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There are no codes specifically for furloughed employees. The answer depends upon whether the employer continued coverage during the furloughed period, whether the employee was enrolled in that coverage, the measurement method used by the employer, and the applicable affordability safe harbor, if any.

Furloughed employees who were still covered by the plan during a period of zero work hours would be reported as normal with the respective offer of coverage on Line 14 (for example 1E) and 2C (employee enrolled) on Line 16. Any employee who is enrolled in the employer’s coverage cannot trigger a penalty for the employer, regardless of the cost of coverage or affordability.

If an employer uses the monthly measurement method and the employee has a change of status from full-time to unpaid leave (a period of zero hours), the employee is no longer considered full-time at the end of the month in which the change occurs. A furloughed employee, under this method, who was still eligible for active coverage during the period of zero hours, but was not enrolled (due to a previous waiver), would not be reported as a full-time employee for the furloughed months. The employer would still report the offer of coverage on Line 14 and the employee’s required contribution on Line 15. Line 16 would indicate that the employee was not a full-time employee during the furloughed period (2B).

If an employer uses the look-back measurement method, an employee who has earned full-time status during an initial or standard measurement period is considered full-time during the entire stability period regardless of the number of hours worked (assuming there was not a termination of employment). A furloughed employee, under this method, who was still eligible for active coverage during the period of zero hours, but was not enrolled (due to a previous waiver), would be reported as a full-time employee for the furloughed months occurring during the stability period. The employer would report the applicable offer of coverage on Line 14 with the employee’s required contribution on Line 15. Line 16 would be the employer’s affordability safe harbor, if one applies. If none of the safe harbors apply, Line 16 would be left blank and would indicate potential risk under Penalty B for the employer.

As a reminder on the affordability safe harbors, if the employer is using:

• Rate of Pay, the code would be 2H on Line 16. The rate is affordable if it is not greater than 9.78% of the employee's monthly salary or 9.78% of the employee's hourly wage multiplied by 130 hours, regardless of how many hours are actually worked.
• Federal Poverty Level, the code is 2G. The employee's required contribution would have to be $101.79 or less per month. This is the only safe harbor that is not based on the employee’s specific earnings.
• Form W-2 safe harbor, the code is 2F. The employee’s cost of coverage is affordable if it is less than 9.78% of the employee's 2020 Form W-2 Box 1 earnings divided by 12. This will be the most difficult safe harbor to satisfy for furloughed employees. If the employee had a number of months with zero compensation, the cost of coverage very likely will not be affordable.

If an employee was terminated from the plan and offered COBRA, the coding is different based on whether the loss was triggered by termination of employment or reduction of hours. For termination of employment, the employee would be treated as any other terminated employee. COBRA coverage is not considered an offer of coverage for this purpose following a termination of employment. Line 14 would be 1H (no offer of coverage); Line 15 would be blank; and Line 16 would be 2A (not employed). If the employee was offered COBRA due to a reduction of hours, COBRA coverage would have to be reported as an offer of coverage. Please see IRS FAQ #23 for guidance on reporting this scenario.

Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C »

Currently, the FFCRA is set to expire on December 31, 2020, and has not yet been extended. An individual who is currently on FFCRA paid leave as of December 31, 2020, and who has not exhausted said leave, will not be able to continue their leave into 2021. In other words, December 31 appears to be a hard stop.

As background, the FFCRA provides for temporary paid leave provisions – including emergency paid sick leave (EPSL) and expanded FMLA leave (EFMLA) – for specific circumstances related to COVID-19. To review, to qualify for EPSL, an employee must be unable to work or telework because the employee:

• Is subject to a federal, state or local quarantine or isolation order related to COVID-19;
• Has been advised by a healthcare provider to self-quarantine related to COVID-19;
• Is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
• Is caring for an individual subject to an order described in item one or self-quarantine as described in item two;
• Is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19; or
• Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

In order to qualify for EFMLA, an employee must have been employed for 30 calendar days immediately prior to the day the employee’s leave would begin and they must be unable to work or telework due to a need to care for their son or daughter under 18 years of age whose school or place of care has closed, or whose childcare provider is unavailable, for reasons related to COVID-19, among other requirements.

These FFCRA provisions apply to private employers with fewer than 500 employees and public employers of any size, and provide up to 80 hours of EPSL and 10 out of 12 weeks of paid EFMLA for qualified employees. Additionally, employers who provide such leave are eligible for a federal tax credit. Note that the tax credit expires at the end of the year too.

With the FFCRA expiration quickly approaching, the following example illustrates how FFCRA paid leave can be impacted:

Tracy qualifies for both EPSL and EFMLA under the FFCRA because she is unable to work (or telework) due to a need to care for her children whose school is closed for reasons related to COVID-19. She qualifies for leave beginning December 7, 2020. The 80 hours of EPSL will expire on December 18, 2020. Although 10 additional weeks are permitted for EFMLA, Tracy’s FFCRA paid leave will end on December 31, 2020 (using less than two weeks of the benefit) because the FFCRA is set to expire at that time.

Importantly, many states have enacted their own COVID-19-related leave laws, which may provide for leaves into 2021, but they would not carry the federal tax credit. As a result, any related leave provided may be at employer cost.

Employers administering paid leave under the FFCRA should be mindful of the approaching expiration date and communicate with employees, especially if the expiration impacts the length of their leave. It remains to be seen whether Congress will extend the FFCRA beyond the end of the year; if they do, we will report that in Compliance Corner.

COBRA coverage can have a big impact on a person’s entitlement to Medicare coverage. If a Medicare-enrollee is unaware of how COBRA affects Medicare entitlement, they may find themselves paying higher premiums for as long as they are covered by Medicare and could experience gaps in coverage when COBRA coverage expires.

Remember that a person is “entitled to” Medicare Parts A and B when they become eligible (generally, when the person turns 65) and actually enroll in the coverage. An eligible person becomes enrolled automatically if they sign up for Social Security benefits; otherwise, there is a window of time within which they must enroll in Medicare Parts A and B to avoid a penalty. If they enroll in Medicare within a seven-month window that begins three months before the month they turn 65, covers their birthday month, and ends three months following their birthday month, then they will not have to pay higher premiums for enrolling later. If they do not enroll during this window, they will have to wait until a subsequent Medicare general enrollment period, which runs from January 1 through March 31 of every year.

However, there is a special enrollment period for people who didn’t enroll when first eligible because they were covered by a group health plan based upon their current employment status. This special enrollment period ends eight months after the earlier of the date someone loses group health plan coverage or the date the current employment ends. Importantly, COBRA coverage is not considered a group health plan based upon current employment. So a Medicare-eligible person that has COBRA coverage and delays Medicare would not experience a special enrollment period when the COBRA ends and would be subject to premium increases if they fail to enroll when first entitled to Medicare.

So if the person does not enroll in Medicare Parts A and B in a timely manner because they chose COBRA coverage, then not only are they subject to higher premiums for enrolling late, but they would also have to wait until Medicare general enrollment rolls around to enroll.

As you can see, the Medicare rules can be difficult to follow. As such, employers should consult with Medicare-knowledgeable advisors when employees have questions about how their coverage decisions affect Medicare enrollment.

Under the Code Section 125 cafeteria plan rules – which apply to benefits that are paid on a pre-tax basis – eligible employees should be provided the opportunity to change their elections no later than 12 months after their last election. Additionally, ALEs subject to the ACA’s employer mandate provisions should ensure that they provide an adequate opportunity to opt into or out of medical coverage annually; otherwise, the requirement to offer coverage at least once a year (or to offer a chance to decline coverage that fails to meet minimum value or affordability mandates) will not be satisfied.

However, the plan is not required to obtain affirmative elections from eligible employees. Of course, some employers prefer the affirmative method because it provides a clear written record of the employee’s choice and consent to payroll deductions.

But a plan is permitted to use a negative or “default” election approach, under which employees who do not want health coverage must affirmatively elect not to participate in the cafeteria plan. In addition, the employer could continue the default approach on an ongoing basis through the use of rolling or “evergreen” elections for re-enrollment.

