Frequently Asked Questions

It is highly unlikely. The change from fully insured to self-insured generally includes other plan design changes that would cause the loss of grandfathered status. Those changes include: the elimination of all or substantially all benefits to diagnose or treat a particular condition; any increase in percentage cost-sharing (coinsurance); an increase in fixed-amount cost-sharing such as a deductible or out-of-pocket limit of more than 15% above medical inflation; an increase to a co-payments of more than 15% above medical inflation OR $5 increased by medical inflation; a decrease to employer cost sharing by more than 5% below the contribution rate on March 23, 2010; or a new or reduced lifetime or annual limit (no longer applicable to GHPs). Grandfathered status cannot be regained if it is lost so it is important to confirm that any changes to plan design or funding do not violate the rules for maintaining grandfathered status. For more detailed discussion see our Alliant Insight, Grandfathered Plans.

Generally, yes. Major medical plans that offer dependent coverage are required to make coverage available for an employee’s child until the child’s 26th birthday, regardless of the child’s residency, financial dependence, student status, employment, or other factors. In addition, an applicable large employer (ALE) subject to the ACA pay or play mandate will face potential penalties if they do not offer coverage to full-time employees and any dependent children. Regulations implementing the ACA pay or play mandate specifically provide that a child is a “dependent” for the entire calendar month during which he or she attains age 26. Therefore, to avoid pay or play penalties ALEs must continue coverage for an employee’s child through the last day of the month in which the child turns 26.

Maybe. Under the ACA’s final Pay or Play rules, an Applicable Large Employer (ALE) can face significant “part (a)” penalties if they do not offer Minimum Essential Coverage (MEC) to substantially all of their full-time employees. For this purpose, “full-time” is defined as working (or paid for) an average of 130 or more hours per month as determined using either the monthly method or the look-back safe harbor method. There is no special exception for short-term employees when determining “full-time” status. Therefore, interns scheduled to work an average of 130 or more hours per month during their internship should generally be offered group health plan coverage under the same terms and conditions available to other full-time employees. One exception is when an employer uses the look-back safe harbor method to identify its ACA full-time employees and the interns can be properly classified as seasonal employees. A seasonal employee is one who is employed for six months or less and whose employment begins at approximately the same time each year (e.g., lifeguard, ski instructor, etc.). To the extent an employer hires interns around the same time each year (e.g., during the summer school break) and the internship is for six months or less, it’s possible interns can be classified as seasonal employees. In this case, the employer can place the interns in an initial measurement period for a period of up to 12 months at the date of hire. Considering the internship should conclude prior to the end of the initial measurement period, the employer will not be required to offer group health plan coverage to the interns. See Pay or Play Special Employment Classifications for a comprehensive guide to these more challenging categories of employees.

Yes. A cafeteria plan under Code § 125 allows employees to pay for certain qualified benefits on a pre-tax basis through payroll deductions. A cafeteria plan must be maintained pursuant to its own written plan document separate from an ERISA plan document or WRAP summary plan description. A cafeteria plan document must contain all of the following information: Description of available benefits; Participation rules; Election and election change rules and procedures; Information on contributions; Plan year; If the plan includes flexible spending arrangements (H-FSA or DCAP), the plan's provisions complying with additional requirements for those FSAs; If the plan includes an HSA, information on eligibility and any employer contributions; and If the plan includes a grace period, the plan's grace period provisions. Importantly, a cafeteria plan is not an ERISA welfare benefit plan, so no specific disclosure requirements apply to cafeteria plans themselves. Any ERISA benefits paid for with pre-tax dollars through a cafeteria plan (e.g., medical premiums or a health flexible spending account) are subject to ERISA, which means that ERISA’s rules apply to these benefits. For more information see our Alliant Insight ERISA Plan Documents and 5500s.

Even a Form 5500 that is timely filed can have compliance issues. For example, the Form 5500 may be incomplete due to failure to attach a required Schedule or otherwise deficient perhaps due to the inclusion of incorrect information. Under ERISA, an incomplete or otherwise deficient Form 5500 exposes the plan administrator to statutory penalties in the same way a late or unfiled Form 5500 does. The DOL may reject any Form 5500 that it finds to be incomplete or otherwise deficient. A Form 5500 that has been rejected for failure to provide material information is treated as not having been filed, unless the plan administrator files a revised Form 5500 satisfactory to the DOL within 45 days after the date of the DOL's notice of rejection. If a satisfactory Form 5500 is filed within the 45-day period, there is no penalty. To avoid penalties, a plan administrator that receives notice that a Form 5500 has been rejected should act immediately to file a satisfactory revised Form 5500 within this 45-day period. Because an incomplete or otherwise deficient Form 5500 exposes the plan administrator to statutory penalties, the plan administrator should carefully consider the need to file amended Form 5500s where deficiencies are discovered. In contrast to the Delinquent Filer Voluntary Compliance Program (DFVCP) for late or unfiled Form 5500s no formal DOL correction program exists for incomplete or deficient Form 5500s. For a detailed discussion of ERISA reporting and disclosure obligations see 101 ERISA Plan Documents and 5500 Filings.

