FAQ

In general, when maintaining group health plan records, an employer must consider ERISA, HIPAA, and ACA guidelines. Included below is a high-level overview of retention requirements related to these applicable federal laws.

ERISA

The recommendation is to maintain ERISA-related documents for eight years. Records required to be maintained under ERISA include documents such as vouchers, worksheets, receipts, applicable resolutions, claims records, plan documents, summary plan descriptions, copies of filed Form 5500s and schedules, accountants' reports, enrollment materials, requests for reimbursement for health FSA plans, lists of covered employees, and records of payroll deductions. The ERISA record retention period for group health plans is six years, measured from the date of filing Form 5500. Because Form 5500 is often filed many months after the end of the plan year, the six-year retention period is actually closer to seven years when measured from the end of a plan year. When considering the possibility of a filing extension, many group health plans use eight years as a rule of thumb for ERISA document retention. Benefit plans not subject to Form 5500 filing requirements may still want to consider retention for eight years, adopting a conservative approach to retention.

Many items may be kept electronically rather than in paper form. According to DOL regulations, records may be maintained electronically if the electronic recordkeeping system meets certain requirements:

• The system must have reasonable controls to ensure the integrity, accuracy, authenticity, and reliability of the records and should not allow the modification of documents.
• The system must maintain the records in a reasonable order. It should have some type of filing system so the records could be retrieved or inspected as necessary.
• The system must maintain the records in a safe manner and should be backed up properly.
• The system needs to be able to print a readily legible paper copy of the documents.

HIPAA

Covered entities and business associates must retain documentation for HIPAA's Privacy Rule for six years from the date the documentation is created or the date it was last in effect, whichever is later. The documentation under the Privacy Rule includes any action, activity, or designation that the Privacy Rule requires to be documented. Group health plan brokers and employers of fully insured plans are generally considered to be business associates.

If the documents include protected health information (PHI), then HIPAA requires that the information be safeguarded. Any PHI should be kept in files separate from personnel files or files with expanded staff access. Only those who require the information to perform their job duties should be granted access.

ACA

The PCOR fee is considered an excise tax under the Internal Revenue Code. As such, the Form 720 instructions indicate that tax returns, records, and supporting documentation must be maintained for at least four years from the date the tax became due, the date the claim was filed, or the date the tax was paid, whichever was later. However, with respect to the documents and records substantiating the enrollment count that was reported, those records must be maintained for at least 10 years. The IRS generally accepts electronic records. However, they retain the right to examine any books, papers or records which may be relevant to a filing.

Interestingly, the regulations do not specifically address record retention for documents related to satisfaction of the employer mandate (which applies to employers with 50 or more employees).

The general interpretation is that the same IRS rule that applies to the PCOR filing may also apply to the employer mandate. In other words, records related to offers of coverage and enrollment in the medical plan must generally be kept for four years. The IRS again retains the right to examine books, papers, or records relevant to the filing.

Conclusion

Storage and retention of summary plan descriptions (SPDs), enrollment information, claims information, and so on would likely fall under ERISA and HIPAA’s requirements to maintain claims records and may include PHI (which HIPAA requires be properly safeguarded). Therefore, the most conservative time frame would be to retain group health plan records for at least eight years, measured from the date of filing Form 5500. In other words, an employer would need to retain past documents for at least eight years based on the date of filing Form 5500. Additionally, retention of PCOR fee filings and employer mandate forms and records likely falls under the IRS’s requirements to maintain records for at least four years, but records substantiating those filings should be kept for at least 10 years. Employers should review their own internal record retention policy to ensure it meets the minimum standards described above.

No, posting required notices on a shared computer or kiosk is not sufficient to meet the DOL’s Electronic Disclosure rules. The preamble to the final 2002 regulations specifically states that merely posting documents to a shared computer kiosk in a common area at a workplace is not an appropriate means by which to deliver documents required to be furnished to participants.

