COBRA CONUNDRUMS is reprinted from the February, 2014 issue of Health Insurance Underwriter Magazine featuring our very own Robert Meyers.
If you've been paying attention to all the twists, turns, and nuances of the Affordable Care Act (ACA) rollout, you've seen and heard all of the concern around a new demographic in the workforce known as the “'29’ers.”
29'ers are people whose employers reduced them from full time status to part time status by reducing their work hours per week to less than 30 hours. As you recall, the Affordable Care Act mandate applies to full time employees working more than 30 hours per week. To sidestep the mandate and the requirement to pay for health insurance, some employers reconfigured their workforces – reducing full time employees to part time status prior to 2014. As a result, they will not have to offer health insurance to those individuals under the Affordable Care Act.
What does this have to do with COBRA? Well remember, there are six COBRA qualifying events including:
- Reduction in Hours (employees who went from FT to PT)
- Entitlement to Medicare
- Death of Employee
- Loss of Dependent Status (Now age 27)
- Well, those events are still COBRA qualifying events
So, if reduction in hours is a COBRA qualifying event, are 29’ers eligible for COBRA? If so, when?
This is where it gets a bit challenging. Many employers made the change and communicated it to their employees in the course of their open enrollments last fall. So, should those employers offer COBRA to 29’ers before the reduction in hours takes effect or should they wait and offer COBRA once the coverage has been lost? If you guessed the latter, you're right. A COBRA qualifying event must cause a loss in coverage. Therefore, COBRA starts when the loss has actually occurred.
As such, employers subject to COBRA (more than 20 employees) will need to be prepared to send appropriate and timely COBRA Election Notices to 29ers within 14 days of loss of coverage. They also need to be prepared to manage or outsource all the tasks inherent to COBRA administration – from election tracking, to enrollment and premium collection and carrier remittance. For the “reduction in hours” qualifying event, employers must provide 18 months of COBRA continuation coverage. For employers with significant workforce changes, this could represent a significant added burden for the human resource team.
True, many employees may elect to buy coverage through the Marketplace, but even so, the employer is obligated to provide the COBRA election notice and document the failure to elect coverage if and when it occurs. If employees research Marketplace options, they may discover they are not eligible for health insurance subsidies because they have access to employer-provided coverage or access to the spouse’s plan midterm due to the COBRA-qualifying event. In addition, if employees become COBRA-eligible mid-year, they may prefer to continue their existing coverage through COBRA so they can avoid restarting deductible and out-of-pocket thresholds and/or changing networks.
How Many Employees Are Affected?
While there are no official numbers, Investor’s Business Daily’s Obamacare scorecard counts 388 employers that have cut work hours and staffing levels. While cuts were mainly expected in low wage industries such as retail, hospitality and leisure, their list of 388 includes white collar industries and school districts, suggesting that the scope of the 29’er phenomenon may be farther reaching than originally presumed.
A 2013 survey conducted by the International Foundation of Employee Benefit Plans, “2013 Employer-Sponsored Health Care: ACA’s Impact,” found that 17 percent of small employers (with less than 50 employees) have or plan to reduce their workforces due to costs associated with the ACA. Only 3 percent of employers with more than 50 employees have or plan workforce reductions. The study reports that the vast majority (69 percent) of organizations say they plan to continue providing coverage when exchanges open in 2014, primarily to retain and attract talented employees. That percentage is up from 2012, when 46 percent of organizations definitely planned to continue coverage.
Implications for Health Insurance Professionals
If you are an insurance professional, the 29’er situation could create some challenging questions. Your clients rely on you to have thought through these complex situations and see you as their trusted advisor. Make sure to alert your clients of this unexpected consequence of cutting work hours. It’s one more component they should factor in to their ACA-compliance strategy. In the wake of all of the health reform havoc, your clients will appreciate your proactive advice and expertise – and a heads-up about the COBRA consequences of workforce reduction.