Health Coverage for Temps and Interns
By Brian Gilmore | Published March 15, 2023
Question: When are employers required to offer health coverage to full-time temps and interns to avoid potential ACA employer mandate penalties, and what are the common employer strategies for offering coverage?
Short Answer: The ACA employer mandate generally requires that ALEs offer coverage to full-time temps or interns in the same manner as regular full-time hires to avoid potential penalties. However, employers frequently take advantage of cost-saving strategies such as utilizing the ACA’s limited non-assessment period to delay the offer of coverage to the first day of the fourth full calendar month of employment.
In most situations, employers that are ALEs subject to the ACA employer mandate should follow one of the following strategies for offering health coverage to temps, interns, and other contingent workforce:
Offer Coverage on the Same Basis as Regular Full-Time Employees
Delay Offer of Coverage to First Day of Fourth Full Calendar Month
Limit Medical Plan Option(s) Offered
Exclude Health Benefits Other Than Medical
Combination of the Above Options
Expose Company to Potential “B Penalty” Liability
The ACA Employer Mandate: Standard Rules Apply to Full-Time Temps and Interns
Applicable Large Employers (ALEs) subject to the ACA employer mandate must offer health coverage to full-time employees to avoid potential penalties. Although before the ACA it was common for employers to simply exclude temps and interns from health plan participation regardless of hours worked, the ACA employer mandate now typically makes that approach undesirable for ALEs.
The issue is that temps and interns frequently perform at least 30 hours of service per week to qualify for full-time status under the ACA employer mandate. The IRS made clear in the preamble to the employer mandate regulations that there is no blanket exception available to ALEs to avoid offering coverage to temps, interns, or other short-term employees who work full-time:
“The Treasury Department and the IRS continue to be concerned about the potential for abuse of any exception for short-term employees through the use of initial training period positions or other methods intended to artificially divide the tenure of an employee into one or more short-term employment positions in order to avoid application of section 4980H. For these reasons, the final regulations do not adopt any special provisions applicable to short-term employees.”
Accordingly, unless a specific exception applies, employers need to offer health coverage to temps and interns to avoid potential ACA employer mandate penalty liability.
For more details: Newfront ACA Employer Mandate & ACA Reporting Guide.
General Rule: Offer Coverage by First Day of the Fourth Full Calendar Month of Employment
The ACA employer mandate rules provide that employees are not counted for potential penalty liability during their “limited non-assessment period.” For new full-time hires, this limited non-assessment period is designed to provide the employer with sufficient time to offer coverage to a new hire without incurring potential penalties (e.g., while the new hire satisfies the plan’s eligibility conditions and waiting period).
The technical approach of these limited non-assessment periods differs depending on whether the employer utilizes the monthly measurement method or the look-back measurement method to determine employees’ full-time status. However, the practical result under either approach is that employers can delay the offer of coverage for new full-time hires until the first day of the fourth full calendar month of employment.
Many employers take advantage of this limited non-assessment period to delay the offer of coverage to new full-time temps, interns, or other contingent workforce.
Full more details: The ACA First Day of the Fourth Full Calendar Month Rule.
Common Employer Strategies for Offering Coverage to Full-Time Temps and Interns
Employers have multiple options for how to address offering health plan coverage to full-time temps, interns, or other types of contingent workforce to avoid potential ACA employer mandate penalty liability.
Temp/Intern Strategy #1: Offer Coverage on the Same Basis as Regular Full-Time EEs
Employers looking to simplify administration by avoiding class distinctions can simply offer coverage to temps and interns in the same manner as any other full-time new hire. Needless to say, this is not the most cost-efficient way to address the situation because it will result in more benefits offered to temps and interns than the ACA requires.
No need to create special classes in plan materials or benefit administration systems;
Temps and interns have full array of benefits available to them;
It is likely that many temps and interns will waive coverage in favor of insurance obtained elsewhere to maintain beyond short period of employment (e.g., through a spouse, domestic partner, parent, school, or the Exchange).
Most costly approach;
Extra COBRA administration for short-term temps and interns who enroll in health plan.
Temp/Intern Strategy #2: Delay Offer to First Day of Fourth Full Calendar Month
The most common cost-mitigation strategy employers utilize for full-time temps and interns is to impose a longer eligibility and/or waiting period to delay the offer of coverage. For example, many employers offer coverage to temps and interns that is effective as of the first day of the fourth full calendar month of employment, per the standard maximum ACA limited non-assessment period for new full-time hires.
Many temps and interns will be terminated before offer of coverage would be effective (i.e., terminated within three full calendar months);
Delaying offer saves employer money by fewer employees electing coverage and a reduced period of coverage for those who do elect.
Employers need to track employment period and communicate the extended eligibility and/or waiting period for the temp and intern class in plan materials addressing eligibility (e.g., SPD, EOC, policy, certificate, open enrollment materials, new hire materials, handbook).
