How Will Obamacare Affect My Wellness Program?

Beginning in 2014, the Affordable Care Act (ACA) imposes “pay or play” requirements on large employers. Under these rules, large employers that do not offer health coverage to their full-time employees and their dependents, or that offer coverage that is either unaffordable or does not provide minimum value, may be subject to a penalty. This penalty is also referred to as a “shared responsibility payment.”

On May 3, 2013, the Internal Revenue Service (IRS) released a proposed rule on ACA’s minimum value and affordability requirements. This proposed rule includes guidance on how health reimbursement arrangements (HRAs) and wellness program incentives are counted in determining the affordability of employer-sponsored coverage.

The regulation is not final. However, employers may rely on the proposed regulation until final regulations or other applicable guidance is issued.

Background

The affordability of any health coverage offered by a large employer is a key point in determining whether the employer will be subject to a shared responsibility penalty. The coverage is considered affordable if the employee’s required contribution to the plan for self-only coverage does not exceed 9.5 percent of the employee’s household income for the taxable year.

“Household income” means the modified adjusted gross income of the employee and any members of the employee’s family, including a spouse and dependents. The IRS established three safe harbors for employers to use, which measure affordability based on the employee’s W-2 wages, the employee’s rate of pay or the federal poverty level for a single individual.

HRA contributions and wellness program incentives

The proposed regulation includes special rules for determining how HRAs and wellness program incentives are counted in determining the affordability of eligible employer-sponsored coverage. Employer contributions to health savings accounts (HSAs) do not affect the affordability of employer-sponsored coverage because HSA amounts generally may not be used to pay for health insurance premiums.

HRA Contributions

The proposed rule provides that amounts made newly available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year are taken into account only in determining affordability if the employee may either:

  • Use the amounts only for premiums; or
  • Choose to use the amounts for either premiums or cost sharing.

Treating amounts that may be used either for premiums or cost-sharing only toward affordability prevents double counting the HRA amounts when assessing minimum value and affordability of eligible employer-sponsored coverage.

Wellness Program Incentives

The proposed rule also contains clarification on affordability when premiums may be affected by wellness programs. Under the proposal, the affordability of an employer-sponsored plan is determined by assuming that each employee fails to satisfy the wellness program’s requirements, unless the wellness program is related to tobacco use. This means the affordability of a plan that charges a higher initial premium for tobacco users will be determined based on the premium charged to non-tobacco users, or tobacco users who complete the related wellness program, such as attending smoking cessation classes.

Transition relief is provided in the proposed rule for plan years beginning before Jan. 1, 2015. Under this relief, if an employee receives a premium tax credit because an employer-sponsored health plan is unaffordable or does not provide minimum value, but the employer coverage would have been affordable or provided minimum value had the employee satisfied the requirements of a nondiscriminatory wellness program that was in effect on May 3, 2013, the employer will not be subject to the employer mandate penalty.

The transition relief applies for rewards expressed as either a dollar amount or a fraction of the total required employee premium contribution. Also, any required employee contribution to premium determined based upon assumed satisfaction of the requirements of a wellness program under this transition relief may be applied to the use of an affordability safe harbor.

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