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We hosted an ACA webinar in July with HR.com, and were asked several questions relating to the ACA’s Employer Mandate. The answers are now available on our ACA Frequently Asked Questions.
Below are the five questions and answers we thought would be of interest to share in a blog post. You can find a full Q&A by clicking here.
And you can access the webinar, ‘IRS Enforcement of the ACA is Intensifying — What you Need to Know to Avoid ACA Penalties,’ by clicking here.
Question: A former employee elected COBRA after employment with the company was terminated. However, that former employee then became an independent contractor with the company and continues with that COBRA coverage. Does that former employee require an offer of coverage under the ACA Employer Mandate?
Answer: Under the Employer Mandate, the former employee is not required an offer of coverage by the company because the former employee is not an employee. There is an issue as to whether that former employee, who is now an “independent contractor,” will be deemed an employee notwithstanding the “independent contractor” status. Assuming that the former employee will be treated as an “independent contractor,” and not as an “employee,” then the company is not obligated to make an offer of coverage. This is true regardless of the hours worked by the former employee as an “independent contractor.”
Question: After responding to and contesting a 226J letter, how long does it typically take for the IRS to respond?
Answer: The times vary, but the IRS typically responds within 90 days.
Question: We are in an industry with high turnover/hourly rate employees so in order to avoid look back period determinations. We offer coverage to all new hires regardless of their status (part-time/full-time). What are your thoughts on that strategy?
Answer: Industries with high turnover/hourly rate employees are good candidates for the Look Back Measurement Method (“LBMM”). This method allows the employer to potentially provide for a one-year “initial measurement period” which would allow an employer to not offer coverage for that more than one-year period. This can be very helpful for high turnover industries, where employees often don’t even last a year, or for hourly employees whose hours are difficult to determine in advance. The rub with the LBMM is that it requires vigilance on a monthly basis to keep track of full-time status and when offers of coverage become due. Failure to timely offer coverage will wipe away the value of the initial measurement period! We can manage that time-consuming process for you.
Some employers choose to avoid implementing the Look-Back Measurement Method for fear of the complexity involved, but this can result in adverse effects to the organization and employees in two ways:
(1) The organization ends up incurring unnecessary healthcare expenses that impact the bottom line, because they offered health coverage to individuals who were not required an offer of coverage from an ACA Employer Mandate perspective.
(2) Part-time employees who did not require an offer of health coverage from their employer but who were offered health coverage nonetheless may be prevented from obtaining Premium Tax Credits from their state or federal exchange to obtain potentially better coverage than offered through the employer sponsored plan. This can have a negative impact on the employees and their dependents.
Question: How do you handle when employees cut back hours and become part-time from full-time? Do we cancel insurance?
Answer: If you are using the Look Back Measurement Method (LBMM), the fact that an employee’s hours are reduced during the stability period cannot change his or her full-time status determined during a measurement period. If you are using the Monthly Measurement Method, and assuming your policies and plan documents otherwise permit, you are not required to offer coverage if the employee is determined to be non-full-time.
Question: What is Letter 5005A?
Answer: Letter 5005A is a penalty notice from the IRS that, along with Form 886A, assesses penalties under IRC Sections 6721 and 6722, which are the penalty provisions for failure to file forms 1094-C/1095-C and for failure to furnish Form 1095-C to applicable individuals.
