How does the ACA apply to LTD and STD recipients?
In order to avoid potential pay or play penalties, do employers need to make an offer of health plan coverage to individuals receiving payments from a short-term disability or long-term disability arrangement?
All large employers must offer health plan coverage to their full-time employees or potentially be subject to pay or play penalties. Under the ACA, a full-time employee is an individual that averages at least 30 hours of service per week, or 130 hours per month. When determining full-time status for purposes of making an offer of health plan coverage, you may use one of two measurement methods. Under the monthly measurement method, full-time status is determined on a monthly basis. Under the look-back measurement method, you determine full-time status by calculating the average hours of service during a look-back measurement period.
If you are using the monthly method, in order to avoid potential penalties you must offer health plan coverage to an employee for a month in which he or she received 130 hours of service. An employee is entitled to an hour of service for any hour in which they are paid or entitled to be paid. Payment includes STD and LTD pay, unless it is a STD or LTD arrangement paid for by the employee on an after tax basis. In other words, an employee who is credited with hours of service resulting from STD or LTD benefits will not be considered to be on an unpaid leave of absence. For example, if Bob is an ongoing employee and works 35 hours during each of the first two weeks of March and he receives STD payments resulting in 35 hours of credited service for each of the second two weeks of March, you must offer Bob coverage for the month of March because he was paid for more than 130 hours of service.
Under the look-back method the employee’s current hours of service are irrelevant to whether you must offer coverage or pay a penalty. After you determine that an individual is a full-time employee during a measurement period that determination will apply throughout the following stability period, regardless of the number of hours of service the employee receives during that period. If the employee receiving STD or LTD is considered full-time for the stability period in which his or her leave occurs, you must continue to offer coverage during the leave of absence. For example, if you determine during a twelve month measurement period that Bob is a full-time employee for 2016 and in 2016 Bob misses six months of work and is receiving STD payments during those six months, you must continue his offer of coverage during his leave in order to avoid potential penalties. You must also count his credited hours of service in the average for the measurement period in which he received the STD or LTD disability payments, which ultimately impacts whether he will be full-time in next year’s stability period