As many employers head into open enrollment season, it is important to remember best practices on notice distribution requirements, including the specific rules surrounding electronic distribution. Required notices, such as an SPD, CHIP Notice, HIPAA Special Enrollment Rights notice, Medicare Part D Disclosure Notice, etc., may be sent via electronic means only to participants who have work-related computer access as an integral part of their job. If an employee does not have work-related computer access, the only way the employee can receive documents electronically is if they give affirmative consent to receive benefit-related notices electronically. The consent must explain what documents will be distributed electronically, that consent can be withdrawn at any time, procedures for withdrawal, and what software may be required to access the documents. If the employee does not have a work-issued email address, the employer may request a personal email address to use for distribution.

If sending by email, the plan administrator must take the necessary steps to ensure that the email system results in actual receipt of transmitted information (which would be satisfied by return receipts or failure to deliver notices), protects the participant's confidential information, maintains the required format and content requirements, includes a statement as to the significance of the document, and provides a statement as to the right to request a paper version.

Alternatively, the documents may be posted to a site such as a company intranet website, BenAdmin portal, or HR information system, but the employees must still have electronic access as an integral part of their job in order to access the documents this way. Importantly, if posting on one of these sites, it is not enough to simply post the documents on the intranet. Notification must be sent to each participant notifying them of the document’s availability, the significance, and their right to request a paper copy. The notice may be a paper document or it may be electronic (email). If it is sent via email, the above procedures must be followed.

If the employee does not have work-related computer access as an integral part of their job, and they do not consent to access documents electronically or authorize the employer to send benefits documentation to a personal email address, there is really no compliant method other than delivering by paper (either by hand or mail). If the employer provides the documents in person, it is advisable for them to get the employee’s signature confirming receipt. Otherwise, the employer has no documentation that they have distributed the notices. If delivering by mail, the employer should document their procedures and the date that the documents were mailed to specific employees. The employer should document and retain all methods of delivery used for each employee.

For further information regarding electronic disclosure rules, please ask your broker or consultant for a copy of the NFP publication Electronic Distribution Rules: A Guide for Employers.

The answer will depend on the reason the employee took leave and whether the leave is for a medical reason or not. HIPAA prohibits discrimination based on a health factor. Before HIPAA was implemented, many plans had provisions stating that employees had to be actively-at-work on the day their coverage would otherwise begin. However, one of the implications of HIPAA is that any plan that has an actively-at-work clause must treat an employee who is absent because of a health issue as being at work.

This would mean that medical-related leave taken during an employee’s waiting period does not impact the coverage effective date. If the waiting period requires satisfaction of a specific number of days or a specific time period, absence due to a medical condition would be counted toward the days needed for the employee to meet the waiting period.

Consider the following example:

An employee begins work on October 1, and the employer has a waiting period that states coverage begins on the first day of the month following the date of hire. Therefore, coverage under the plan would become effective on November 1. On October 20, the employee takes leave to have surgery and is unable to return to work until November 12. Because the employee was out for a medical reason, the employee’s leave is disregarded for waiting period and effective date purposes. The employee would be eligible to begin coverage on November 1, even while out on leave. Employers need to ensure they understand the rules so they do not inadvertently delay offering coverage to the employee.

If the reason for leave is not medical-related, the plan terms will dictate whether the employee has met their waiting period requirement and is eligible to begin coverage. An example would be an employee who takes a pre-planned vacation the week that the employee would have otherwise satisfied the plan’s waiting period. If there is an actively-at-work clause, then an employee taking nonmedical leave may not be eligible to begin coverage if they take leave during their waiting period or on the first day that coverage should be effective. Instead, eligibility would commence when the employee returned to work.

Employers should ensure that they have a clear policy in place to consistently enforce these rules, depending on the type of leave in question. Employers have an obligation to follow the terms of the plan and should communicate clearly to employees who may be on a leave of absence that corresponds with a benefit waiting period.

