Will an employer's "offer" of coverage still count under ACA's Employer Mandate if the employee fails to make his/her premium contributions?
Starting in 2015, the Employer Mandate provides that a large employer who fails to offer minimum essential coverage to substantially all full-time employees and their dependents may face a potential tax penalty. This offer of coverage must be made for each calendar month. Employers have questioned whether they have exposure to a potential penalty for a failure to "offer" the coverage when that coverage is cancelled because the employee fails to pay his or her share of the premium in a "timely" manner. Final regulations clarify that the employer's "offer" of coverage will still count for a given month even if the employee does not timely pay premiums. Whether the payment is timely is based on the same definition used under COBRA § 54.4980B–8. Specifically, a payment is timely when payment is made to the plan by a date that is 30 days after the first day of a given coverage period. In addition, a payment is considered timely, even if it is not the full amount, if it is an amount not significantly less than the full amount and the shortfall is no greater than the lesser of the following two amounts: $50 or 10 percent of the amount the plan requires to be paid. Therefore, the IRS will still count the employer's "offer" of coverage even where the coverage is cancelled for the employee's failure to timely pay the coverage.
This could occur if an employee is considered full-time during a stability period, but that same employee is actually working "part-time" during that stability period. Part-time hours will yield a lower salary. As a result, the employee's earnings may not be sufficient to cover the employee portion of the premium contribution.
An employer will not be subject to any penalty relating to failure to offer coverage until the end of the current coverage period if an employee is dropped due to non-payment of premiums. In order to avoid a penalty, when a new coverage period begins, the employer should re-offer coverage to the eligible employee, as ACA requires a yearly offer of coverage. If the employee again fails to make a timely payment for his or her portion of the coverage premium, the employer may elect to terminate coverage without being subject to a penalty for failing to offer coverage. Again, the offered coverage must also be affordable to avoid the unaffordability penalty.
For more information on this issue, please see 79 Federal Register 8544, 8597 (February 12, 2014) at the following link: http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/pdf/2014-03082.pdf.