When it comes to compliance, sometimes it helps to share specific cases and how employment lawyers approached them. Today, we share three benefits-related questions submitted to our employment lawyers, along with their answers.
Learn whether to give a 1095-C form to an employee who declined coverage, whether offering higher plan contributions for more tenured employees is discrimination, and details about state Consolidated Omnibus Budget Reconciliation Act (COBRA) laws.
ACA Reporting
Is an employer supposed to supply an employee with a 1095-C form if the employee was offered health coverage but declined it—for example, because the worker was covered under a spouse’s or parent’s plan?
An applicable large employer (ALE), meaning an employer with 50+ full-time employees (FTEs) or their equivalents, must provide Form 1095-C to anyone who was an FTE for any month of the calendar year in question. Parts I and II of the form must be completed and furnished regardless of whether the ALE even offers coverage or whether the employee actually enrolls in any coverage offered.
Part III need not be completed if the employee declines coverage. An ALE must complete Part III only (1) if its health plan is self-funded and (2) for employees and family members who enroll in the coverage.
The ALE should indicate on Line 14 whether the employee was offered coverage and whether this offer included spousal or dependent coverage. There is no specific code to indicate that an FTE was offered coverage but did not enroll. The employee contribution that would have been required still should be indicated on Line 15 and an affordability safe harbor, if one applies, on Line 16.
The Internal Revenue Service (IRS) has noted that there is no exception from a potential employer shared responsibility payment (ESRP) for cases in which the employee waived, declined, or did not enroll in coverage. That is, an ESRP still could be imposed if the coverage does not meet the Affordable Care Act (ACA) standards for affordability and minimum value. See the IRS guidance for more details.
While the ACA does not require it, it is good practice to have an employee sign a waiver when he or she declines health coverage. The waiver can be relatively simple, to the effect that the employee has been offered the opportunity to enroll but is choosing to decline it. The waiver could also state that the employee understands that enrollment will not be available again until the next open enrollment period, unless certain special enrollment events occur such as marriage, birth, or adoption.
Nondiscrimination
An employer wants to set up different contribution levels for the employees. What are the acceptable groups? For example, can the employer pay a higher contribution for those with more tenure?
Under Health Insurance Portability and Accountability Act (HIPAA) nondiscrimination rules, employers that offer health coverage to their employees may not treat similarly situated individuals differently in terms of eligibility, premiums, or contributions (29 Code of Federal Regulations (CFR) 2590.702(c)).
However, employers may establish distinct groups of similarly situated individuals based on certain bona fide employment-based classifications and vary eligibility, benefits, or premiums among those groups.
Such permissible employment-based categories include geographical location, permanent vs. temporary or seasonal status, full time vs. part time, occupation, date of hire, and length of service. Based on such criteria, individuals can be treated as distinct groups of similarly situated individuals, with different eligibility provisions, benefit restrictions, or costs (29 CFR 2590.702(d)(1)).
Any such distinctions must be consistent with the employer’s usual business practice, and no individuals may be targeted for less generous benefits or higher premiums based on a health-related factor, such as medical condition or claims experience, or on genetic information, including family medical history. (See the Healthcare Insurance analysis, “HIPAA Requirements.”)
In some situations, income nondiscrimination rules may also need to be considered, depending on the type of health plan. If the plan is self-funded, Section 105(h) of the tax code prohibits certain discrimination in favor of highly paid employees, officers, and part owners. Similar nondiscrimination requirements for fully insured plans were enacted as part of the ACA but never actually took effect—though they could be revived by the new administration.
Also, if health coverage is provided through a cafeteria plan, the plan is subject to income-based nondiscrimination testing under Section 125 to ensure it does not unduly favor highly compensated employees (HCEs) and key employees. If the plan discriminates, the benefits of these employees are included in their taxable income. (See the Flexible Benefits/Cafeteria Plans analysis, “Nondiscrimination Rules.”)
State COBRA Laws
Does Massachusetts’ state continuation coverage (aka mini-COBRA) include dental and vision coverage?
The Massachusetts mini-COBRA law applies to fully insured employers of 2 to 19 employees. It requires these employers’ health insurance carriers to provide continuation of coverage benefits that are generally similar to those required by federal COBRA. However, the state continuation law includes certain exceptions that the federal law does not.
The general Massachusetts mini-COBRA requirements (MGL 176J sec. 9), by their terms, apply to “health benefit plans.” However, the definition of a health benefit plan includes this sentence: “Health benefit plans shall not include: accident only, credit only, limited scope vision or dental benefits if offered separately.” (Federal COBRA, by contrast, applies to virtually any “group health plan” that provides employees with “health care.”)
On the other hand, Massachusetts law also includes a separate continuation provision for divorced spouses (MGL 175 sec. 110I). This section provides that a divorced spouse must remain eligible for benefits under “a group hospital, surgical, medical, or dental insurance plan” as if the divorce had not occurred, unless the divorce court specifies otherwise.
Therefore, it appears that this continuation right would apply to dental coverage, though there is no mention of vision coverage. Under Section 110I, eligibility would continue through the member’s participation in the plan until the remarriage of either the member or such spouse, or earlier if provided by the divorce judgment.
Unlike Massachusetts’ mini-COBRA, MGL 175 sec. 110I apparently applies to all fully insured employers, regardless of size. So if the employer has 20 or more employees, limited-scope dental offered through a separate policy would be subject to Section 110I, as well as federal COBRA. But if the employer is smaller, such coverage will be subject to Section 110I only.