A MERP is a medical expense reimbursement plan. Interestingly, MERPs lack a well-defined meaning under the Code, ERISA, and other laws, which often causes confusion. However, as the term is commonly used in the industry, a MERP is understood to be an HRA. As such, A MERP is a 100% employer-funded account that reimburses employees (and their spouses/dependents, if applicable) for incurred medical expenses on a tax-advantaged basis.

Accordingly, compliance issues posed by MERPs are considered to be the same as those applicable to HRAs: the structure of the MERP itself, including the group of eligible employees, the types of expenses that qualify for reimbursement, the maximum reimbursement amount, and the type of plan(s) with which it is coupled. Some of the important compliance considerations are outlined below. (Notably, since there are no pre-tax contributions to a MERP, employers do not need to be concerned with the Section 125 cafeteria plan rules when offering a MERP.)

First, MERPs are considered self-insured plans (just like HRAs) and thus the Section 105 nondiscrimination rules apply. Generally, the nondiscrimination rules prohibit plan designs from favoring highly compensated individuals (HCIs), defined very generally as the top 25% of all employees with respect to compensation, although they also include a top-five-paid officer and a more-than-10% shareholder/owner. If a MERP is offered to a classification of employees that consists primarily of HCIs, the MERP would likely be viewed as favoring HCIs. The general consequence is that the HCIs would lose the tax benefits associated with the plan (the reimbursements, or a portion thereof, would become taxable to the HCI). Therefore, if the MERP is offered only to a group of executives or managers (which is a common MERP design), then it is likely to have trouble with the nondiscrimination rules.

Second, if the MERP is offered alongside a qualified HDHP plan (meaning it is HSA-compatible), then the MERP will likely cause employees in those plans to lose HSA eligibility. This is because a MERP is generally considered “first dollar” (impermissible) coverage, since it is reimbursing coverage under the statutory minimum deductible for HSA-qualifying HDHP plans. If employers want to offer a MERP alongside a qualified HDHP, they should implement a post-deductible MERP so that reimbursements do not begin until at least the statutory minimum deductible has been met. Alternatively, employers may offer a MERP alongside a non-HDHP plan, such as a PPO, or offer it in lieu of the HSA option, as the primary way to assist employees with the cost-shifting burden of a low deductible. Accordingly, employers should carefully consider the type of major medical plan that the MERP will be paired with when designing the arrangement.

A third issue is ACA compliance. The ACA requires HRAs to be integrated with a group health plan, so the MERP should be offered alongside an employer’s major medical plan. If it is not integrated, then the MERP would need to independently satisfy ACA group health plan requirements which it practically could not, and, therefore would violate several important ACA requirements (e.g., coverage of preventive services without cost-sharing, the prohibition on annual dollar limits for essential health benefits). So, the MERP should be paired with the employer's major medical plan rather than offered on a stand-alone basis.

Lastly, a MERP would generally be considered a group health plan, and that means it must comply with ERISA, COBRA, and other benefit laws and regulations. The best approach is to build the MERP in as a component benefit of the group major medical plan itself. As an integrated plan, it will satisfy ERISA, COBRA, ACA, and other compliance requirements. If it's offered on its own, the MERP would have to meet those requirements separately, which would be difficult to accomplish. Since MERPs are subject to federal group health plan laws, employers should remember that they may have annual filing obligations such as Form 5500 or PCORI, depending on enrollment size and plan design. Additionally, plan documents should clearly outline eligibility, reimbursement limits, and eligible medical expenses. Some MERPs limit the types of expenses to dental and vision only, which would create a limited-purpose type of HRA, and that could eliminate the HSA and some ACA issues above. Regardless, a clear description and communication of MERP benefits will help employees clearly understand what they are getting with the MERP.

For further information regarding MERPs and HRA rules, please ask your broker or consultant for a copy of the NFP publication HRAs, ICHRAs, and Other Employer Reimbursement Arrangements.