With default elections, it is important that at the time of hire and again before the beginning of each subsequent plan year, the employer provides a detailed notice to employees. Specifically, the notice must include all of the following:

• An explanation of the automatic enrollment process and the employee's right to decline coverage and have no salary reduction
• The salary reduction amounts for employee-only coverage and family coverage
• Procedures for exercising the right to decline coverage
• Information on the time by which an election must be made
• The period for which an election will be effective
• For a current employee, a description of the employee's existing coverage

The plan documents, election forms and enrollment communications should be drafted to clearly and consistently incorporate the default process. The employer will also want to allow employees adequate time to determine whether they wish to affirmatively opt out of the coverage.

As an alternative to the default approach, an employer may prefer that an employee make an initial affirmative election, which would thereafter roll over for future years unless the employee made an affirmative election to change it. If such rolling or “evergreen” elections are used, the employer must distribute open enrollment materials to all participants each year, preferably including a copy of their current elections. The disclosures should include any changes to plan design and employee contribution rates, as well as other information. The use of rolling elections should also be disclosed in the plan documents and in the initial affirmative election form signed by the participant. There may also be state wage withholding laws to consider.

However, the rolling election feature is typically not used for certain benefit offerings, such as HSAs and FSAs. Instead, employers offer active enrollment, so employees can choose how much they want to fund these accounts for the year based upon the annual IRS maximum contribution levels and any changes in their personal lives and budgets since the prior year. Additionally, requiring HSA active enrollment each year reminds the employee to reassess their eligibility. (Perhaps in the upcoming year, an employee will be covered by a spouse’s FSA or other medical plan that would make the employee ineligible to contribute to the HSA.) Furthermore, regardless of the open enrollment approach, HSA accountholders must still be given the opportunity to change their contribution deferral elections at least monthly.

Accordingly, it is permissible for a cafeteria plan to be designed to allow for initial default and/or ongoing rolling elections, so long as the participants are provided with the necessary disclosures and the opportunity to change elections at least once during a 12-month period. The employer would need to keep the above considerations in mind and determine the benefits for which such an approach may be appropriate.

Although insurance carriers are often willing to extend the insurance contract beyond 12 months, employers must consider what that will mean for the plan’s compliance. Specifically, the employer will have to consider what will need to be done to avoid violating the Section 125/Cafeteria plan rules, ERISA and the ACA.

Section 125/Cafeteria Plan
If employees are able to contribute towards their premiums on a pre-tax basis, then the plan is a Section 125/cafeteria plan. The Section 125 rules require employees to have the option to prospectively elect coverage for the “coverage period” (also called the “plan year”). The related rules state that a “plan year” must be 12 consecutive months, although there is an exception for a shorter plan year (if it's justified by a business purpose).

The plan year can begin on any day of any calendar month and must end on the preceding day in the immediately following year. So, if the employer has a cafeteria plan, the employer must allow employees to change their elections at the end of the plan year (i.e., prospectively elect or not elect coverage for the following plan year). This would mean that the employees would have to be given a chance to change their elections no later than 12 months after their last election.

ERISA
Similarly, under ERISA, a plan year can be no longer than 12 months. The plan year must be identified in the SPD and the Form 5500 filing is based on a 12-month plan year (unless there is a shorter plan year).

The Form 5500 filing instructions make this clear when they mention that:

All required forms, schedules, statements, and attachments must be filed by the last day of the 7th calendar month after the end of the plan or GIA year (not to exceed 12 months in length)…

Thus, the Form 5500 filing would need to be completed for a 12 month period and could not be done for a 14-month period. Instead, the employer would likely have a 12-month ERISA plan year that would be followed by a two-month short plan year (or vice versa depending on the particular situation).

ACA
Employers with more than 50 employees are likely applicable large employers (ALEs) subject to the ACA’s employer mandate. Generally, an employer is an “applicable large employer” for a calendar year if it employed an average of at least 50 full-time employees on business days during the preceding calendar year. To comply with the employer mandate, a large employer must offer full-time employees minimum value, affordable coverage.

An employer makes an offer of coverage to an employee if it provides the employee an effective opportunity to enroll in the health coverage (or to decline that coverage) at least once each plan year. Treasury Regulation 54.4980H-4(b)(1) states:

An applicable large employer member will not be treated as having made an offer of coverage to a full-time employee for a plan year if the employee does not have an effective opportunity to elect to enroll in the coverage at least once with respect to the plan year.

As mentioned with the laws above, a plan year can be no more than 12 months. So, if a previously waived employee, who has not experienced a qualified event, is not given an annual opportunity to enroll in coverage — the employer will be considered to have failed to make an offer of coverage to the employee under the employer mandate and the employer would be at risk for a penalty.

Summary
The employer mandate requires an offer of coverage to be made at least annually, ERISA requires a plan year of no more than 12 months, and IRC Section 125 requires employees to have the option to make a prospective election for each coverage period (12 months). So even if the carrier is willing to extend the renewal date/contract “year,” the employer will likely need to host an additional open enrollment opportunity for the short plan year.

Generally speaking, yes. Under a DOL safe harbor, SBCs may be provided electronically to participants and beneficiaries in connection with their online enrollment or renewal of coverage under the plan. In addition, an SBC may also be provided electronically to participants and beneficiaries who request an SBC online. In either case, the individual must have the option to receive a paper copy of the SBC upon request.

That said, it's not entirely clear what it means to be "in connection with" an online enrollment. One thing is for sure, though, and that is that the rules would only apply for those employees who are actually enrolling in benefits online. In other words, it would not be available for those who choose to enroll via other means (such as by phone or by paper, if those are options for enrollment). The rules do say that if the SBC is provided to an employee via this safe harbor, it will be considered as having been provided to related beneficiaries (i.e., other dependents that are enrolled) — so that’s helpful for employers.

Based on that, employers can have confidence that they satisfy the safe harbor by providing SBCs electronically both in connection with annual open enrollment as well as at other times (like mid-year special enrollments, etc.), so long as all enrollments must be completed online, the SBC is built into that process (i.e., provided in connection with the online enrollment), and there is a description of the right to receive the SBC in paper format, free of charge, upon request.

If employees are not required to complete enrollment online (i.e., there are phone, paper or other options), then the employer should distribute the SBC with open enrollment materials. That distribution can be by accomplished by paper (via postal mail, which is always an acceptable delivery method) or by email or other electronic means. If distributed electronically, the employer must ensure that they comply with the DOL’s electronic disclosure safe harbor. In other words, the employee must have electronic access as an integral part of their job (meaning they have a work email, computer or other device access and are expected to access email or the computer regularly throughout the work day or week).

If electronic access is not integral to their job, then the employee must provide authorization to receive plan-related documents electronically; otherwise, the employer should send the SBC as a paper copy via mail. For those eligible but not enrolled, the rules do allow the employer to post the SBC on the employer’s intranet if the individuals are notified in paper form (such as a postcard) or via email that the documents are available on the intranet (list the internet address and indicate that the SBC is available in paper form upon request).

Employers should also consider COBRA beneficiaries enrolled in the plan, who are also entitled to open enrollment materials and SBCs. Since employers may not have a COBRA beneficiary’s email address, mailing paper copies of open enrollment materials and SBCs may be the best approach. If online enrollment is required, though, the SBC could be built into the online enrollment process (per the above safe harbor). Employers considering that route should ensure, though, that the COBRA beneficiary is notified of their open enrollment rights, which means they’d either have to send a paper version or get permission from them to send via email (since it’s unlikely the COBRA beneficiary would have electronic access as a part of their job, as most COBRA beneficiaries are former employees and/or their dependents).

There are two different issues to consider – employment termination and health plan coverage termination.

Let’s first discuss health plan coverage termination. An employee on FMLA is entitled to up to 12 weeks of continued eligibility and coverage at the same cost as an active employee. If the employee is on unpaid leave, the employee may choose to pre-pay the premiums when the leave is foreseeable, the employer may require payment during the leave through personal check, or the employer may permit repayment upon return. Similarly, an employee whose absence from work is covered by a state leave law may be entitled to continued coverage and eligibility.

Once FMLA and any state leave is exhausted, the employer should then review the terms of eligibility listed in the plan’s Summary Plan Description. Most state that an employee is eligible if they work a certain number of hours per week or on an approved leave. Most plans do not provide continued eligibility for an extended unpaid leave of absence. As an ERISA fiduciary, the employer needs to follow those terms. If they do not, it would be a breach of their fiduciary duty to follow the terms of the plan.