Temp/Intern Strategy #3: Limit Medical Plan Options Offered
Some employers choose to offer only specific medical plan options to temps and interns. For example, if the employer offers a PPO High, PPO Low, HMO High, HMO Low, and HDHP to regular full-time employees, the employer might offer only the HMO Low and HDHP to temps and interns.
The employer can target specific medical plan options that are the lowest cost to the employer.
Employers need to communicate the restricted medical plan options for the temp and intern class in plan materials addressing eligibility (e.g., SPD, EOC, policy, certificate, open enrollment materials, new hire materials, handbook);
ACA affordability requirements still apply;
Section 125 nondiscrimination rules generally require same contribution levels and employer HSA contributions be made available to temps and interns,
Potential §105(h) nondiscrimination concerns for self-insured plans.
Temp/Intern Strategy #4: Exclude Health Benefits Other Than Medical
Some employers choose to offer temps and interns only medical coverage. The ACA employer mandate does not require an offer of other health benefits (such as dental and vision coverage) to avoid potential penalties.
The employer can avoid the cost of offering dental, vision, or other non-major medical health benefits to temps and interns.
Employers need to communicate the exclusion of dental, vision, and other non-major medical health benefits for the temp and intern class in plan materials addressing eligibility (e.g., SPD, EOC, policy, certificate, open enrollment materials, new hire materials, handbook).
Temp/Intern Strategy #5: Exclude Spouses
A small number of employers choose to offer coverage only to the temp or intern and their children to age 26. The ACA employer mandate requires the employer to offer coverage only to full-time employees and their children to age 26 (including and at least their biological, adopted, and placed for adoption children) to be treated as an “offer” for ACA purposes. The rules do not require offering coverage to the employee’s spouse (or domestic partner, foster children, stepchildren, children for whom the employee is the legal guardian, or any other dependent).
The employer can avoid the cost of offering coverage to the spouse.
Employers need to communicate the exclusion of spousal coverage for the temp and intern class in plan materials addressing eligibility (e.g., SPD, EOC, policy, certificate, open enrollment materials, new hire materials, handbook);
Requires unusual ACA reporting codes.
Temp/Intern Strategy #6: Combination of the Above Options
Many employers use more than one of the above strategies, such as offering only a specific medical plan option to full-time temps and interns as of the first day of the fourth full calendar month of employment.
The employer can take advantage of multiple different strategies to best customize their offering to their budgetary and administrative constraints.
The more strategies the employer utilizes that differentiate the offerings for temps and interns, the more administrative processes are needed to ensure the plan design is correctly implemented.
Temp/Intern Strategy #7: Expose Company to Potential “B Penalty” Liability
A narrow group of employers choose to accept potential “B Penalty” liability for full-time temps and interns by not offering health coverage even where the period of employment extends to the first day of a fourth full calendar month (i.e., beyond the standard limited non-assessment period for new full-time hires). The B Penalty applies where the employer has offered coverage to at least 95% of full-time employees to avoid the very large “A Penalty,” but still misses offering coverage to fewer than 5% of full-time employees. The B Penalty is triggered when a full-time temp or intern not offered coverage by the employer enrolls in subsidized coverage on the Exchange.
The employer does not have to take any steps to address health coverage for full-time temps or interns;
The B Penalty is not multiplied by virtually all full-time employees (unlike the A Penalty);
B Penalty liability for those enrolled in subsidized Exchange coverage is likely comparable to the employer-share of the premium had the temp or intern been offered and enrolled in the employer’s plan ($360/month in 2023).
The employer must be absolutely certain that it will never jeopardize the 95% offer of coverage threshold by its decision not to offer coverage to full-time temps and interns to avoid potentially enormous A Penalty liability ($240/month multiplied by all full-time employees, reduced by first 30, in 2023);
High likelihood that the employer will be subject to B Penalties.
Reminder: Section 125 NDT Rules Prevent Different Contributions for Temps/Interns
Employers generally do not have the ability to devise a separate contribution structure for full-time temps and interns as a cost-cutting strategy because of the Section 125 nondiscrimination rules.
The Section 125 cafeteria plan rules govern employee pre-tax contributions to the health plan. The key component of these rules for this purpose is the “uniform election” requirement. That provision requires that employers provide a “uniform election with respect to employer contributions.”
A contribution structure that charges more to certain non-HCPs (including temps and interns) for the same benefit generally does not provide a “uniform election with respect to employer contributions”. This means that all full-time non-HCP employees (including temps and interns) eligible for the same plan option as an HCP must be offered at least the same employer contribution amount that is available to HCPs for that plan option.
Furthermore, in almost all cases the same Section 125 nondiscrimination rules apply to employer HSA contributions. This means that employers will have to make the same employer HSA contribution amount available to full-time temps and interns enrolled in the HDHP plan option as made available to regular full-time employees. Employers can of course avoid this issue by excluding temps and interns from participation in the HDHP (see strategy #3 above).
