On April 30, 2013, the Treasury Department and Internal Revenue Service issued proposed regulations relating to the health insurance premium tax credit under the Patient Protection and Affordable Care Act (Act). The proposed regulations provide guidance on how wellness plans, health savings accounts (HSA) and health reimbursement accounts (HRA) will affect penalties employees might have to pay under the Act. The proposed regulations apply for taxable years ending after December 31, 2013.
Large employers may be subject to potential penalties under the Act's employer shared responsibility provisions unless their group health plans provide minimum value and are affordable. A plan fails to provide minimum value if the plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of those costs. This is determined on a plan-wide design basis. Employer-sponsored health coverage is affordable only if an employee's required contribution for self-only coverage does not exceed 9.5 percent of household income. As employers begin planning for how these employer penalties might affect them in 2014, new guidance sheds light on how wellness programs and employer contributions to HSAs and HRAs will affect minimum value and affordability determinations.
MINIMUM VALUE. One area of concern among employers was whether amounts contributed to an HSA or an HRA are to be taken into account in determining a plan's share of costs for purposes of calculating the minimum value percentage. In addition, employers had sought clarification on whether amounts spent on wellness programs were to be included in the minimum value percentage calculation.
With respect to an HSA, the proposed regulations provide that all amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan's share of costs for purposes of the minimum value percentage calculation and are treated as amounts available for first dollar coverage. Amounts that are newly made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year are counted the same way, as long as the HRA amounts can only be used for cost-sharing and not to pay insurance premiums. (The IRS anticipates issuing guidance in the future on whether an HRA is integrated with an employer-sponsored health plan.)
As for wellness costs, a plan's share of costs for purposes of calculating minimum value must be determined by assuming that each employee failed to satisfy the requirements of the nondiscriminatory wellness program. The proposed regulations provide one exception. If a nondiscriminatory wellness program is designed to prevent or reduce tobacco use, an employer may calculate minimum value assuming that every eligible individual satisfies the terms of the program relating to the prevention and reduction of tobacco use.
For example, an employer offers a plan deductible reduction of $300 for employees who do not use tobacco products or who complete a smoking cessation class. The deductible is also reduced by $200 for any employee who completes cholesterol screening. Employee A does not use tobacco products and his deductible is $3,700. Employee B uses tobacco and her deductible is $4,000. For purposes of determining minimum value, Employee B is treated as earning the $300 incentive for attending the smoking cessation class. However, when doing the calculation, it has to be assumed that neither employee completed the cholesterol screening. The deductible for determining minimum value for both employees is $3,700 because only the incentive related to tobacco use is considered.
AFFORDABILITY. Amounts made available under an HRA that is integrated with eligible employer-sponsored plan for the current plan year are taken into account for determining affordability if the employee can only use the amounts for premiums or is allowed to elect to use the amounts for either premiums or cost-sharing. Similar to the rule regarding minimum value, the affordability of an employer's plan is determined by assuming that each employee fails to satisfy the requirements of a wellness program, except when the wellness program is designed to prevent or reduce tobacco use. The affordability of an employer-sponsored plan that charges a higher initial premium for tobacco users would be determined based on the premium that is charged to a nontobacco user, or a tobacco user that completed a wellness program, such as attending smoking cessation classes. However, if an employee's premium would be reduced if the employee met a health benchmark (such as attaining a target cholesterol level), then that potential premium reduction cannot be taken into account in the affordability analysis.
If you have any questions or would like additional information regarding these proposed regulations and how it impacts your plans, please contact Sarah Funke, Melissa Proffitt Reese, Tara Schulstad Sciscoe, Christopher Sears, Danita Merlau, Shalina Schaefer or any member of Ice Miller's Employee Benefits Group.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.