The employer also needs to consider the employer mandate. If the employer uses the look-back measurement method to determine eligibility, and an employee earned full-time status in the most recent measurement period, the employee would remain eligible throughout the entire stability period regardless of the number of hours worked.

Once the employee no longer meets the terms of eligibility (because they are not working the required number of hours per week and not in a covered leave period), COBRA would be offered for reduction of hours. If the employer continued the employee’s coverage under the active plan when they are not otherwise eligible, the carrier (including a stop-loss carrier for self-insured plans) could deny the claims, leaving the employer to self-insure all claims. Sometimes to soften the blow for an employee on a medical leave of absence, an employer may subsidize the COBRA premiums for a period of time.

On the second issue of employment termination, the employer should proceed with caution and consider consulting employment law counsel. But at a minimum, the employer should remember that the ADA could have some application in this regard. As background, the ADA requires employers with 15 or more employees to make reasonable accommodations for employees who are unable to perform their job duties because of a disability. A reasonable accommodation may include equipment modification/purchase, a temporary leave of absence, a modified schedule and other measures.

If an employee is in need of a leave extension, the employer will want to very carefully consider this request and its obligations under the ADA before denying the request or terminating employment. Please note that an extended leave of unpaid absence made as an accommodation to an employee is not an FMLA extension. The leave would not have the same protections as FMLA.

The EEOC prohibits an automatic termination policy. In other words, an employer couldn’t say an employee is provided six weeks of unpaid medical leave and if they don’t return at that time, they are automatically terminated. Each situation needs to be reviewed for reasonable accommodation. Before terminating an employee’s employment, the employer should engage in an interactive process to determine any reasonable accommodations and seek outside counsel.

Under the “use-or-lose” rule, health FSA and DCAP contributions that are not used to reimburse expenses incurred during the plan year (or during a carryover or grace period, if applicable) will be “forfeited,” even if the reimbursements are less than the participant's contribution. In light of the COVID-19 public health emergency, employers may be dealing with such experience gains/participant forfeitures more so than usual given that participants may not have the opportunity to use designated health FSA and DCAP funds within the period of coverage.

Fortunately, the IRC and ERISA provide guidance to employers on what can be done with such experience gains/participant forfeitures.

• For plans not subject to ERISA, they may be retained by the employer maintaining the cafeteria plan.
• For plans subject to ERISA, the forfeitures may be used only in one or more of the following ways:
  • To reduce required salary reduction amounts for the immediately following plan year, on a reasonable and uniform basis
  • Returned to the employees on a reasonable and uniform basis
  • To defray expenses to administer the cafeteria plan

Practically speaking, many employers choose to use experience gains to defray reasonable administration expenses as this is generally the easiest approach to administer. Importantly, if an employer chooses to return funds to employees, experience gains may not be allocated among employees based (directly or indirectly) on their individual claims experience — it must be on a reasonable and uniform basis. For example, experience gains may be returned to all employees who elected coverage for the plan year on a per capita basis or weighted to reflect the employees' elected levels of coverage. Further, any cash returned to employees from a FSA's experience gains will be considered to be W-2 wages for purposes of FICA and federal income tax withholding.

While the IRS and DOL provide the above options, employers should be sure to follow any terms in their plan document that may dictate how forfeitures and experience gains must be applied.

The Families First Coronavirus Response Act (FFCRA) requires employers to provide emergency paid sick leave (EPSL), as well as expanded FMLA (EFMLA), to employees if they must take care of their children whose school or daycare is unavailable due to COVID-19. Absent additional guidance from the DOL, this could likely result in a diminished ability to take FFCRA leave for the coming school year. Specifically, if schools and daycare centers are open and providing in-person instruction, then employees would seemingly not be eligible for this leave if, for example, they simply did not feel comfortable sending their kids to school or daycare due to risk of contracting the virus.

As a reminder, employers with fewer than 500 employees must provide FFCRA to their employees under certain circumstances. In order for their employees to qualify for EFMLA, they must have been employed for 30 calendar days immediately prior to the day their leave would begin and they must be unable to work OR telework due to a need to care for their children under 18 years of age whose school or place of care has closed, or whose childcare provider is unavailable, for reasons related to COVID-19, among other requirements. Note that an eligible employee is entitled to up to 12 weeks of EFMLA under the FFCRA to care for a child due to school/daycare closure related to COVID-19. If the employee did not exhaust the entire 12 weeks during the spring, they may be entitled to additional time in the coming fall semester.

In order for employees to take EPSL, one or more of six specific reasons enumerated in the FFCRA must apply, including that the employees cannot work because they are taking care of their child and the school or place of care of their child has been closed, or the childcare provider of such child is unavailable, due to COVID-19 precautions. According to DOL regulations, EPSL can be taken for this reason only if no other suitable person is available to care for the child during the period of such leave. If this reason applies, then employees are entitled to take up to 80 hours of EPSL, regardless of how long they have worked for their employers.

So employees may be entitled to FFCRA leave when their children’s schools are closed due to COVID-19. However, if they are open and available for in-person instruction, employees would seemingly be ineligible for paid leave under the FFCRA if they simply choose not to send their children. If the school or daycare is “partially” open – so that part of the curriculum is not in-person and is instead on-line only – employees (if otherwise eligible) would seem to qualify for the FFCRA leave if they cannot work (or telework) due to needing to care for their children during said partial closure.

Please note a few caveats. Several states, like New York, expand on the leave provided under the FFCRA, such as applying this or similar leave to employers with 500 or more employees. This could mean that there are additional state requirements to provide leave that could apply to children’s school circumstances whether instruction is provided in-person or not. Additionally, a recent federal court case struck down several DOL regulations that administer and enforce the FFCRA, including a requirement that employees can take FFCRA leave only if their employers have work for them do to that they cannot do because of the reasons for the leave. This case is discussed at more length in a separate article in this edition of Compliance Corner.

We are hoping for additional guidance from the DOL on this and related matters that are not directly addressed by current guidance. In the meantime, employers should consult with counsel if they have questions concerning the application of FFCRA leave to any particular case. We will pass along any new developments as we learn them.

Yes, the employee would be eligible, provided they otherwise meet the eligibility requirements for emergency paid sick leave (EPSL) under the Families First Coronavirus Response Act (FFCRA). To review, to qualify for EPSL, an employee must be unable to work or telework because the employee:

1. Is subject to a federal, state or local quarantine or isolation order related to COVID-19;
2. Has been advised by a health care provider to self-quarantine related to COVID-19;
3. Is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
4. Is caring for an individual subject to an order described in item one or self-quarantine as described in item two;
5. Is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
6. Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Accordingly, an employee that takes a vacation and is required by a state order to quarantine upon return would be eligible for EPSL leave based on reason one. The fact that the employee’s trip was voluntary as opposed to work-related is not a disqualifying factor. In other words, the FFCRA does not distinguish between reasons for receiving a self-isolation or quarantine order; it simply requires that EPSL be offered if the person is ordered to quarantine and cannot work or telework as a result.

Question 87 of the DOL FFCRA questions and answers may be instructive in this regard. It references a situation in which an employee is returning from a cruise ship upon which other passengers tested positive. This exposure resulted in the employee’s quarantine by a government official upon return. The DOL response indicated that such an employee was entitled to paid sick leave if the employee could not work (or telework) because of the order. So, the EPSL entitlement was not affected by the fact that the trip was the employee’s choice.

It is also important to remember that the FFCRA was promulgated largely to protect the health of workers and their communities by mitigating the spread of the COVID-19 virus. For this purpose, it is not relevant whether an employee’s potential exposure to the virus results from voluntary or involuntary behavior.

Therefore, a covered employer should not deny leave to an otherwise eligible employee who is subject to a state quarantine order following voluntary travel and is unable to work or telework as a result. The DOL has already taken some enforcement action with respect to employers who have improperly denied FFCRA leave. So, an employer would want to be careful not to restrict such leave in a manner not required by the legislation.

Of course, this response addresses only the application of the federal FFCRA paid sick leave to the voluntary travel situation. State COVID-19 paid sick leave may not be available to those who are quarantined following voluntary travel; eligibility for any such state leave would depend upon the particular state’s leave law provisions.