Yes. The recently signed OBBBA (President Trump Signs One Big Beautiful Bill Act | NFP) allows employers who sponsor qualified HDHPs to offer first-dollar telehealth services to participants without impacting HSA eligibility. This legislation makes this exception permanent, effectively retroactive as of January 1, 2025.

As background, for a participant to be eligible to make or receive tax-favored contributions to an HSA, the participant must be covered under a qualified HDHP and have no impermissible health coverage. In the context of HSA eligibility, impermissible coverage generally refers to any non-HDHP health coverage that provides “first dollar coverage,” meaning before the statutory minimum HDHP deductible is met unless an exception applies. Historically, telehealth has been considered impermissible health coverage unless the participant paid fair market value for the appointment. The CARES Act in 2020 provided temporary relief that allowed telehealth visits without cost-share. That relief was extended several times, but most recently ended as of December 31, 2024 (see our January 14, 2025, Compliance Corner article, HDHP Telehealth Relief Ends in 2025). That means that as of January 1, 2025, employers should no longer have allowed telehealth visits without cost-share or an amount below market value.

However, OBBBA now provides a permanent extension of the telehealth relief, although it remains optional for an employer. The relief is retroactive to plan years beginning on or after January 1, 2025. Employers do not have to offer telehealth without cost-sharing if they do not want to. But if telehealth is offered below market value, it would not affect HSA eligibility.

Employers wishing to take advantage of this relief should consult with their carrier or TPA regarding implementation. Non-calendar year plans that included this first dollar telehealth coverage as part of their 2024 plan year and are still in that 2024 plan year can continue it without interruption for the 2025 plan year. Calendar year plans, as well as non-calendar year plans that have already begun their 2025 plan year, and do not currently provide such coverage, may now add it. Employers should ensure their governing plan documents are updated to reflect their desired practice and that timely notice is communicated to employees, particularly if the change is made midyear. Given these administrative obligations, employers may be less likely to implement the relief for current plan years and instead choose to wait until their next renewal.

For further information regarding this telehealth relief and other employee benefit provisions of the OBBBA, please join our webinar: “The OBBBA: Benefits and Retirement Aspects of the Newly Enacted One Big Beautiful Bill Act.” Register here.

Forty-four states currently have laws that require the continuation of group health insurance coverage that would otherwise be lost because of the termination of employment, reduction of hours, or other reasons. Many of these laws mirror some or most of the provisions of the federal COBRA law and are, for this reason, often called "mini-COBRA" laws for short.

The key to understanding mini-COBRA laws is the general principle that where a state law and a federal law conflict, the federal law takes precedence. However, state laws do not necessarily conflict with federal law simply because they expand upon its requirements. As an example in the employment context, states may mandate higher minimum wages than the federal minimum wage law requires. The minimum wage thresholds differ, but there is no conflict so long as the state's minimum wage is higher than the federal law requires.

This same reasoning applies here, as mini-COBRA laws:

1. Often apply only to small employer health coverage: Many mini-COBRA laws apply only to insured plans offered through employers with 19 or fewer employees because employers with 20 or more employees are already subject to federal COBRA. However, in some states, the laws apply to employers of all sizes, even those subject to federal COBRA, as discussed below.
2. Generally impose their requirements on insurers: ERISA preempts state laws that relate to ERISA employee benefit plans, but it exempts state laws that regulate insurance from this rule. Thus, insurers, rather than employers, generally bear the burden of mini-COBRA compliance, and self-insured plans are generally exempt from mini-COBRA laws altogether.
3. May go beyond what federal COBRA requires: Some mini-COBRA laws apply to larger employers too and expand upon the requirements of federal COBRA by extending maximum-duration coverage periods, expanding upon notice requirements, or other means. New York and California, for example, generally require maximum continuation coverage periods of 36 months after qualifying events, for which federal COBRA requires less (e.g., termination of employment or reduction of hours is limited to 18 months under federal COBRA).