No. Employer plan sponsors should follow the HIPAA special enrollment terms set forth in the group health plan document and adhere to the timeframe by which HIPAA special enrollments must be requested (generally 30 days, but 60 days for CHIPRA related enrollment rights). Even when a plan is self-funded, allowing an exception to the timeframe by which a HIPAA special enrollment must be requested poses several compliance concerns, including: (1) failure of the employer plan sponsor to follow the terms of the plan document, resulting in a violation of the employer’s ERISA fiduciary duties; (2) establishing a precedent that should be followed in similar situations, creating significant risk of adverse selection; and (3) potential denial of stop loss coverage. For all of these reasons, employer plan sponsors should adhere to the timeframe by which a HIPAA special enrollments can be requested. For additional details, see A HIPAA Foundation for Employer Plan Sponsors Compliance Insight.

IRS regulations do not specify exactly how long an employee has after a change in status/life event to request a change in their cafeteria plan election, but election change requests that are too far removed from the event could be challenged as not being “on account of” the event under the consistency rules. Consequently, most cafeteria plans require that employees submit their election change requests within a narrow window after the event occurs. While 30 days is most common, some plans allow employees up to 60 days to request an election change. Note that certain HIPAA special enrollment rights, another permitted election change category, require a special enrollment period of a specified minimum duration (30 or 60 days depending on the event) to request the change. The cafeteria plan document and employee communications should address the time period an employee has to make an election change request after experiencing an event that allows a change.

A qualified beneficiary’s COBRA coverage may be terminated early for submission of fraudulent claims if three requirements are met: (1) the health plan permits termination of active employees’ coverage for the same reason; (2) the plan allows termination of COBRA coverage for cause; and (3) the plan’s COBRA notices and communications disclose the plan’s right to terminate coverage for cause. A qualified beneficiary’s COBRA coverage may only be terminated before the end of the maximum coverage period (generally 18 or 36 months, depending on the qualifying event) for reasons specified in the COBRA statute and regulations. The regulations specify that a qualified beneficiary’s coverage may be terminated for cause on the same basis that would apply to similarly situated active employees under the terms of the plan, and list as an example submission of fraudulent claims. Any decision to terminate coverage early should be made after consulting legal counsel and the carrier or stop-loss insurer. If an early termination of coverage is based on fraudulent claims submission, the employer must send an early notice of termination of COBRA coverage. For more information on COBRA, see 101 Understanding COBRA.

COBRA rights provided under the plan must be described in the plan’s Summary Plan Description (SPD). Although the requirement is for a general description of COBRA rights, most plans include a copy of the DOL’s Model COBRA Initial Notice as that notice contains all of the critical COBRA requirements. The COBRA Initial Notice must also be provided to covered employees (and covered spouses) within 90 days of becoming covered under the plan. Including the Initial Notice in the SPD seldom satisfies this requirement as SPDs are not provided to covered spouses. Thus, when an employee covers a spouse, the notice must be mailed to the home and addressed to both parties. Although subsequent guidance would be helpful, a conservative approach for plans covering adult children who do not reside with the employee is to also provide the Initial Notice to these children. However, this is not expressly required and the parent should still be obligated to report when an adult child reaches the limiting age under the plan. Providing the Initial Notice and proving it was properly furnished is critical to COBRA administration. This is because the plan administrator cannot deny COBRA coverage (or an extension of COBRA coverage) to a qualified beneficiary (QB) because of their failure to timely notify the plan of a qualifying event, second qualifying event, or QB’s disability if the plan has not informed the QB about his or her obligation to provide notice within the specified period. Employers should confirm with their COBRA vendor that the Initial Notice is being mailed to the home when a spouse is covered under the plan. For more information, see our Understanding COBRA Compliance Insight.  

Yes. An exception to the general rule permitting a qualified beneficiary to continue only the coverage in place immediately before the qualifying event is provided under the IRS COBRA regulations in connection with certain region-specific plans like HMO plans, when the coverage will cease to be of value to a qualified beneficiary who relocates outside the region of the plan. The IRS created the special HMO rules because such plans typically provide for services within a limited geographic region and on a capitated (rather than fee-for- service) basis. The regulations address this issue by requiring the employer to offer the HMO coverage and to also offer the qualified beneficiary the opportunity to elect coverage under another plan of the employer if the coverage can be extended to the qualified beneficiary's new location.

Wellness incentives that reduce an employee’s premium are generally not considered in determining affordability for ACA purposes. The only exception is for “tobacco free” programs that are offered as part of a HIPAA health-contingent, outcome-based wellness program. For example, if the cost to an employee for employee-only coverage on the base plan is $150/month but is reduced to $100/month for employees who are tobacco free, the $100/month rate determines affordability for all employees, even those who are not tobacco free. For a detailed discussion of wellness plan compliance considerations see 101 Wellness Plan Compliance Obligations.

No, the ADA prohibits basing eligibility for a particular health plan or program (or benefit option) on completing an HRA or undergoing biometric screenings. These are called “gateway designs” and the EEOC has long said (since 2009) that these designs violate the ADA. Specifically, when an employer denies access to a health plan or program (or benefit tier) because the employee does not answer disability-related inquiries or undergo a medical examination, it discriminates against the employee by requiring the employee to answer questions or undergo examinations that are not job-related and cannot be considered voluntary. This was reaffirmed in final regulations on how the ADA applies to wellness plans released in 2016. Although parts of those regulations were withdrawn, this section has remained in force with the EEOC consistently reiteration this position. For a more detailed discussion see 101 Wellness Plan Compliance Obligations.