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As if 2020 has not already wrought enough chaos, many employers are finding that their medical plan eligibility rules are about to add insult to their employees’ injuries triggered by furloughs, layoffs or reduced work hours in 2020. Those reduced hours in 2020 may cause a loss of medical plan eligibility for those employees in 2021. There are ways out of the bind but avoiding that bind will often require agreement of the medical plan’s insurer or stop-loss carrier.

The nature of the problem: Hard-wiring eligibility to ACA full-time status

Many employers hard-wire medical plan eligibility to their employees’ status as “full-time employees” for Affordable Care Act (ACA) purposes. That is, if the employee has averaged at least 30 hours of service (i.e., paid hours) per week over a given time period (the employee’s ACA lookback “measurement period”), the employee is considered an ACA full-time employee (ACA FTE) for the coming plan year and is eligible for medical coverage for that plan year. If the employee averaged fewer hours per week, the employee is not an ACA FTE for the coming plan year and loses eligibility for coverage. The employee’s ACA measurement period is typically 12 months long and ends shortly before open enrollment beings.

Lockton comment: Think of these measurement periods, and their consequences, much like airline frequent flier programs. An individual flies a certain number of miles in one year and thus earns a given status for the following year. The individual holds that frequent flier status in that following year no matter how many miles they fly in that year. So too, for ACA purposes, the typical setup is a 12-month measurement period ending shortly before the new plan year begins. Employees who average ACA FTE hours over that measurement period qualify as ACA FTEs for the immediately ensuing plan year, with minor exceptions.

Where medical plan eligibility is hard-wired to ACA FTE status, the employee earns eligibility during the plan year based on their hours of service over the measurement period ending just before that plan year begins.

Some employees who were furloughed, laid off or had their hours significantly curtailed in 2020 are finding, as they complete their ACA measurement period ending in 2020, that they did not average adequate hours of service per week to retain ACA FTE status for the 2021 plan year. Where the employees’ eligibility for medical coverage is hard-wired to ACA FTE status, which is often the case, these employees are finding they’ll also lose medical plan eligibility for 2021 (COBRA coverage would still be available on a self-pay basis, of course, due to the employees’ loss of eligibility due to reduction in hours).  

Lockton comment: Note also that employees who went at least 13 consecutive weeks in 2020 without a paid hour of service from the employer (26 weeks for educational organizations) can be treated as new hires for ACA purposes. Depending on whether the terms of the employer’s plan trigger that treatment, the employee returning from such an extended absence may be forced to requalify for eligibility, which can trigger a variety of other issues under the ACA employer mandate.

A solution: Crediting deemed hours of service

If the employer doesn’t want to add insult to the employees’ injury, it is free – as a general rule – to modify its eligibility rule. One way to do that is to credit the employee with the hours of service the employee would have accumulated, as determined by the employer in its sole discretion, but for the furlough, layoff or curtailment of hours. Or, the employer can just waive that ACA FTE status requirement for the following year and treat employees as eligible in 2021 even if they did not earn ACA FTE status under the measurement period ending shortly before the 2021 plan year begins. So, it is a relatively easy fix for the employer.

A note of caution, however: While most insurance carriers allow the employer to set eligibility more or less any way it wants, it would be worth a call to the carrier to determine if the carrier has any objection to such a plan modification. For employers with self-funded plans, a call to the stop-loss carrier is doubly important. A large claim triggered by someone whose eligibility was continued into 2021 under a “deemed hours” (or other expansive) approach might not be covered by a stop-loss carrier if it underwrote the employer’s risk based on plan language tying eligibility to ACA FTE status, and the stop-loss carrier did not agree to the plan amendment crediting deemed hours. The agreement by the stop-loss carrier should be documented, if only in an email, to avoid any later disagreement on the terms.

Lockton comment: Lockton clients may obtain a model plan amendment crediting deemed hours of service from their Lockton account service team. Sharing that model amendment with the carriers would provide the needed documentation that they were aware of the plan change.