Mini-COBRA laws are unique within each state. Some states, such as New York, may have additional requirements in the event a covered individual no longer qualifies as a dependent. Others, such as Massachusetts and Louisiana, may have very specific provisions for divorced spouses and surviving spouses. Still others may have especially unique requirements, such as Nebraska, which provides special continuation coverage rights to victims of domestic abuse.

Even though insurers largely bear the burden of mini-COBRA compliance, employers have an obligation to plan participants to be familiar with how mini-COBRA laws may apply to the group health insurance plans they sponsor and to undertake reasonable efforts to ensure that their health insurance carriers are aware of and comply with all applicable mini-COBRA requirements. Insurance carriers are often a great source of information regarding these obligations, and employers should work closely with the carrier to ensure obligations are met.

As a refresher, "point solution" programs are specific services that add value to an employer's major medical plan or benefits program. Point solution programs are generally provided through third-party vendors. They often target benefit plan enhancements that range from specific condition management to digital solutions and apps to overall benefit program simplification. Some common examples of services provided through point solution programs include fertility, musculoskeletal, developmental disability, and mental and behavioral health.

Whether ERISA (which governs the Form 5500 requirement) or the ACA (which includes the PCOR fee requirement) applies to any particular point solution program depends on whether the program provides medical care. "Medical care" is broadly defined to include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body. Although each point solution program should be analyzed on a case-by-case basis, it essentially boils down to whether the program provides individualized diagnosis, treatment, or prescription services for an employee (or an employee's family member, if applicable). If it does, then the program is typically a group health plan and is therefore subject to ERISA, the ACA, and other laws. For further information, please ask your broker or consultant for a copy of the NFP publication Point Solution Programs: A Guide for Employers, and review the NFP Observations article, Point Well Taken: Determining Whether Your Point Solution Program Is a Group Health Plan, in this edition of Compliance Corner.

Point solution programs that provide medical care are subject to ERISA, including the Form 5500 and Summary Annual Report (SAR) reporting requirements. Point solution programs that are integrated or wrapped together with the major medical plan can comply with the Form 5500 and SAR requirements by adding the program benefits to the medical plan Form 5500. Non-integrated and/or non-wrapped plans must file a separate Form 5500 (and they may have to do so without a Schedule A since many vendors take the position that their products are not "insurance products" subject to Schedule A reporting; see the Form 5500 Instructions for more information about filing Form 5500 without Schedule A). For further information about Form 5500 and SAR requirements, please ask your broker or consultant for a copy of the NFP publications Form 5500: A Guide for Employers and Summary Annual Report: A Guide for Employers.

The PCOR fee is levied on health plans, so point solution programs that provide significant benefits in the nature of medical care or treatment are subject to these requirements. Employers with fully insured plans have the fee paid by the carrier, but self-insured plans must file and pay their own PCOR fee. Point solutions are typically considered self-insured plans and are subject to the PCOR fee. This is especially relevant for point solution programs that are structured as a reimbursement that is outside of a self-insured medical plan or one that pairs with a fully insured medical plan. The PCOR fee count for point solution programs follows the same rule as for HRAs: the employer counts one covered life per participant, exclusive of spouses, domestic partners, or dependents. Employers should carefully review their point solution program to determine if a PCOR filing is due and, if so, follow the HRA filing rules to ensure the proper headcount is reported. For further information regarding the PCOR fee and filing, please ask your broker or consultant for a copy of the NFP publication ACA: A Quick Reference Guide to the PCOR Fee.

Possibly. First, if an employer discovers a failure to offer COBRA in a timely manner, they should consult with their own legal counsel. This is important because qualified beneficiaries interested in maintaining health coverage are typically more likely to file complaints with the DOL to enforce their COBRA rights. A failure to meet COBRA requirements can potentially result in an employer facing significant penalties, participant lawsuits, and even the self-funding of participant claims. For these reasons and more, it is important to consult with legal counsel.

