This is the ninety-ninth issue in our health care reform series of alerts for employers on selected topics in health care reform. (Our general summary of health care reform and other issues in this series can be accessed by clicking here.) This series of Health Care Reform Management Alerts is designed to provide a more in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.
Under Notice 2016-17, colleges and universities will have until the first day of the 2017 plan year or policy year, whichever the case may be, to move students who are classified as employees from coverage under the institution’s student health plan to ACA compliant group health coverage. This is welcomed relief as colleges and universities continue to evaluate and reevaluate their worker classification policies.
I. Notice 2016-17 Transition Relief for Student Health Plans
The Agencies released Notice 2016-17 on February 5, 2016, which allows an employer payment plan (EPP) or HRA to be integrated with a student health plan for plan or policy years that begin prior to January 1, 2017. The Agencies provided guidance in 2013 stating that an EPP and/or an HRA could only comply with the Patient Protection and Affordable Care Act of 2010, as amended (ACA) to the extent the EPP or HRA was integrated with a group health plan (i.e., the employee has to enroll in group health coverage in order to participate in the EPP or HRA). This is because, for example, the ACA prohibits annual dollar limits on essential health benefits, and, by their definition, EPPs and HRAs are limited to the amount credited to the EPP and/or HRA.
Student health plans are treated as individual health policies under federal law. As such, a student health plan is not a group health plan, and, therefore, it cannot be integrated with an EPP and/or HRA, at least with respect to students who are employees of the university or college sponsoring the student health plan.1 Understanding that institutions of higher education need additional time to move coverage for affected student-employees, Notice 2016-17 provides a transition period so that institutions of higher education can find replacement group coverage for student-employees. Under this transition period, colleges and universities will have until the first day of the first policy or plan year beginning on or after January 1, 2017 to provide student-employees who are full-time employees an offer of coverage that is otherwise compliant with the ACA. For example, if the student-employee’s policy year under the student health plan runs from September 1 through August 31, the college or university will have until September 1, 2017 to offer the student-employee group health coverage that is otherwise compliant with the ACA or face a potential penalty under the employer mandate, and, to the extent the student-employee remains enrolled in the student health plan and EPP and/or HRA, a penalty of $100 for each day the student-employee remains covered under the arrangement on and after September 1, 2017.
II. When is a Student an Employee for ACA Purposes?
The Notice 2016-17 discussion provides an opportunity to re-address the issue of under what circumstances a student is treated as an employee for ACA purposes. There are a number of rules that impact the analysis of whether a student is treated as an “employee” of the college or university for purposes of the ACA. To begin, generally, the ACA adopts the common law approach to defining the employer-employee relationship, and the IRS uses a 20 factor test to evaluate the common law standard. That means that current employment-law guidance defining student-employees is irrelevant to the ACA analysis, unless that guidance was issued under the ACA. For example, current guidance issued by the U.S. Department of Labor (DOL) interpreting the Fair Labor Standards Act as applied to students who perform services for an institution of higher education as part of the student’s educational experience is not determinative as to whether those same students are employees of the institution for ACA purposes. Likewise, an NLRB ruling that a group of students are not employees for labor law purposes is not determinative as to whether those same students may be considered employees for purposes of the employer mandate under the ACA.
That said, the Agencies have provided some guidance on when a student is a “student” and when a student is an “employee” for ACA purposes. Generally, a student who is working at his or her college or university as part of a federal or state work study program is not considered an employee of the institution, at least with respect to his or her work through the program. Likewise, a student who participates in an unpaid internship and externship is generally not treated as an employee of his or her college or university due to his or her work as an unpaid intern or extern. However, students who work outside of a qualified work study program or through a paid intern or externship may be considered an employee of their colleges or universities, in which case the general hours counting rules under ACA would apply (e.g., seasonal employee rule and on-call hour rule).