DOL FFCRA Questions and Answers »

Yes, plans must cover COVID-19 antibody tests without cost-sharing. As background, the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security (CARES) Act require both insured and self-funded plans to cover COVID-19 testing without cost sharing. Specifically, the FFCRA provides that the required testing includes “in vitro diagnostic products for the detection of SARS–CoV–2 or the diagnosis of the virus that causes COVID–19.”

Back in April, HHS, the DOL and the Treasury provided a set of FAQs on the obligations to cover COVID-19 testing under the FFCRA and CARES Act. (We discussed the FAQs in our April 14, 2020, edition of Compliance Corner.) One of the questions explicitly indicates that “in vitro diagnostic products” includes serological tests used to detect antibodies for the virus that causes COVID-19. Q/A 4 reads as follows:

Q4. Do “in vitro diagnostic tests” described in section 6001(a)(1) of the FFCRA, as amended by section 3201 of the CARES Act, include serological tests for COVID-19?
 
Yes. Serological tests for COVID-19 are used to detect antibodies against the SARS-CoV-2 virus, and are intended for use in the diagnosis of the disease or condition of having current or past infection with SARS-CoV-2, the virus which causes COVID-19. The Food and Drug Administration (FDA) currently believes such tests should not be used as the sole basis for diagnosis. FDA has advised the Departments that serological tests for COVID-19 meet the definition of an in vitro diagnostic product for the detection of SARS-CoV-2 or the diagnosis of COVID-19. Therefore, plans and issuers must provide coverage for a serological test for COVID-19 that otherwise meets the requirements of section 6001(a)(1) of the FFCRA, as amended by section 3201 of the CARES Act.

So although the guidance states that serological tests should not be the sole basis for COVID-19 diagnosis at this time, the FFCRA and CARES Act require plans and insurers to cover these tests (among other services) without cost-sharing when medically appropriate for the individual (as determined by the individual’s attending healthcare provider in accordance with accepted standards of current medical practice).

HIPAA only applies to protected health information, which is personally identifiable health information that is obtained in connection with a group health plan. So, health information received due to employment practices, such as return-to-work questionnaires or temperature checks, is not likely HIPAA-protected. Nevertheless, employers should take important steps to safeguard the confidential medical information, whether stored in paper or electronic form.

In fact, these types of questionnaires or temperature check records are most likely protected under the ADA, which requires that such information be stored separately from an employee's personnel file, in order to limit access to it. However, an employer may store all medical information related to COVID-19 in existing medical files it maintains on employees (such as other sensitive medical information, plan-related information, etc.). This type of confidential medical information would include an employee's statement that they have COVID-19 or suspect they have COVID-19, the employer's notes or other documentation from questioning an employee about symptoms, and records of temperatures taken of the employee before entering the workplace. Note that this does not prohibit the employer from disclosing that information to a public health agency, nor does it prohibit a temp/staffing agency or contractor from notifying an employer if it learns an employee tests positive for COVID-19.

The IRS has recently released several notices and regulations related to the administration of health FSA’s and dependent care FSA’s. This article will summarize that guidance.

One of the changes is mandatory in the sense that an employer does not have a choice. The change must be adopted. The period of time that a health FSA participant has to submit already incurred claims has been extended. This is generally called the run-out period. If the end of the run-out period occurred on or after March 1, 2020, then participants have additional time to submit qualified claims that were incurred during the plan year or grace period. The deadline is suspended until the end of the National Emergency is declared plus 60 days (called the Outbreak Period). This does not apply to a dependent care FSA.

Then there are the optional changes. First, the sponsor of a health FSA or dependent care FSA that had a grace period or plan year end in 2020 may choose to implement an extended claims period. Participants would have until December 31, 2020, to incur claims. This gives participants a chance to spend down any balance that was remaining in their account at the end of the plan year or grace period. It’s considered an extension of the grace period. An employer may choose to adopt this optional provision for a plan that has a grace period, rollover or neither. Importantly, an employer that also sponsors an HSA should understand that adopting the extended claims period for a health FSA would result in participants being ineligible for HSA contributions during that period. If adopted, the employer must revise their Section 125 written plan document by December 31, 2021.

Let’s go over an example:

Tommy’s Brake Pads sponsors a health FSA that runs from January to December with a two and a half month grace period. The most recent plan year ran from January 1, 2019, to December 31, 2019, with a grace period ending March 15, 2020. Typically, employees have until March 15 to incur claims and until March 31 to submit claims. Under the new guidance, the plan cannot enforce the March 31 claims deadline. Participants have until 60 days following the end of the Outbreak Period to submit claims. Additionally, Tommy’s Brake Pads may choose to allow employees with a remaining balance to incur claims through December 31, 2020.

Second, employers may choose to allow employees to make changes to their health FSA or dependent care FSA without a qualifying event. Typically, a participant may not change their Section 125 election mid-year without a qualifying event. Through December 31, 2020, employers may permit employees to add, increase or decrease their health FSA or dependent care FSA election amount. The employer may limit the changes to a certain timeframe. For example, the employer may choose to allow such changes only during the month of July. The employer may also limit the types of changes permitted. For example, the employer may allow only decreases to election amounts, not increases or adds. (Keep in mind, though, that changes could still be allowed under the regular qualifying event rules if an employer doesn’t choose to recognize an additional qualifying event opportunity.)

Whatever choices are adopted by the employer, they should be clearly communicated to employees.

For a summary of many of the mandatory and optional changes employers must or can make, see our quick reference chart.

The guidance issued in the DOL and the Treasury’s joint final rule “Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak” provides that all group health plans subject to ERISA or the Code must disregard the period from March 1, 2020, until 60 days after the end of the National Emergency (known as the “Outbreak Period”) for certain deadlines, including the 30-day (or 60-day, if applicable) deadline to request a special enrollment under HIPAA. In other words, any plan participant who experiences a HIPAA special enrollment event that occurs during the Outbreak Period need not count the 30-day election period (60-day election period for Medicaid and CHIP related events) until the completion of the Outbreak Period, as illustrated in the following example:

Mary has a baby on March 31, 2020. For purposes of this example, let’s say the National Emergency is proclaimed to be over on May 31, 2020 (as such, the Outbreak Period ends July 30 — 60 days after the end of the National Emergency). In this scenario, Mary may request enrollment for the baby (and herself and spouse, if applicable) in the group health plan up until August 29, 2020, which is 30 days after the end of the Outbreak Period. It is important to note that coverage would be retroactive back to the event date.

This temporary extension is a good opportunity to review the nuances and requirements of HIPAA special enrollment rights (SERs). As background, HIPAA requires group health plans to provide SERs when there is a loss of eligibility for group health coverage (or health insurance coverage including Medicaid or CHIP); becoming eligible for state premium assistance subsidy; and the acquisition of a new spouse or dependent by marriage, birth, adoption or placement for adoption. Also required by HIPAA, an SER must allow for at least a 30-day special enrollment period for requests due to loss of group health plan coverage or with an acquisition of a new spouse or dependent; and at least a 60-day election period for enrollment requests due to loss of Medicaid/CHIP or becoming eligible for a state premium assistance subsidy.

Often overlooked, HIPAA SERs are only applicable to enrollment requests. For example, a request to drop coverage due to marriage is not a HIPAA SER, and a request to drop coverage due to becoming eligible for Medicaid or CHIP is not a HIPAA SER (but both are permitted IRS mid-year election change events). Further, election changes due to a HIPAA SER are applied prospectively with the exception of birth, adoption or placement for adoption, which can be applied retroactively to the date of when the birth, adoption or placement occurs (as mentioned in the example). In addition, coverage due to marriage must be effective no later than the first day of the first month beginning after the enrollment request is received.

Finally, employers that offer health coverage to domestic parties should be aware that loss of coverage SERs protect an employee’s right to add a domestic party due to the relevant loss of coverage event. However, SERs do not grant employees the right to enroll a newly qualified domestic partner outside of the employer’s open enrollment period, as attaining domestic partnership status is not comparable to marriage for purposes of triggering a HIPAA SER.

The COBRA regulations normally provide a qualified beneficiary with a minimum 60 day period to elect COBRA and a minimum 45 day grace period following such election to make the first premium payment.

