Question: We understand there's a small employer exception to having to provide COBRA* insurance to qualifying departing employees. Our understanding is the exception applies to employers with fewer than 20 employees. What employees should we count for purposes of this exception?
Answer: A group health plan isn't subject to COBRA for any year if all employers maintaining the plan together employed fewer than 20 employees on a typical business day during the preceding year. Here are five general guidelines for which employees must be counted:
Be sure to count the number of employees working for all employers maintaining the plan, not just the number of employees covered by the group health plan.
Only common-law employees are counted as "employees" for purposes of COBRA's small employer exception. Don't count self-employed individuals, independent contractors or members of a corporate employer's board of directors (unless the board members are also common-law employees of the employer).
Keep in mind that common-law employee status isn't determined solely by a worker's payroll status, title or job description, but it depends on various factors enumerated by the IRS and the courts — including whether the organization controls the manner in which the individual provides services.
A part-time employee counts as a fraction of an employee. The fraction is equal to the number of hours that the part-time employee works divided by the number of hours that an employee must work to be considered a full-time employee.
The number of hours that must be worked for an employee to be considered full-time is determined in a manner consistent with the employer's general employment practices — but can't be more than eight hours a day or more than 40 hours a week.
You may count employees for each typical business day, or you may count employees for a pay period and attribute the total number of employees for that pay period to each typical business day that falls within the pay period. You also may count part-time employees on an aggregate basis (rather than on an individual basis) by totaling the hours worked by part-time employees and dividing that sum by the number of hours required for one worker to be considered full-time.
However, you must use the same method for all employees and for the entire year for which the small employer plan determination is made.
You must count all employees of all entities that are related to your organization under the Internal Revenue Code Section 414 rules. These "controlled group" rules are complicated but, if your organization is related to another entity, you'll need to determine whether employees of the related entity must be counted. If so, you'll also need to include employees of "successors" of those entities — that is, entities that "result from a consolidation, merger, or similar restructuring."
The controlled group rules don't exclude entities outside the United States, so employees of a foreign entity must be counted if the entity otherwise qualifies as a member of the controlled group. Similarly, employees working outside the United States must be counted.
Keep in mind that the rules for counting employees are complex. If you mistakenly rely on the small employer exception, the consequences can be significant. Noncompliance can result in lawsuits and penalties, as well as the obligation to provide COBRA coverage to former employees and others without insurance or stop-loss coverage. If you're in doubt as to your organization's status, seek professional legal advice.
*COBRA stands for "Consolidated Omnibus Budget Reconciliation Act," the law under which the health care coverage requirements for departing employees are mandated.
Question: We're wondering whether our organization's medical plan might qualify for an exemption from the federal mental health parity requirements. What exemptions are available?
Answer: The federal mental health parity requirements apply to most employer-sponsored group health plans, but there are exceptions. As a reminder, the mental health parity rules under the Mental Health Parity Act and the Mental Health Parity and Addiction Equity Act require parity between medical/surgical benefits and mental health or substance use benefits in the application of:
However, some exceptions apply:
Small employer and small plan exemptions. An exception is available for small employers that employed an average of at least two (one in the case of an employer residing in a state that permits small groups to include a single individual) but no more than 50 employees (100 or fewer employees for most non-federal government plans) during the preceding calendar year. There's also an exception for plans with fewer than two participants who were current employees on the first day of the plan year (including retiree-only plans). Under the Affordable Care Act, however, if an employer provides coverage through a group policy purchased in the small group market, that group policy is required to include mental health coverage (an essential health benefit) in a manner that complies with the parity requirements.
Increased cost exemption. This is available for plans that make changes to comply with the mental health parity rules and incur an increased cost of at least 2% in the first year that the law applies to the plan (generally, the first plan year beginning on or after October 3, 2009, unless a later date applies) or at least 1% in any subsequent plan year. Plans that comply with the parity requirements for one full plan year and satisfy the conditions for the increased cost exemption are exempt from the parity requirements for the following plan year. After that year ends, the plan must again comply with the parity requirements for a full year before it may potentially qualify for an exemption again. Given this complexity, use of this exemption may not be feasible for many employers.
Other Exemptions. Self-insured non-federal governmental plans may opt out of the federal mental health parity requirements if certain administrative steps are taken, including initial and annual notices to enrollees. In addition, the requirements don't apply to group health plans that provide only certain excepted benefits (for example, certain limited-scope dental or vision plans).