Generally speaking, the correction for a compliance failure is to attempt to put the qualified beneficiary in the position they should have been in absent the error. Whether or not retroactive COBRA is a solution may depend on the period of time between the loss of coverage and when the correction is discovered and made. It may be possible to offer retroactive coverage if the time period was relatively short, although the carrier (for a fully insured plan) or TPA and stop-loss carrier (for a self-insured plan) would need to be in agreement. If many months have passed, it may not be as meaningful to a qualified beneficiary to have retroactive coverage. The DOL generally frowns upon requiring a COBRA beneficiary to pay for retroactive COBRA since the individual could not access it during that time and thus could not benefit from it.

In those cases, and in consultation with their legal counsel, the employer may determine that offering coverage on a prospective basis is a better solution. Prospective coverage goes beyond what COBRA requires but may address complaints by those who declined or postponed medical care they would have otherwise pursued had COBRA coverage been timely offered. Prospective coverage can have downsides as well, such as potential liability for claims incurred during the gap in coverage and the need to obtain consent from the carrier or stop-loss carrier that they are on board with essentially expanding their COBRA liability now that the start date for COBRA is months after it should have been.

Accordingly, it will depend on the facts and circumstances of the failure as to how an employer should fix the situation. Working with legal counsel is key to ensuring the employer adopts an appropriate correction approach designed to fulfill its COBRA obligations and make the qualified beneficiary whole, to the extent possible.  

Additionally, employers should review their COBRA administrative procedures to determine how the error occurred and what steps should be taken to prevent it from happening in the future.

For further information on employer obligations under COBRA, including a discussion on the consequences of COBRA noncompliance, please ask your broker or consultant for a copy of the NFP publication COBRA: A Guide for Employers.

Lifestyle spending accounts (LSAs) are reimbursement accounts in which employers deposit a set amount of money for employees to spend on certain benefits that are determined by the employer. These accounts generally allow for the reimbursement of various wellness activities such as fitness classes, gym memberships, nutritional coaching, and workout equipment, or other items or activities that will promote health and wellness amongst their employees. Some employers even include other non-wellness benefits such as pet or childcare benefits, financial services, and travel or entertainment.

Keep in mind, though, that the nature of the LSA will determine the compliance aspects of such a program. LSA reimbursements are typically taxable to the employee. As a reminder, any benefit provided to employees would be included in their taxable income unless the tax code provides an exclusion. Notable exclusions are in place for benefits provided through a Section 125 plan, transportation plan, or education plan. However, LSAs generally don’t include benefits that would be excluded from gross income under any of those exceptions (in fact, employers sponsoring LSAs likely have other plans in place that provide pre-tax benefits under those exclusions). Therefore, it is likely that employees would be taxed on the benefits provided through an LSA.

Additionally, most employers take the position that LSA benefits are taxable to employees upon reimbursement, and amounts made available to employees but not reimbursed (i.e., carried over or forfeited) are not included in the employee’s taxable income. However, under the doctrine of constructive receipt, there is an argument that the full value of the amount made available in (as opposed to reimbursed from) the LSA to employees should be included in taxable income. Since the IRS has not specifically addressed this issue with LSAs, it is advisable for employers to consult with their tax counsel or advisor for guidance. 

Another compliance concern is the application of ERISA. LSAs are generally not subject to ERISA for the same reason that they are taxable — they do not reimburse medical care. If the employer wants to offer the benefit without it being subject to ERISA, which is the common approach, then the employer would need to make sure that it does not allow reimbursement for medical treatment that would make the LSA an ERISA-covered plan. For example, offering mental health/psychiatry services or reimbursement of medication would likely be considered medical care and make the plan one that would be subject to ERISA. This is important because many employers do not want to have to meet ERISA’s requirements (Form 5500 filing, SPD, COBRA, etc.) for these types of plans. Employers should work with counsel to ensure that the allowable expenses under the LSA would not create an ERISA-covered benefit.

One final compliance consideration is whether the LSA would impact employees’ HSA eligibility. As long as the LSA does not offer first-dollar reimbursement for medical care, it would not affect HSA eligibility. This is another example of why it is important to prohibit reimbursement of medical care under the LSA.