However, under recent COVID-19 IRS/DOL joint guidance, the election and grace periods have been significantly extended. Specifically, in determining an election or payment deadline, the timeframe from March 1, 2020, to 60 days following the declared end of the COVID-19 National Emergency (which is not yet known) must be disregarded (or tolled). The COBRA administrator should communicate these extended timeframes to qualified beneficiaries (by providing, for example, a supplement provided with the election notice).

The IRS COBRA rules provide that during the interim election and premium grace periods, the plan could do one of the following:

1. Provide the COBRA continuation coverage and retroactively cancel it if the election or payment is not timely made
2. Cancel the coverage and retroactively reinstate it once the election or payment is timely made

The COBRA election notice should specify the plan’s chosen policy during the grace period.

In either situation, the plan would need to explain the status of the COBRA-qualified beneficiary to any health care provider seeking to confirm coverage during the interim period. So, if the plan’s policy was to provide the coverage and retroactively cancel it, the plan would need to inform a provider to alert them of the possibility of a retroactive termination that could result in claims not being covered. Some plans may continue to pay claims during this interim, but then retroactively deny the claims and seek reimbursement if a timely COBRA election and payment is not made.

Similarly, if the plan cancels but retroactively reinstates coverage, then the plan must inform the provider that the qualified beneficiary currently does not have coverage but will retroactively if the election or payment is made. During the interim period, some plans take the approach of denying claims, but later reprocessing these if a timely election and payment is received. Other plans may hold or “pend” the claims. However, given the current extended deadlines, pending claims may be particularly challenging if in-network provider contracts require payments within a certain timeframe.

For a fully insured plan, it is imperative that the employer consult with the carrier regarding the approach, as well as any third-party COBRA administrators. If the plan policy is to provide coverage and retroactively cancel it, the carrier may require the employer to pay the COBRA premium for the interim period. A self-insured plan should confer with the stop loss carrier and any other service providers. Given the additional administrative challenges presented by the extended deadlines, coordinated efforts and consistent, clear communications to qualified beneficiaries are essential.

Finally, an employer should consult with counsel regarding any liability concerns with respect to COBRA administration, including those relating to the extended election and payment deadlines.

The answer depends upon whether the employees lost eligibility for the health FSA when they were furloughed, and how long the furlough lasts.

If they did lose eligibility, COBRA should be offered for any employee with an underspent balance. If they want coverage for the furlough period, they would have to elect and pay for COBRA. If they return to work in less than 30 days since the date they were furloughed, the employees would be reinstated to their previous elections, including the health FSA. If it’s more than 30 days, then they would be treated like new hires, with an opportunity to enroll in the health FSA if they choose.

If the employer does not wish for their employees to lose eligibility while on furlough, the limited guidance available (including the federal government’s own cafeteria plan) suggests three possible approaches:

• First, the employer could suspend the FSA, with no employee contributions and no FSA coverage during the furlough. Upon return, there would be no employee salary contribution collection in arrears. The employee is not responsible for salary contributions during the furlough, but the employee cannot be reimbursed for FSA claims incurred during the furlough period. The employee’s total annual FSA benefit either remains the same (with the employer picking up the difference) or reduced by the missed furlough amount.
• Second, the employer could suspend employee FSA contributions but continue FSA coverage through the furlough. Upon return to work, the employees would pay back the contributions they skipped while on furlough paying a new recalculated contribution amount over the remaining pay periods. Employees can incur health FSA expenses during the furlough, and the employee’s FSA benefit amount remains the same. The employer risks not collecting in arrears if the employee does not return to work.
• Third, the employer could pay for the employees’ contributions and continue coverage during the furlough. However, this third option comes with some additional issues. The employer should be careful to make contributions that do not cause the FSA to lose its excepted benefit status (i.e., employer contributions should not exceed $500 or an amount that matches the employee’s contribution).

Although the idea is that employees would resume paying their portion of the contribution upon their return to work (and their contribution amount remains the same as before they went on furlough), the risk here is that employees do not return and the contributions that the employer has made on their behalf were wasted.

Finally, another thing to keep in mind is that, according to guidance from the IRS released on May 12, 2020, it is possible for employers to amend their plans and allow employees to make mid-year changes to their FSA elections. See our article in this edition of Compliance Corner about this new guidance from the IRS for additional information.

There are two ACA rules that come into play with this type of a potential return to work situation.

First, group health plans are prohibited from applying a waiting period that exceeds 90 calendar days. That is, an eligible employee must be able to elect coverage that becomes effective within 90 calendar days.

Under the waiting period rule, a former employee who is rehired may be treated as newly eligible for coverage upon rehire (and subject to the plan’s eligibility criteria and waiting period requirements). Additionally, if eligibility for coverage depends on being employed in an eligible job classification, a waiting period can be imposed when an employee moves from an ineligible job classification to an eligible job classification. So, if the furloughed status resulted in the employee being ineligible for coverage under the plan terms, resuming work may return the employee to an eligible job classification.

However, the imposition of the waiting period must be “reasonable under the circumstances” and “not a subterfuge to avoid compliance.” These terms are not defined, so the situation would need to be reviewed in terms of factors such as the expectation of the parties and the employer’s motives.

Additionally, employers with more than 50 full-time employee equivalents must consider the ACA shared responsibility provisions. With respect to new hires, there is generally a limited non-assessment period of three calendar months in which an ALE will not be liable for shared responsibility penalties for not offering coverage to full time employees.

However, if an employee stops working for the ALE and then returns (for example in a furlough situation), it is necessary to determine whether the employee is considered to be either a continuing employee or a terminated and rehired employee.

Generally, an employee will be considered to have terminated employment if the employee has a period of 13 consecutive weeks in which they are not credited with an hour of service. (For an educational organization, this period would be 26 consecutive weeks.) In such case, the employee would be considered a new employee upon return.

If deemed a new employee, the limited non-assessment period can be applied, and the group health plan coverage would need to be effective by the first of the month following three full calendar months of employment.

By contrast, if the employee was credited with service hours during the 13 week timeframe, then the returning employee would be classified as a continuing employee. (This could occur in the situation where a furlough lasts less than 13 weeks.) In this situation, the required effective date of the coverage offered would be the first day that the employee is credited with an hour of service or as soon as administratively practicable (generally interpreted to be the first day of the following month). So, for example, for a continuing employee that returns to work on May 15, the coverage would need to be reinstated no later than June 1.

Accordingly, the credited hours of service (if any) for each affected employee prior to the return date should be reviewed. Failure to offer coverage in the required timeframe could subject the employer to shared responsibility penalties if the employees sought marketplace coverage and received a tax credit.

Finally, let’s say an employee is determined to be terminated and rehired so that a limited non-assessment period can be applied with respect to the coverage offer. The coverage date would still need to be coordinated with the 90 calendar day waiting period requirement. So, the employee returning on May 15 would need to be offered coverage that would be effective by August 13 to meet the waiting period rule, even if the limited non assessment period rule would only require a September 1, 2020, effective date. So, the employer always needs to coordinate the two dates with any new hire or rehire.

If employers want to minimize the disruption of their furloughed employees’ health care, employers may choose to supplement the health plan premium in a greater manner or to subsidize COBRA during the furlough period. Ultimately, the employer must consider the plan terms, any qualifying event implications, and COBRA maximum duration periods.

First, the employer will need to consider the plan terms. If employees being furloughed will cause a loss of eligibility under the plan, then the employer should not merely pay a greater portion of the premium. Instead, they should likely terminate the employee’s coverage (since they’re no longer eligible) and offer COBRA. They could then choose to subsidize the COBRA.

If employees being furloughed will not cause a loss of eligibility under the plan, then COBRA would not be warranted since there would not be a COBRA-triggering event. In this case, the employer could choose to pay a greater portion (or all) of the premium for employees while they are on furlough. The employer would just want to clearly indicate to employees whether or not they intend for the fronted premiums to be paid back by employees upon any future return to work. Amended plan documents and communications might also be necessary to reflect the change in the employee’s cost.

