We have a question about part time employee benefits. If we have employees who change from full-time status to part time, they may not have enough payroll to cover their benefit cost. If they don’t have enough payroll and we can’t take the payroll deduction, are they still eligible for benefits?
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Thank you for your inquiry regarding employees whose pay is insufficient to cover benefit costs.
Generally, an employer is not required to continue healthcare coverage when an employee fails to pay his or her premium contribution. This situation is often addressed in the terms of the group health plan document, so you may want to contact your insurance carrier or check your plan document to see if it addresses nonpayment of premiums by employees.
The plan documents will also likely explain eligibility requirements. It is possible that an employee would be eligible for benefits (e.g., is an active employee and works the requisite number of hours) but would lose his or her benefits due to nonpayment of the employee’s share of the premium.
One option is to allow affected employees to pay the premium due directly instead of using a payroll deduction. Before terminating insurance coverage, we recommend consultation with legal counsel who can review the plan documents and provide you with legal advice.
For applicable large employers under the ACA, the regulations on shared employer responsibility found in IRS Bulletin 2014-9 may be helpful. According to the regulations, an employer will not be treated as failing to offer health coverage for an employee whose coverage under the plan is terminated 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). The employee must be given a 30-day grace period to make the payment.
Under the regulations, in this situation, the same rules apply as for COBRA coverage Q-5(a), (c), (d), and (e).
Q-5: What is timely payment for COBRA continuation coverage?
A-5: (a) Except as provided in this paragraph (a) or in paragraph (b) or (d) of this Q&A-5, timely payment for a period of COBRA continuation coverage under a group health plan means payment that is made to the plan by the date that is 30 days after the first day of that period. Payment that is made to the plan by a later date is also considered timely payment if either—
(1) Under the terms of the plan, covered employees or qualified beneficiaries are allowed until that later date to pay for their coverage for the period; or
(2) Under the terms of an arrangement between the employer or employee organization and an insurance company, health maintenance organization, or other entity that provides plan benefits on the employer’s or employee organization’s behalf, the employer or employee organization is allowed until that later date to pay for coverage of similarly situated nonCOBRA beneficiaries for the period.
(c) If, after COBRA continuation coverage has been elected for a qualified beneficiary, a provider of health care (such as a physician, hospital, or pharmacy) contacts the plan to confirm coverage of a qualified beneficiary for a period for which the plan has not yet received payment, the plan must give a complete response to the health care provider about the qualified beneficiary’s COBRA continuation coverage rights, if any, described in paragraphs (a), (b), and (d) of this Q&A-5.
For example, if the plan provides coverage during the 30- and 45-day grace periods described in paragraphs (a) and (b) of this Q&A-5 but cancels coverage retroactively if payment is not made by the end of the applicable grace period, then the plan must inform a provider with respect to a qualified beneficiary for whom payment has not been received that the qualified beneficiary is covered but that the coverage is subject to retroactive termination if timely payment is not made.
Similarly, if the plan cancels coverage if it has not received payment by the first day of a period of coverage but retroactively reinstates coverage if payment is made by the end of the grace period for that period of coverage, then the plan must inform the provider that the qualified beneficiary currently does not have coverage but will have coverage retroactively to the first date of the period if timely payment is made. (See paragraph (b) of Q&A-3 in§ 54.4980B-6 for similar rules that the plan must follow in confirming coverage during the election period.)
(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.
(e) Payment is considered made on the date on which it is sent to the plan.