Health Coverage & Summer Interns
Summer will be here before we know it and many students will be seeking internships. Do you need to offer them health coverage while they’re with you? Check out our blog below for details.
We are considering whether to hire several interns to work this summer. They would be working full-time for three or four months. Do we have to offer health coverage to summer interns?
There are two issues to consider with respect to health coverage for summer interns:
- Do you want to offer coverage to meet your business objectives?
- Are you an “applicable large employer” required to offer coverage in order to avoid potential penalties under the Affordable Care Act (ACA)? The ACA’s employer shared responsibility provision (often referred to as “play or pay” or the “employer mandate”) generally applies only to employers that averaged at least 50 full-time and full-time equivalent employees in the prior calendar year. Small employers are exempt.
First, consider why many employers choose to hire interns and also offer them health benefits. Hiring interns can be a great future recruiting tool, allowing the employer a low-risk glimpse of the interns’ work habits and reasoning ability prior to making a longer-term formal commitment. Additionally, being viewed as an employer of choice helps the intern think favorably about working for the employer in the future, so offering benefits can help. This tactic may also help your reputation in the labor market and at college placement offices. The downside may be extra administrative work to add/delete the interns from the plan and COBRA implications, although this usually is minimal. In our experience, interns often are students or young adults who have coverage through their parents or other sources. Oftentimes they view the employer favorably for offering the coverage, but many choose not to enroll.
Before extending health benefits to interns or temporary employees, review the eligibility provisions in your benefit plan documents. You may need to work with your carrier and insurance broker to amend the plan to extend eligibility to interns or other classes.
Next, if you are an applicable large employer (ALE) under the ACA’s play or pay rules (see second bullet, above), you already are familiar with the requirements for your existing workforce. Depending on the measurement method(s) you currently use, the following summarizes how the requirements will apply to the summer interns under certain assumptions:
- You currently offer affordable minimum value coverage to each “full-time employee,” as defined under the play or pay rules using an allowable measurement method, in order to avoid the risk of potential penalties. (Some employers choose not to offer coverage, or not offer coverage to some full-timers, and instead assume the risk of potential penalties. Penalties are triggered only when a full-time employee receives a government subsidy for an individual insurance policy through the public Marketplace (Exchange) due to the employer’s failure to offer affordable minimum value coverage.)
- Each summer intern will meet this definition of seasonal employee: “An employee who is hired into a position for which the customary annual employment is six months or less.” Note that “customary” means that by the nature of the job position, employment begins in approximately the same part of year, such as summer or winter.
- The summer interns will be hired with the expectation to work 30 hours/week or more (or 130 hours/month or more). In other words, although they will only be employed for the summer, they are expected to work full-time.
Then, use the applicable measurement method with respect to the new summer interns (i.e., seasonal employees):
- If you currently apply the monthly measurement method to ongoing employees, or to ongoing employees in the same category (e.g., hourly, salaried) as the interns, then you must apply this method to the interns. In this case, to avoid risk of potential penalties, offer the full-time intern affordable minimum value coverage to start by the first day of the month following the initial three calendar months. For instance, if the intern is hired May 15 and works full-time, offer coverage to start by September 1 (assuming the intern is still employed).
- If you currently apply the look-back measurement method to ongoing employees in the same category (e.g., hourly, salaried) as the interns, then apply this method to the interns. (This is allowed because the interns are “seasonal employees.” For non-seasonal employees, however, you are required to use the monthly method — not the look-back method — for any new hires in positions that are reasonably expected to be full time.) For instance, if you use a 6-month or 12-month look-back period, you avoid the risk of potential penalties by offering coverage to employees who successfully complete the look-back period with an average 30 hours/week or more. The interns, however, will not meet the average; their employment will end before coverage would need to be offered.
In summary, whether you are required to use the monthly method or look-back method for the summer interns, you likely would not be at risk of penalties if you chose not to offer health coverage to them. The monthly method allows you to avoid penalties during the first full three calendar months of employment and the look-back method allows you to delay offering coverage, without risk of penalties, until after the look-back period ends. Since your interns will be hired for only three months (or at most, close to four months), it appears their employment will end before you would be required to offer coverage to avoid potential penalties.
Note that the play or pay rules allow exceptions for bona fide volunteers (i.e., certain employees of governmental entities or tax-exempt organizations) or by participants in a federal work-study program or similar program. These exceptions would not apply to the typical summer intern position at for-profit companies.
Also note that employers may choose to offer coverage to employees who are not defined as full-time employees under the play or pay rules. The rules do not prevent employers and group health plans from using eligibility provisions that are broader than the ACA’s minimum requirements.
Lastly, note that the play or pay rules are complex because they are designed to protect an employee’s eligibility for health coverage while also offering the employer different methods for avoiding potential penalties. Employers are advised to work with their legal counsel to review the rules and how to apply them based on the specifics of the employer’s workforce composition and health coverage offerings.
Reference: 26 CFR Parts 1, 54, and 301 “Shared Responsibility for Employers Regarding Health Coverage; Final Rule” as published in Federal Register 2/12/2014.