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Keeping you informed about the rapidly changing ACA environment and how it’s affected by COVID-19

We know that workplace challenges often create the greatest stress on HR teams who are working diligently to keep their workforce healthy and safe. That's why we are committed to sharing what we know around regulatory changes and their bearing on health reform, insurance eligibility, payroll and more.

To keep you in the know, here's our Ask the Expert question of the week: 

Q. Am I at risk of ACA penalties if I temporarily let my employees go? What are my other benefit ramifications?

A. If the workers’ gap in employment has been classified as a furlough, is the furlough paid or unpaid? If it’s paid, little changes in terms of benefits continuation. If the furlough is unpaid, there are potential impacts to benefits and you could face the greatest potential for inadvertently triggering a Penalty B under the ACA law:

  • If you discontinue regular benefits during an unpaid furlough, transitioning employees to COBRA offers could likely cause the employee to enroll in an exchange plan instead because the COBRA plans are unaffordable. A scenario like this can create B penalty risks for the employer. 
  • If you continue contributions to employees’ regular benefits during an unpaid furlough, your healthcare plan coverage rules may require amending. Afterall, you don’t want to risk a stop loss claim denial or administrative denial because plan rules did not permit continuation of benefits. Furthermore, you’ll need to decide how to collect employee premium contributions, since standard payroll deductions won’t be available.

One of the first questions an employer should ask themselves: Are the affected workers staying on your payroll while they’re not working, or have they been terminated with the intention of being rehired at a later date?

If the employees have been terminated, they’re eligible for COBRA continuation and no longer require you, the employer, to offer affordable coverage.

Finally, it’s important to understand that a reduction in hours (some furloughs translate into reduced hours rather than full elimination of them) and termination are both considered qualifying events for COBRA if they result in a loss of benefits.

Note – Many states are offering a COVID-19 Special Enrollment Period (SEP) that may allow individuals who did not enroll in employer-sponsored coverage or who are dropped from employer-sponsored coverage to enroll. This does NOT necessarily mean that they may voluntarily cancel their employer coverage or terminate by failure to pay premiums and still qualify for the state exchange SEP.  MNsure, for example, states that individuals who voluntarily drop coverage or are cancelled for failure to pay premiums are not eligible for the SEP. However, individuals who failed to enroll in their employer’s plan at open enrollment are eligible for the COVID-19 SEP.

Whether you terminate employees, or place them on paid or unpaid furloughs, you also need to be mindful of non-discrimination considerations when it comes to continuing or discontinuing benefits. 

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