Insights

FAQ: If employees lost eligibility for group health plan coverage as a result of a furlough, when must their health coverage be effective upon return to work?


There are two ACA rules that come into play with this type of a potential return to work situation.

First, group health plans are prohibited from applying a waiting period that exceeds 90 calendar days. That is, an eligible employee must be able to elect coverage that becomes effective within 90 calendar days.

Under the waiting period rule, a former employee who is rehired may be treated as newly eligible for coverage upon rehire (and subject to the plan’s eligibility criteria and waiting period requirements). Additionally, if eligibility for coverage depends on being employed in an eligible job classification, a waiting period can be imposed when an employee moves from an ineligible job classification to an eligible job classification. So, if the furloughed status resulted in the employee being ineligible for coverage under the plan terms, resuming work may return the employee to an eligible job classification.

However, the imposition of the waiting period must be “reasonable under the circumstances” and “not a subterfuge to avoid compliance.” These terms are not defined, so the situation would need to be reviewed in terms of factors such as the expectation of the parties and the employer’s motives.

Additionally, employers with more than 50 full-time employee equivalents must consider the ACA shared responsibility provisions. With respect to new hires, there is generally a limited non-assessment period of three calendar months in which an ALE will not be liable for shared responsibility penalties for not offering coverage to full time employees.

However, if an employee stops working for the ALE and then returns (for example in a furlough situation), it is necessary to determine whether the employee is considered to be either a continuing employee or a terminated and rehired employee.

Generally, an employee will be considered to have terminated employment if the employee has a period of 13 consecutive weeks in which they are not credited with an hour of service. (For an educational organization, this period would be 26 consecutive weeks.) In such case, the employee would be considered a new employee upon return.

If deemed a new employee, the limited non-assessment period can be applied, and the group health plan coverage would need to be effective by the first of the month following three full calendar months of employment.

By contrast, if the employee was credited with service hours during the 13 week timeframe, then the returning employee would be classified as a continuing employee. (This could occur in the situation where a furlough lasts less than 13 weeks.) In this situation, the required effective date of the coverage offered would be the first day that the employee is credited with an hour of service or as soon as administratively practicable (generally interpreted to be the first day of the following month). So, for example, for a continuing employee that returns to work on May 15, the coverage would need to be reinstated no later than June 1.

Accordingly, the credited hours of service (if any) for each affected employee prior to the return date should be reviewed. Failure to offer coverage in the required timeframe could subject the employer to shared responsibility penalties if the employees sought marketplace coverage and received a tax credit.

Finally, let’s say an employee is determined to be terminated and rehired so that a limited non-assessment period can be applied with respect to the coverage offer. The coverage date would still need to be coordinated with the 90 calendar day waiting period requirement. So, the employee returning on May 15 would need to be offered coverage that would be effective by August 13 to meet the waiting period rule, even if the limited non assessment period rule would only require a September 1, 2020, effective date. So, the employer always needs to coordinate the two dates with any new hire or rehire.