One additional consideration for employers that pay a greater portion of the premium is whether this will create a qualifying event for others who waived the plan to choose to enroll now. This could be the case where the employer’s plan recognizes the qualifying event based on a significant cost change. If the employer did not want to allow for employees who waived coverage to enroll on the plan because the employer increased its contribution, then they might need to amend their Section 125 plan document to indicate that they do not allow employees who had previously waived coverage to enroll in the plan pursuant to this event. Employers should work with the entity that drafted their Section 125 plan document to communicate their position on any potential qualifying event.

If the employer offers COBRA and chooses to subsidize it, then they should make sure to clearly communicate the offer of COBRA. In other words, they will want to make sure employees know that they have received an offer of COBRA and not a subsidization of active coverage. In furtherance of this goal, they should provide the requisite COBRA notices. They also need to indicate how long the COBRA subsidy will last and that the subsidized COBRA goes towards their COBRA coverage maximum duration period. Further, any severance or separation agreements that are being written to include the COBRA subsidy should be reviewed by the employer’s HR professionals or legal counsel to ensure that the agreement is clear that the coverage that is being subsidized is COBRA coverage.

In addition, while employer COBRA subsidies are generally not taxable to the former employee, an employer COBRA subsidy of any non-tax dependent (including most domestic partner) coverage would be taxable. Employers should work with their CPA or tax counsel in determining any potential tax consequences.

As an additional note, many have wondered whether the additional payment of health care plan premiums or COBRA subsidies will cause an employee to become ineligible for unemployment benefits. This will depend on the state’s unemployment insurance provisions. However, keep in mind that the vast majority of states do not limit unemployment benefits (or even underemployment benefits) for individuals who have access to health care through COBRA or active coverage.

Possibly. It would depend on the group health plan eligibility terms, and whether the employer allows midyear election changes per its section 125 plan document. Most employers allow midyear election changes as allowed under section 125.

On medical plan elections, if the furlough results in a loss of medical plan eligibility, then eligibility would automatically be lost and the employee should be offered COBRA (or state continuation). If eligibility is extended through the leave, though, and the employee intends to enroll in a state health insurance exchange, there are two potential qualifying events (reduction in hours and exchange enrollment) that allow the employee to drop coverage. Normally, the employee would need a special enrollment event to enroll in a state exchange plan, but some states are opening up their enrollment windows midyear for anyone in that state (even if they have not experienced a midyear event). So, if an employee intends to use one of those exchange enrollment windows, the employee could drop the employer’s medical plan.

Importantly, neither of those qualifying events requires actual enrollment — just intention. An employer can rely on the employee’s attestation of intention to enroll in an exchange plan. (Keep in mind, though, that many states are only allowing a special enrollment event for individuals without insurance; this could mean that employees with employer-sponsored coverage are not eligible for the special enrollment.)

On health FSAs, if the furlough results in loss of health FSA eligibility, then the employee can drop FSA coverage (and in some instances, health FSAs will have an automatic termination, so there's really no choice). So if the employer is furloughing or otherwise sending employees on a leave of absence, then the employee would likely lose eligibility for the FSA, and therefore could drop FSA coverage (or may lose it automatically). But if the employer chooses to continue eligibility through a furlough (including FSA eligibility), then there would be no qualifying event.

If the reason the employee is taking a leave is because the employee has COVID-19, then it's possible that the employee qualifies for FMLA. Also, the emergency FMLA expansion (part of the newly enacted Families First Coronavirus Response Act — FFCRA) might apply if the employee is unable to work or telework because they have to care for their son or daughter under 18 years of age whose school or day care has closed due to a public emergency. So if the leave is FMLA-protected (through either of those), then benefits (including health FSAs, but not including dependent care FSAs) should not be dropped by the employer; benefits should continue on the same terms as prior to the leave. However, if the employee wants to drop their coverage during unpaid FMLA leave, there is a qualifying event that would allow them to do so for all benefits.

With dependent care FSAs (DCAPs), when there is a change in the cost of a dependent care provider, the employee’s work location changes (so that a different daycare is more convenient), a participant changes dependent care providers or a daycare closes, then a plan may permit a midyear change in election. Such election change may include starting, stopping or modifying a DCAP election, depending on the employee’s situation. In the current COVID-19 environment, with day cares and other childcare options temporarily closing, a decrease in (or cancellation of) a DCAP election would likely be permitted. In addition, if and when employees can go back to work, and if and when the daycare reopens, participants should at that time be able to increase their DCAP elections accordingly.

Overall, employers should review their Section 125 written plan document to ensure that appropriate section 125 elections are allowed. Most plan documents allow employers to make changes as allowed by section 125, but it's worth reviewing to be sure.

If the furloughed employee has the coronavirus, or a family member has it, then it is possible that it will be a FMLA leave. In that case, benefits would continue on the same terms as before the employee took the leave, for the duration of the FMLA leave (usually up to 12 weeks in a 12-month period).

UPDATE: Congress passed a temporary expansion of FMLA that provides qualified employees up to 12 weeks of protected leave taken for certain COVID-19 related events, some of which as paid leave. Previously, FMLA did not require that the leave under the statute be paid. Employees can take this leave if they must take care of a child because school or daycare is closed due to the outbreak and they cannot otherwise work or telework. The first ten days of this leave is unpaid leave, although the employee may use accrued vacation or sick leave during that time, in accordance with the employer’s leave policy. The employee may also qualify for emergency paid sick leave, provided for under the same legislation, which could be used during the first ten days of the expansion leave, as discussed below. The employee must be paid at 2/3 the employee’s rate (but capped at $200 per day and $10,000 in the aggregate) for the paid time off granted under this expansion. The expansion lasts until December 31, 2020.

Importantly, all employers with fewer than 500 employees must comply with the expanded leave entitlements (a change to the 50-employee threshold that currently applies under FMLA). That said, the law gives the DOL authority to exempt employers with fewer than 50 employees if the paid FMLA provisions would jeopardize the viability of the business. Also, while not directly addressed in the new law, it appears that the general FMLA rules for counting employees would apply; if separate business entities (separate EINs or business lines) have different management and separate operations, then the entity would count employees separately from the bigger controlled group of entities — employers should work with counsel to be sure. Additionally, any employee who has been employed for at least 30 calendar days would be eligible for the expanded leave (but there are exceptions for employers that are experiencing economic hardship and employ fewer than 25 employees — we assume the DOL will further clarify that via regulations). Finally, the job protection requirements of the FMLA would also apply to COVID-19-related leaves (meaning employers must reinstate employees after their FMLA period ends), although there are some exceptions for employers with fewer than 25 employees.

To help employers shoulder the financial burden, employers can claim a tax credit equal to 100% of qualified sick leave wages paid to employees. These credits, however, are limited to $200 to $511 per day, depending on the qualifying leave event. Employers can claim a full credit for employees earning up to $132,860 in income and a partial credit for higher earners.

In addition to the FMLA expansion, new legislation grants certain employees immediate access to up to 80 hours of emergency paid sick leave. Employers with fewer than 500 employees and employees of public employers must make this leave available to employees. Applicable employees can take this leave if they are:

• Diagnosed with COVID-19, to self-isolate (or to obtain a diagnosis or care for symptoms of COVID-19)
• Under quarantine to comply with an official order or recommendation because of COVID-19 exposure or symptoms
• Providing care to a COVID-19-diagnosed individual or an individual seeking a diagnosis or care for symptoms of COVID-19
• Caring for an individual affected by a school or other care facility closing

During sick leave relating to an employee’s own condition, employers are obligated to pay employees the higher of their regular rate of pay or the applicable minimum wage. That amount is capped at $511 per day and $5,110 in the aggregate. For sick leave taken to care for a family member, the rate of pay is reduced to two-thirds of the employee’s regular rate of pay. That amount is capped at $200 per day and $2,000 in the aggregate. It appears that this emergency paid sick leave could be used during the first ten days of the expanded FMLA leave, if the employee needs the leave to take care of children who are out of school or daycare due to COVID-19.

Note that this new legislation authorizes the federal Department of Labor has the authority to enact regulations that exempt employers with fewer than 50 employees from complying with the emergency aid sick leave as well as the FMLA expansion, under certain circumstances.

If the furloughed employee or the employee’s family member is not affected by the coronavirus, then the situation becomes more complicated. The answer varies upon the employer’s size, whether they are subject to the employer mandate, whether they use the monthly or look-back measurement methods, what their plan document says, what any SCA or DBA contracts say, what is outlined in their Section 125 Plan Document as a qualifying event, and how long the furlough lasts.