LSAs can be a useful way to promote health and wellness initiatives for employees. Compliance concerns can generally be avoided as long as the plan does not reimburse medical care. Employers with an LSA, or those considering implementing one for the first time, should consult with their vendor or legal counsel to ensure the plan is designed and implemented to avoid compliance issues.

The maximum amount an eligible individual can contribute to an HSA each year depends on the tier in which the individual is enrolled. The IRS uses two tiers: single and family (which includes any other than self-only coverage). Although the contribution maximum is an annual amount, HSA eligibility is determined on a monthly basis and thus the contribution limit is prorated if an individual experiences a change in tiers during the year.

The maximum amount is based on the enrollment tier as of the first day of each calendar month. If an individual is enrolled in single coverage for some months and family coverage (again, anything other than self-only) for other months, the maximum for the year would be prorated based on the number of months enrolled in each tier. This is known as the monthly contribution rule.

For example, if an employee is enrolled in self-only coverage January through March and enrolls in employee plus spouse (considered family coverage under HSA rules) for the remainder of the year, the employee would be eligible to contribute 3/12 of the single annual contribution maximum plus 9/12 of the family contribution maximum.

There is also the full-contribution rule, or last-month rule, that would allow the employee to make the full year’s HSA maximum contribution based on the tier in which they are enrolled as of December 1 instead of having to prorate the maximum amount. This rule applies if the individual is HSA-eligible on December 1 and remains HSA-eligible for the entirety of the following calendar year. Using the example above, because the employee enrolled in family coverage as of December 1, they can make the full year contribution at the family maximum instead of having to prorate based on tier, as long as they remain HSA-eligible for the entire next calendar year. Individuals using the full contribution rule should be careful, because if they do not remain HSA-eligible in a family tier the entire next calendar year, any amount exceeding the prorated amount from the prior year would be subject to income tax and an additional 10% excise tax.

For further information on both the monthly contribution rule and the full contribution rule, please ask your broker or consultant for a copy of the NFP publication Health Savings Accounts: A Guide for Employers.

Maybe. Under the ACA’s employer mandate, which applies to employers with 50 or more employees in the prior calendar year, there is no general exception for interns for medical coverage. All hours of service for which an intern is paid are required to be counted as hours of service. Therefore, interns’ hours of service must be counted when determining if the employer is responsible for offering coverage to the interns, or the employer risks paying a penalty under the employer mandate.  

In some cases, an intern may fall into a “seasonal” employee classification. A seasonal employee is one whose customary annual employment does not exceed six months and whose work begins and ends at approximately the same time each year. Interns meeting the seasonal employee definition may then be placed in a look-back measurement period and not offered coverage until the completion of such period and if they averaged full-time hours. However, if the intern does not meet the seasonal definition, then the seasonal exception will not apply. Putting it all together, if the interns do not meet the seasonal employee definition and are hired to work 30+ hours, they should receive an offer of coverage within 90 days of hire to be compliant with the ACA and thus would be included in ACA reporting.  

Small employers that are not subject to the employer mandate would not be subject to the seasonal employee measurement method rules mentioned above. Instead, eligibility would be determined based on how eligibility is defined under the terms of the plan. Similarly, for benefits outside of medical coverage, it also would come down to how eligibility is defined under those component benefit plans. A plan could restrict interns or nonpermanent or short-term positions from eligibility if desired. Employers would need to work with the carrier or TPA on the eligibility criteria and properly document and communicate it to affected individuals.  

Anytime employers vary benefit eligibility by employee class, they should ensure the plan undergoes nondiscrimination testing to ensure any variance does not create a discriminatory plan design under IRC Section 125 and, for self-insured plans, Section 105(h). 

For further information on determining full-time employee status for employees with nontraditional work schedules, please ask your broker or consultant for a copy of the NFP publication ACA: Employer Mandate Full-Time Employees.