only until the start of the Stability Period for on‐going employees that corresponds to the first Standard Measurement Period after his hire date (i.e., December 31, 2016). This is because Employee A averaged at least 30 hours of service during the Standard Measurement Period that runs from November 1, 2015 through October 31, 2016, and therefore must be locked‐in as a full‐time employee for the corresponding Stability Period (January 1, 2017 through December 31, 2017)
New Variable Hour Employee – Example
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Transition from New to On‐going Employee
Transition from New to On‐going Employee
o It is important to remember that a new employee (variable or not) must be tested for full‐time status at the conclusion of the Initial Measurement Period and after the close of the first Standard Measurement Period for which he has been employed for the full duration thereof even if that Standard Measurement Period overlaps the Initial Measurement Period
Change in Employment
What if a new variable hour or seasonal employee’s employment status changes before the end of his Initial Measurement Period in such a way that the employee is now reasonably expected to work full‐time?
o Employer not required to treat the employee as a full‐time employee until the earlier of (i) the first day of the fourth month following the change in employment status, or (ii) the first day of the first month following the end of the Initial Measurement Period (plus any optional Administrative Period)
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Change in Employment ‐ Example
Example: Same facts as the previous examples, except that Employee A is promoted to a position that can reasonably be expected to average 30 hours per week on September 15, 2015. Employee A must be treated as a full‐time employee as of January 1, 2016, because that date is the earlier of the first day of the fourth calendar month following the change in position (January 1, 2016) or the first day of the calendar month after the end of the Initial Measurement Period plus the optional Administrative Period (July 1, 2016)
COBRA ACA did not directly change COBRA rules, but it has many indirect impacts
o COBRA event still happens when there is:o a triggering event listed in the statute
o that causes (or will cause) a loss of plan coverage
o within the maximum coverage period
o while the plan is subject to COBRA
o The seven triggering events (listed in the statute) are:o Voluntary or involuntary termination of employment
o Reduction in hours
o Divorce or legal separation
o Death of the employee
o Dependent child ceasing to be a dependent under the plan
o Covered employee becomes entitled to (enrolled in) Medicare
o An employer’s bankruptcy
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COBRA & Stability Periods
An employee who terminates employment will likely have a COBRA event (even in a stability period)
A reduction in hours that causes a loss of coverage is a COBRA event.
When a reduction in hours occurs in a stability period,
o When does the qualifying event occur?
o When does the COBRA maximum coverage period begin?
COBRA & Stability Periods
Employer uses Look‐Back Measurement Method for purposes of Code 4980H penalties and plan eligibility
o Most common method
o Status as ACA full‐time remains throughout to the end of the stability period
o If in subsequent measurement period the employee did not meet the eligibility requirements to be full‐time, there has been a loss of coverage due to a reduction in hours at the end of stability period
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COBRA & Stability Periods
Employer uses Look‐Back Measurement Method for purposes of Code 4980H penalties but not for plan eligibility
o Status as ACA full‐time remains throughout to the end of the stability period
o Employee no longer meets plan eligibility when the reduction occurs
o Employee would be offered COBRA and therefore employer would meet the requirement of “offering” coverage (4980H(a) penalties (The “Big” Penalty, Penalty #1)
o Because the coverage is likely not “affordable” the employer would not be safe from 4980H(b) penalties (Penalty #2)
COBRA & Stability Periods
Remember new cafeteria plan change event
o If a participant’s hours of service are reduced below 30 as a result of a change in status, they may be allowed to drop their coverage mid‐year (even if they are in a stability period)
o If the plan is written to include the new event
o Consistency rule still applies – they should intend on enrolling in other coverage
What if deductions can’t be taken (not enough hours)?
o Establish policy and follow consistently. For example:o Deductions not taken for any particular month are due by the end of the month in which they would have been taken. If payment not made timely (after a 30 day grace) coverage will be terminated for non‐payment.
o Coverage terminated for non‐payment does NOT result in a COBRA event.
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THANK YOU
“Legal Disclaimer”This document is not intended to give legal advice. It is comprised of general information.
Employers facing specific issues should seek the assistance of an attorney.
