Student Health Plans and ACA Compliance: New Relief for Educational Institutions

Educational institutions face unique issues when complying with the requirements of the Affordable Care Act (ACA). One such issue relates to the administration of student health insurance plans. On February 5, 2016, three federal agencies—the U.S. Department of Labor (DOL), Department of the Treasury, and Department of Health and Human Services—released Notice 2016-17, which provides temporary transition relief for student health plans with premium reduction arrangements covering employees of the school.

Many educational institutions offer student health insurance and pay all or a portion of the premium on behalf of students and their dependents through reimbursements, tuition credits, stipends, or other means (premium reduction). Under federal law, student health plans are treated as individual health insurance policies and the premium reduction arrangement, when paid on behalf of a student who is also an employee of the school, is considered an employer payment plan (EPP).

In 2013, the agencies indicated in Notice 2013-54 that an arrangement under which the employer pays (directly or through reimbursement) all, or a portion of, the health insurance premiums of an employee for an individual health insurance policy is considered to be an EPP. The guidance also indicates that such arrangements fail to comply with the ACA because an EPP limits the amount an employee is paid or reimbursed for the coverage—and this violates the ACA’s prohibition on annual dollar limits for essential health benefits. (Such plans also violate the ACA because they do not provide free coverage of preventive care services.)  An EPP is permissible under the ACA when offered in connection with an ACA-compliant group health plan. In other words, a school that offers group health plan coverage to its employees will not run afoul of the ACA simply because it pays a portion of the group health plan premium so long as the group health plan complies with the ACA’s requirements.

However, student health insurance plans are treated differently. They are treated as individual health insurance policies—not group health plans.Therefore, to the extent an employee of a school participates in the student health plan and receives a premium reduction, the arrangement is an EPP that violates the ACA.

Transition Relief

For plan years beginning before January 1, 2017, a penalty will not be assessed for employees who participate in student health plans and receive a premium reduction. The transition relief period is provided to allow schools to make alternative arrangements and bring their plans into compliance with the ACA. Schools that fail to bring their plans into compliance will face an excise tax of $100 per day for each affected employee.

What Do Educational Institutions Need to Do?

1. Determine if any participants in the student health plan are also school employees. Guidance from the DOL interpreting the Fair Labor Standards Act or from the National Labor Relations Board interpreting labor laws is not controlling for purposes of the ACA. This analysis should be conducted using the Internal Revenue Services’s common-law employee standard. Schools should also note that a student performing services as part of the federal work study program or a similar state program is not considered an employee for purposes of hours worked pursuant to such programs.
2. Ensure that there are no premium reduction arrangements in place for any employees participating in the student health plan.
3. Consider amending the student health plan eligibility provisions to exclude students who are also employees, or require that employee participants on the student health plan pay 100 percent of the applicable premium.

Other compliance strategies may also be available to your educational institution. The Employee Benefits and Executive Compensation Practice Group  will continue to cover issues regarding educational institutions’ student health plans, the applicability of the transition relief under Notice 2016-17, and the provisions of the Affordable Care Act.