Administering Reductions in Hours under the ACA Look-back Safe Harbor

 August 24 2016     Shelly Hodges-Konys
When an employer uses the look-back safe harbor to determine full-time employee status, an ongoing employee is considered a full-time employee through the following stability period. There is an exception to the general rule for employees who have an official change in position such that if the employee had been originally hired into the new position, the employee would not be reasonably expected to work 30 or more hours per week. If this exception applies, the employee can be measured under the monthly method beginning on the first day of the fourth full calendar month, as long as the employee actually works less than 30 hours per week during those three calendar months and as long as the employee has been offered health plan coverage since the first day of the fourth month following their initial hire date. Once the employer is permitted to use the monthly measurement for such employee, the employer will not be penalized for not making an offer of coverage to that employee as long as the employee does not actually average 130 or more hours in any given month. I know this is tricky, but these are the rules. Due to the complexity of this exception, most employers will likely want to continue to follow the general rule and treat the employee as full-time for the remainder of the current stability period.

Following are some examples:

• Joe works 40 hours per week and requests a reduction of 2.5 hours per day to be home to meet the school bus. His work hours are 27.5 during the school year. Joe has not experienced a change in position. He was a full-time employee under the measurement period (10/15/14 through 10/14/15) working an average of 40 hours per week. He is considered full-time through his current stability period ending December 31st, 2016. If his average hours worked is below 30 during the subsequent measurement period (10/15/15 through 10/14/16), he will not be considered full-time during the 2017 stability period and the employer will not be penalized for not offering him coverage. If his coverage ends at the end of 2016, he should be offered COBRA.

• Joe works 40 hours per week and moves from a full-time position as a medical tech to a part-time employee working 28 hours in patient transportation effective May 10, 2016. Joe has experienced an official change in position. Joe has been continuously offered coverage by his employer since the first of the month following his hire date. If Joe actually works less than 30 hours per week from May 10, 2016 to August 31, 2016, Joe can be evaluated under the monthly measurement method beginning September 1, 2016 (even though it is in the middle of a stability period). The employer could cancel Joe’s health plan coverage effective September 1, 2016 without penalty as long as Joe continues to average less than 130 hours per month. (Note: I believe this scenario is complicated to administer. If it happens frequently within an organization, we recommend you rely on the process in the first scenario). Joe should be offered COBRA when he loses coverage.

If an employer matches their eligibility provision to the lookback rules, the above scenarios illustrate how to comply with the ACA and avoid any possibility of shared responsibility penalty. Some employers may choose to offer COBRA when the reduction in hours occurs rather than continuing the offer of coverage through the stability period, resulting in the employer being required to report the full cost of coverage on the 1095-C. If the employee declines COBRA, the offer of coverage may be unaffordable resulting in penalty exposure of up to $3,000 per year (indexed for inflation to the 2017 rate) if the individual enrolls in exchange coverage and receives a subsidy.

To eliminate some of the complications of multiple termination dates for purposes of COBRA administration, employers may choose to make their eligibility for other benefits like dental and vision coverage match the group health plan eligibility rules. This would align coverage termination dates so there are not multiple event dates for each line of coverage. If you have additional questions, please contact your HORAN representative.