I receive this question a lot from clients. Under the ACA, all large employers are required to offer coverage to substantially all of their full-time employees or pay a penalty if any employee goes to the exchange and receives federal assistance. A large employer who avoids the first penalty may still owe a pay or play penalty for those employees that coverage is not offered to or on any full-time employee whose offer of coverage is for a plan that either doesn’t provide minimum value or is not affordable. For this purpose a large employer is an employer who employed on average 50 or more full-time equivalent employees in the prior year. For more information on the pay or play penalties, check out our article on the mandates.
When calculating the number of your full-time employees for purposes of the mandate, all full-time employees must be included. There are no exceptions for interns, co-op students, temporary employees, etc. Therefore, you do have to offer coverage to your interns if they are working full-time to avoid triggering a pay or play penalty. When I share this news with many clients, they get frustrated as they have never offered coverage to interns. But before you get frustrated or vow to never hire an intern again, let me explain that practically speaking most interns won’t trigger a penalty. And, even if you offer them coverage, must won’t ever become covered under your plan.
First, you are permitted to have a 90-day waiting period before offering someone coverage. The penalty doesn’t kick in until the first day of the fourth month after full-time employment begins. If you put a ninety day waiting period in your plan (which for now you could apply only to interns if you wished), the intern would have to be employed for 90 days before they were offered coverage. So those interns that you hire for two and half months each summer won’t be employed long enough to become eligible. And even if you are employing them for an entire semester, what is the likelihood that a college student will elect coverage that would only be available to them for the next month or so? Second, many of your interns are likely still on mom or dad’s health plan coverage. Since the ACA requires that health plans that cover dependents cover them until age 26, many of your interns may still be on mom or dad’s plan. Therefore, they won’t likely take your coverage (at least I wouldn’t have wanted it if I could have stayed on my Dad’s plan at no cost to me) even if you offer it to them.
Even if you don’t offer them coverage, you may not be at much risk of a penalty. If you decide to continue to exclude interns, ensure that the number of interns added to anyone else you exclude from coverage do not add up to more than 5% (or 30% in 2015) of your population. As long as the number of excluded employees doesn’t exceed that percentage, you will avoid penalty number 1. Those interns could still cause a penalty of $3,000 per intern on you though. But in order for that penalty to be triggered, the intern would need to: (i) not have other coverage (i.e., they couldn’t be enrolled in mom or dad’s plan); (ii) go to the exchange and enroll in a plan; and (iii) qualify for premium assistance. Because many of your interns may have other coverage or, if they don’t, may not have the desire or motivation to go to the exchange and purchase health insurance, most of them will never trigger this penalty.
While you may choose not to make a change to your eligibility, you should at least evaluate the risks and potentials for penalties before you make a decision on whether or not to offer coverage to your interns.