For more details: Health Benefits by Class.
Reminder: No ACA Requirement to Offer to Temps/Interns Terminated Within Three Months
Where the employer imposes an extended eligibility and/or waiting period to delay the offer of coverage to full-time temps and interns to the first day of the fourth full calendar month of employment per the standard ACA limited non-assessment period, there will be no requirement to offer coverage to temps and interns who do not remain employed to that date.
In other words, employers utilizing the common strategy #2 described above to delay the offer of coverage to the first day of the fourth full calendar month of employment will avoid the need to offer coverage to many full-time temps and interns because often they will terminate employment within the first three full calendar months of employment. The employer also would not need to complete a Form 1095-C for such temps and interns who never reach the end of the limited non-assessment period.
Reminder: Employers Can Delay Offer of Coverage for 13+ Months in Certain Scenarios
The ACA offers employers the option to choose between two alternative measurement methods to determine which employees are treated as full-time (i.e., averaging at least 30 hours of service per week) for employer mandate purposes:
1. The Monthly Measurement Method (MMM); or
2. The Look-Back Measurement Method (LBMM).
With limited exceptions, employers generally must apply the same measurement method across all employees. For example, employers generally cannot apply the LBMM to temps and interns while applying the MMM to regular full-time employees.
For more details: Key Decision Points in ACA Reporting Setup—The Measurement Method.
For employers utilizing the LBMM, new hires who can be classified as variable, seasonal, or part-time can first be placed into an initial measurement period to determine their full-time status. Where temps or interns are hired to work 30+ hours of service per week, they may nonetheless qualify in some cases as a seasonal employee who can be placed into an initial measurement period prior to offering coverage.
A seasonal employee is defined as an employee who is hired into a position for which a) the customary annual employment is six months or less, and b) the period of employment begins each calendar year in approximately the same part of the year (e.g., summer or winter).
For temps and interns who fit the definition of a seasonal employee, the employer can impose a combined initial measurement period and initial administrative period of 13 months, plus a partial month for a mid-month hire. This combined initial measurement/administrative period before the new hire reaches a stability period extends the limited non-assessment period for which no ACA employer mandate penalties will apply far beyond the standard three full calendar month duration for new full-time (non-seasonal) hires.
Reminder: Workers Payrolled Through an Outside Staffing Firm
Contingent workers who are payrolled through an outside staffing firm are in almost all cases considered common-law employees of the worksite employer that will manage and direct their duties. Therefore, the same ACA employer mandate requirements apply even though they are not on the employer’s payroll.
However, the ACA rules permit the employer to delegate the offer of coverage requirement to the outside staffing firm as long as two requirements are satisfied:
The outside staffing firm offers coverage meeting ACA standards to full-time workers; and
The outside staffing firm charges the employer an additional fee for those workers who elect to enroll in the outside staffing firm’s offer of coverage.
This results in the employer being treated as having offered coverage through the outside staffing firm plan. Nearly all outside staffing firm arrangements now accommodate this approach.
Note: While it is theoretically possible for the employer to design its plan to provide eligibility under the employer’s plan to these workers, it is very difficult to collect the employee-share of the premium because they are not on the employer’s payroll. Generally, that could only be done via after-tax payments in a manner similar to COBRA. It’s therefore an uncommon approach.
For more details: The ACA Employer Mandate and Outside Staffing Firms.
Treas. Reg. §54.4980H-3(c)(2):
(c) Monthly measurement method.
(2) Employee first otherwise eligible for an offer of coverage…An employer is not subject to an assessable payment under section 4980H(a) with respect to an employee for each calendar month during the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage no later than the first day of the first calendar month immediately following the three-month period if the employee is still employed on that day. If the coverage for which the employee is otherwise eligible during the three-month period, and which the employee actually is offered on the day following that three-month period if still employed, provides minimum value, the employer also will not be subject to an assessable payment under section 4980H(b) with respect to that employee for the three-month period.
Treas. Reg. §54.4980H-3(d)(2)(iii):
(d) Look-back measurement method.
(2) New non-variable hour, new non-seasonal and new non-part-time employees.
(iii) Application of section 4980H to initial full three calendar months of employment. Notwithstanding paragraph (d)(2)(i) of this section, with respect to an employee who is reasonably expected at his or her start date to be a full-time employee (and is not a seasonal employee), the employer will not be subject to an assessable payment under section 4980H(a) for any calendar month of the three-month period beginning with the first day of the first full calendar month of employment if, for the calendar month, the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage by the employer no later than the first day of the fourth full calendar month of employment if the employee is still employed on that day. If the offer of coverage for which the employee is otherwise eligible during the first three full calendar months of employment, and which the employee actually is offered by the first day of the fourth month if still employed, provides minimum value, the employer also will not be subject to an assessable payment under section 4980H(b) with respect to that employee for the first three full calendar months of employment.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.Connect on LinkedIn