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Supporting you through the 2020 ACA reporting season

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 during this reporting season.

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

Q. What steps should I take to file Form 1095 for furloughed employees correctly?

A. First, you need to understand what your companies definition of “furlough employees” means in terms of ACA compliance.

Furloughs vary among companies, so make sure you can identify if your employees are still working, being paid, or receiving benefits.

Considerations for employees that are working reduced hours, furloughed and receiving pay, or taking a paid leave of absence:

If the furlough causes an employee to lose health coverage due to a reduction in hours, the resulting offer of COBRA coverage is reported as an offer of coverage in Part II of Form 1095-C.

  • Line 14 will reflect the employee's elected coverage.
  • Line 15 will reflect the COBRA premium for the lowest cost self-only plan.
  • If the employee enrolled in COBRA coverage, code 2C can continue to be used on line 16.
    • If the employee did not elect COBRA, line 16 will either be left blank (most common) or coded with the appropriate affordability safe harbor should the COBRA premium be deemed affordable under section 4980H.

Considerations for employees who were terminated:

A terminated employee is eligible for COBRA continuation, and employers are no longer required to offer affordable coverage.

  • If the employee is terminated during the calendar year, the COBRA qualifying event is not reported as an offer of coverage on Form 1095-C. Instead, codes 1H and 2A in Part II, Lines 14 and 16 respectively, will be used. The former employee or their dependents’ enrollment information will be captured on Part III of Form 1095-C.
  • It is important to keep in mind that if a full-time employee was offered health benefits before termination is rehired within 13 weeks for non-educational organizations, or 26 weeks for educational organizations, that employee must be treated as a continuing employee rather than a new hire. The continuing employee must have an offer of coverage upon return by the first of the following month at the latest.

Considerations for employees that are furloughed and not receiving pay and/or taking an unpaid leave of absence that is not a special leave (protected FMLA, Military or Jury Duty leave):

Furlough is when an employee is placed on unpaid leave, with the intent of returning them to work when the situation changes. A furloughed employee is not terminated and remains on the employer’s books during the leave period. 

  • If you continue contributions to employees’ regular benefits during an unpaid furlough, your healthcare plan coverage rules may require amending. For example, you don’t want to risk a stop loss claim denial or administrative denial because plan rules did not permit a continuation of benefits. Furthermore, you’ll need to decide how to collect employee premium contributions since standard payroll deductions won’t be available.
  • Employer should code the furlough months on their Form 1095 as you would for any active full-time employee.
  • However, if you discontinue regular benefits during an unpaid furlough, you will need to extend an offer of COBRA coverage. Note that the lack of pay during furlough periods will likely cause affordability issues in the furlough months, causing the employee to enroll in an exchange plan instead. A scenario like this can create a risk for penalty B under the ACA.  

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