ERISA Plan Document and any Employment Contracts
First, the employer needs to look at the plan document and review the plan’s terms of eligibility. If the employer has experienced this issue before, then they may have previously put language in their plan documents about furloughs or leaves of absence and continued coverage. If there are SCA or DBA contracts in place, they might want to review those as well to see if there are any special provisions. This goes for all benefit offerings- medical, dental, vision, life, disability, etc.

If there are no special terms, then it just comes down to regular old eligibility- which for medical, dental, and vision probably says something like” employees are eligible if they normally work X hours per week or are determined to be full-time.” If it’s a small employer, an employee not working X hours per week would not be eligible under the terms of most plans, so coverage would be terminated with COBRA or state continuation offered. This would go for dental and vision for all sized employers as well- as soon as the employee no longer meets the terms of eligibility, coverage is terminated and COBRA offered.

Employer Mandate
If the employer is a large employer, then they need to consider the employer mandate rules as well for medical coverage. If they are using the monthly measurement method, then an employee who has a change of status (and no longer eligible for coverage) would be terminated at the end of the month with COBRA offered for reduction of hours.

If they are using the look-back measurement method and the employee was one who was previously determined to be full-time in a measurement period, than the employee would remain eligible through the end of the stability period regardless of the number of hours they work.

Payment of Contributions
Usually the employee pays for his or her premium contribution through a paycheck deduction. Employers of all sizes must consider how employees who are on leave without pay make premium contributions without a paycheck to deduct from. Generally, the rules for FMLA premium payment can serve as useful guidelines. For instance, the employer may require that employees pay during the furlough period by personal check. The payments may be due per pay period or per month. The employees should be provided with written notice of the payment method, due date and consequences for nonpayment (termination of coverage). Alternatively, the employer could permit the employee to pay upon return, but this is typically not preferred when the return date is not known.

Section 125 Cafeteria Plan Document and Reinstatement
All sized employers also need to consider the Section 125 cafeteria plan rules. Let’s say that an employee continues to be eligible for coverage under the terms of the plan and/or employer mandate rules, but wants to drop coverage because of no pay. Is this allowed? There is a qualifying event permitting employees to drop coverage based on an unpaid leave of absence if the Section 125 Cafeteria Plan Document provides that such employees lose eligibility under the cafeteria plan. If they return to work within 30 days after dropping coverage, they would be reinstated to the same coverage with no chance to change elections.

For a large employer subject to the employer mandate, if they return to work after 30 days but before 13 weeks, they would be reinstated to eligibility and would have the right to change elections. If they return beyond 13 weeks, then they could be required to meet a new waiting period or start a new measurement period.

COBRA
Eligibility for group coverage also directly affects the question of when someone must be offered coverage through COBRA. To be COBRA eligible, the employee must experience a COBRA triggering event (which in the furlough situation, could be a reduction of hours) AND a loss of eligibility for group coverage. Although the employee would be experiencing a reduction in hours (albeit temporarily), if the employee here would continue to be eligible for group coverage, he or she would not lose eligibility for coverage. So COBRA would not need to be offered. In other instances, we have seen a longer furlough that caused a loss of eligibility, such as when the employee was not working the requisite hours of service to be eligible (a requirement sometimes imposed by the carrier). This gets back to the idea of clearly outlining eligibility terms in the plan document--perhaps the employer will want to consider a limit to continuing eligibility for a furloughed employee (or any employee on a leave of absence, for that matter). But that would be up to the employer to outline in the plan document.

There are many moving parts to designing a compliant furlough or leave plan, so employers should consult with outside counsel for guidance on one that best serves their needs.

HIPAA training should be tailored to the employer’s involvement with the group health plan – and, specifically, PHI – as well as the dynamics of the employer’s workforce.  

It is important to keep in mind that a self-funded plan is required to comply with all of the HIPAA privacy and security requirements. Typically, the employer as plan sponsor is the fiduciary responsible for the plan's compliance. As such, the employer may choose to be hands-on with respect to PHI and handling the plan administrative functions and therefore, have more regular and direct access to PHI. By contrast, the employer may delegate the plan administrative functions and tasks necessary to comply with HIPAA to TPAs or other service providers which would act on behalf of the plan, but the employer would remain ultimately responsible for compliance with the regulations.

However, even if a TPA or other service provider performs most of the administration functions for a self-funded plan, the employer will retain some functions requiring access to PHI. For example, many TPA arrangements require that the plan sponsor serve as the named fiduciary for appeals of denied claims. Deciding appeals almost always requires access to PHI.

Accordingly, the employer would need to be sure to protect the PHI in accordance with the privacy and security requirements. The necessary measures may include, but are not limited to creating a firewall to protect the PHI, ensuring staff is aware of and adhering to the limitations on the use of information, and providing covered individuals with notice of certain rights with respect to their own PHI. Additionally, if PHI is provided in electronic format, compliance with security requirements (e.g., encryption) must also be observed.

Employees may not necessarily be aware of the HIPAA privacy and security requirements absent training. The general rule is to train all members of the workforce, which would include new employees upon hire. A broad training regime demonstrates the employer’s commitment to HIPAA compliance and raising awareness throughout the organization. Most importantly, the training should focus upon employees that will be administering and involved with the health plan (i.e., those that will actually have access to PHI). Instruction on an annual basis (if not more frequently) is generally recommended. It is also advisable that the employer document each employee’s completion of the program (for example, by collecting a certification statement).

The current global viral outbreak highlights the importance of a well-trained workforce. Even under these circumstances, the HIPAA privacy rule still applies. Therefore, a group health plan must continue to apply administrative and technical safeguards to protect the confidentiality of PHI. Accordingly, any PHI disclosure must be the minimum amount necessary (e.g., to treat an employee or dependent, protect the public health) in accordance with applicable guidelines.

In addition to educating the staff and protecting the privacy of employees, an ongoing HIPAA training regime may be advantageous to the employer in the event of a security incident or breach. Should there be a complaint to a regulator, the employer can demonstrate that it took its compliance obligations seriously, which could possibly be considered a mitigating factor in terms of damage assessments.

With respect to the training format, the employer has flexibility to design a program appropriate for the employee population and logistics. Accordingly, the employer can use videos, webinars, live meetings, newsletters/bulletins, a review of compliance guidelines, etc. The approach selected should clearly explain the employer's formal policies and procedures on HIPAA security and privacy.

If the employer is interested in a suggestion for a vendor to assist with HIPAA training, Total HIPAA can provide a comprehensive training program with formal record keeping at a reasonable price. Contact your adviser for more information about Total HIPAA.

Plan documents don’t automatically have to be provided in non-English languages. Instead, the SPD/SMM/SAR regulations and the SBC and appeals requirements under the ACA have different ways that they require employers to acknowledge employees who may speak another language and provide them with the opportunity to receive assistance.

SPD/SMM/SAR
There is no specific ERISA requirement to provide SPDs or SMMs or SARs in non-English languages. However, plans that cover certain amounts of participants who are literate only in the same non-English language must provide some assistance in that non-English language. Whether a plan must provide assistance in a non-English language depends on the size of the plan and the number of plan participants that are literate only in the same non-English language, as follows:

• A large plan (one covering 100 or more participants) must provide language assistance if the lesser of (a) 10% of participants, or (b) 500 participants (or more) are literate only in the same language.
• A small plan (one covering fewer than 100 participants) must provide language assistance if 25% or more of the participants are literate only in the same language. 

The SPD (or SMM or SAR) for a plan subject to this requirement must include a statement, in the applicable non-English language, offering language assistance and clearly explaining the procedures that individuals must follow to obtain that assistance. Practically, the employer should actually provide access to such assistance and it’s best if the language about the availability of non-English language assistance is clearly stated in the SPD or SMM (either at the beginning or on the cover).

SBC/Appeals Notices
The ACA requires that the SBC and appeals notices be presented in a “culturally and linguistically appropriate manner.” In general, those rules provide that in specified counties of the United States, plans and insurers must provide interpretive services and written translations upon request, in certain non-English languages. The applicable counties are those in which at least 10% of the population residing in the county is literate only in the same non-English language—this determination is based on U.S. Census data and includes four languages: Spanish, Chinese, Tagalog, and Navajo. The initial list of applicable counties was set forth in the amended interim final regulations relating to appeals notices; the HHS website provides a current list. (Access the most recent list from CMS.gov.)

