As we turn the page on a new year, it is important for health insurance brokers to consider their employer clients’ annual January compliance responsibilities.
In early January of each year, an employer should evaluate its group size to determine its Applicable Large Employer (ALE) status under the Affordable Care Act (ACA), and to determine its federal COBRA or Cal-COBRA/state COBRA (if applicable) status for the new year.
Both of these determinations are made by evaluating an employer’s group size for the full 12 months of the prior year. After a determination is made, the status remains in place for the entire duration of the year – regardless of any changes in employee group count.
While not required in January, it can also be an ideal time to re-count the employer’s group size for Medicare primary/secondary payer status. Unlike ACA ALE status and federal/state COBRA status, Medicare primary/secondary status can change throughout the year.
Reference Word & Brown’s exclusive one-page Employee Count Reference for California employers or Nevada employers for help understanding how to make these evaluations.
Applicable Large Employer (ALE) Determination
An employer with an average of 50 or more full-time (FT) plus full-time equivalent (FTE) employees for the 12 months of the 2018 calendar year is an ALE for the entire following (2019) calendar year, even if its size drops below 50 in 2019.
Conversely, an employer with an average of less than 50 FT+FTE employees for the 12 months of the 2018 calendar year is not an ALE for the 2019 calendar year, even if its size grows to 50 or more in 2019.
It is very important to make this determination now, at the beginning of the year, so employers that need to comply with the ACA’s employer mandate can do so. First-time ALEs are provided transition relief by the IRS, which allows eligible employers up to a three-month window (by April 1st annually) to comply with the ACA’s employer mandate.
As a reminder, the ACA’s employer mandate (along with associated noncompliance penalties) is still in full effect for 2019. The ACA’s individual mandate penalty, however, is reduced to $0.00 beginning in January 2019.
Federal COBRA and Cal-COBRA Determination
An employer that has employed at least 20 employees on 50% or more of the typical working days in the preceding calendar year is subject to federal COBRA.
Employers that have employed fewer than 20 employees on 50% or more of the typical working days in the preceding calendar year are subject to Cal-COBRA, if the group is domiciled in California – generally speaking. A group could be subject to Cal-COBRA even if its master policy is not issued in California. In this case, the employer must employ 51% or more of its employees in California and have its principle place of business in California, in order for California employees to take advantage of Cal-COBRA.
State “mini” COBRA does not exist in Nevada, but federal COBRA always applies for all states.
When making the COBRA determination, both full-time (FT) and part-time (PT) employees are counted. Each PT employee counts as a fraction of a FT employee. Different benefits and administrative billing charges/fees on premiums are associated with federal COBRA and Cal-COBRA, so it is very important for the employer to make the determination accurately at the beginning of the year. An employer must generally notify its carriers and applicable COBRA Third Party Administrators (TPAs) of any changes to COBRA status as soon as the determination has been made.
Medicare Primary vs. Secondary Payer on Claims
Medicare primary/secondary payer status is determined by evaluating group size across each of 20+ calendar weeks in the current year or preceding calendar year, and the 20 weeks do not need to be consecutive.
Unlike ALE status and COBRA status, an employer may change from “Medicare Primary” to “Medicare Secondary” (or vice versa) throughout the year. Make sure to keep an eye on this changing count, as making the correct determination is critical for persons required to elect Medicare, and so expectations can be set regarding payer status for group claims.
There are also Centers for Medicare and Medicaid Services (CMS) notification requirements to follow when an employer changes its Medicare primary/secondary status.
Reminder – IRS Control Groups
IRS controlled/aggregate rules apply in all three group count scenarios. If the employer has ownership in multiple businesses, its employees can be combined for purposes of counting employees and determining group size – even if the businesses have different tax IDs and are otherwise not related.
These complex tax rules fall under Internal Revenue Code Section 414, subparagraphs (b), (c), (m), and (o); a trusted tax or legal advisor should be consulted for help making this determination if it might apply.
Count on Us for Answers
If you or your clients have questions about ALE determination, federal or state COBRA determination, or Medicare Primary vs. Secondary Payer status, you can count on your WBCompliance team for answers. You can contact them via email (ComplianceSupport@wordandbrown.com) or by calling 866-375-2039. (If you have questions about IRS Control Groups, we encourage you and your clients to talk with a CPA or other tax expert.)