To comply with the language requirement, SBCs and appeals notices sent to addresses in an applicable county must include a one-sentence statement clearly indicating how to access the language services provided by the plan (or insurer). This statement should be included on the page of the SBC with the “Your Rights to Continue Coverage” and “Your Grievance and Appeals Rights” sections. Written translations of the SBC or appeals notices must be provided upon request in the required non-English languages.

In order to assist with compliance with this language requirement, written translations of the SBC template and uniform glossary in the four applicable languages are available on the HHS website. An oral translation (in MP3 format) is available in Navajo.

Summary
Employers are not necessarily required to provide entire documents in non-English languages, unless a participant asks for them. The regulations do require that certain plan documents and notices include some information in different languages that notifies participants of their right to ask for translated information (as outlined above).

In connection with the ACA’s individual mandate penalty being zeroed out in 2019 (meaning US residents can forego individual health insurance coverage and will not have to pay a tax penalty), some states have stepped in and enacted their own state individual mandates. Under those mandates, residents of the state must have some level of MEC, or pay a state tax penalty. While these state individual mandates are not employer mandates (i.e., the state laws do not force employers to offer MEC or other coverage), the ACA’s employer mandate remains in effect. The states, though, may require employers to report whether their employees have MEC or some other level of coverage. The reporting generally relates to employees who reside in that state (rather than the state in which they work).

The two newest requirements for 2020 apply to employers with employees who reside in New Jersey and Washington, D.C., as outlined below.

New Jersey
Individual Mandate: Effective 1/1/19
Employer Reporting: Yes
Employer Size: All size employers
Form to File: Form 1095-C
Due Date: March 31, 2020
Applies to: NJ residents (those living in NJ) covered under the group health plan
File through: NJ Division of Taxation (same as where employers file W-2s with the state)
More/Final Info »

D.C.
Individual Mandate: Effective 1/1/2019
Employer Reporting: Yes
Employer Size: 50 or more FT employees (same as the ACA’s employer mandate)
Form to File: Form 1095-C
Due Date: June 30, 2020
Due Date in Future Years: 30 Days following the IRS deadline
Applies to: D.C. residents (those living in D.C.) covered by a group health plan
File Through: D.C. Office of Tax and Revenue, MyTax.DC.gov website
More/Filing Info »

States with similar reporting obligations that will take effect in 2021 include California, Rhode Island, and Vermont (more information to come on those filing obligations). Also, while not directly connected to state individual mandates, Massachusetts (relating to the Health Insurance Responsibility Disclosure (HIRD) forms) and San Francisco (relating to the Health Contribution Security Ordinance (HCSO)) also have reporting requirements. Massachusetts requires employers to file a HIRD form (reporting plan-level information not employee-specific information) by the end of November each year (although the Massachusetts website appears to extend this to December 15), while San Francisco requires employers to file the HCSO contribution form by the end of April each year.

Additional information on MA and SF are available here:
MA »
SF: HCSO Reporting Web Site »
(2020 filing information usually posted it in March)

Employee benefit plan operations, responsibilities, and liabilities should be part of the negotiated transaction. There is general guidance available for these circumstance and options available to the buyer and seller, which should be outlined along with other benefit plan decisions in the sale agreement. We recommend working with outside counsel to determine what is best for your specific circumstances.

With that said, the rules vary based on whether the transaction is a stock or asset sale. General guidance is discussed below for both scenarios.

Asset Sale

In an asset purchase, the buyer usually purchases specific assets and certain agreed-upon liabilities of the seller. The employees of the seller are typically terminated from employment and rehired by the buyer. COBRA would be offered by the seller if the seller continues to maintain a group health plan, including the health FSA. This is true even if the employee is rehired by the buyer and eligible for the buyer's health insurance.

If a seller ceases to provide any group health plan and the buyer continues the business operations associated with the assets purchased without interruption or substantial change (aka successor employer), there is no obligation to offer COBRA to the employees who were immediately employed by the buyer after the sale because they are considered not to have experienced a COBRA triggering event.

However, IRS guidance provides two acceptable scenarios in which the health FSA coverage may continue for entities involved in an asset sale as an alternative to terminating the coverage and offering COBRA:

• Coverage under seller’s FSA with salary reductions under buyer: The seller may maintain the health FSA and the buyer either has an FSA or will create one at a designated point in time (e.g., end of the plan year). The seller and buyer may agree to have the transferred employees continue to participate for an agreed-upon period. The seller and buyer may also agree on how original salary reductions will continue as if made under the buyer’s plan.

• Coverage and salary reductions under buyer: The buyer agrees to cover the transferred employees under its health FSA for the rest of the plan year. After the asset sale, employee account balances are rolled over and all claims for reimbursement are submitted to the buyer’s FSA (even claims incurred prior to the sale but not yet paid). Then the transferred employees’ salary reductions continue for the remainder of the buyer’s plan year.

Note that under each scenario, no mid-year changes of election are permitted because eligibility is not lost as a result of the asset sale because the coverage continued. Consequently, existing FSA elections must remain for the remainder of the plan year unless there is some other qualifying event.

Stock Sale

In a stock sale, a current employee of the seller who continues to be employed following the sale would not be offered COBRA coverage because they have not experienced a qualifying event.

Specific to the health FSA, IRS guidance provides that the buyer in a stock scenario could take advantage of the second option discussed above, available in asset sales. Another option would be for the buyer to arrange with the seller to offer COBRA-like coverage to transferred employees in order to avoid the use-or-lose rule (since COBRA is not required to be offered in a stock sale where there has been no termination of employment or other statutory COBRA trigger). Those not electing the COBRA-like coverage would still be able to submit claims for expenses incurred before the transaction during a run-out period.

Again, any decisions related to the FSA, COBRA, or health plan would need to be clearly outlined in the purchase agreement with corresponding amendments made to the Section 125 plan document and ERISA plan documents. Thus, due to the complexities inherent with mergers and acquisitions, the employers would want to work with outside counsel to ensure compliance.

An employee may be allowed to drop their spouse from coverage during open enrollment; however, the employee should follow any court orders in place, and the employer should be mindful of the fact that there are COBRA implications when the employee does this in anticipation of divorce.

First, it’s important to note that divorcing spouses who provide health coverage to the soon-to-be ex-spouse are often ordered not to terminate that coverage until the divorce is finalized. Some state laws even require this continuation. Even in situations where an individual cancels their spouse’s coverage before they have filed for divorce, the court could seek to require the individual to either reinstate the coverage or pay for the spouse’s medical care. So the employee should discuss their desire to terminate the spouse’s coverage during open enrollment with their legal counsel or the court in which they are filing for divorce.

Second, when an employee’s spouse is covered by an employer’s health plan, the spouse is eligible for continued coverage through COBRA when a triggering event occurs, such as when the employee and the spouse divorce. As background, COBRA is required when qualified beneficiaries experience a loss of coverage due to a COBRA-triggering event. Those rules generally mean that qualified beneficiaries are only eligible for coverage if they had coverage on the day before the event. However, when a person who has coverage loses that coverage in anticipation of a triggering event, such as a divorce, the loss is disregarded in determining whether the event causes a loss of coverage. In other words, for purposes of determining whether the spouse qualifies for COBRA and when COBRA coverage starts, the spouse is treated as if they had coverage on the day before the triggering event even though they were dropped during open enrollment.

Upon receipt of notice of the divorce between the employee that dropped the coverage and their spouse, a benefit plan that is subject to COBRA must make COBRA coverage available to the divorced spouse as of the date of the divorce. This means the employer should send the COBRA election notice to the divorced spouse so that they can elect COBRA if they so choose.

So, the employee could presumably be free to drop the spouse during open enrollment as long as any court orders do not stipulate otherwise. It would be best for them to discuss their desire with legal counsel, though. Additionally, in anticipation of divorce there are COBRA issues to be mindful of. The client should consult with outside counsel regarding any additional issues that may arise in this situation, including possible disputes with the insurance carrier regarding the eligibility of the spouse for COBRA.