By Jerry Geisel, Crain News Service
WASHINGTON (May 3, 2013) — Employers generally would not be allowed to include healthcare plan premium contribution discounts they offer employees who participate in wellness programs to determine if the coverage passes a healthcare reform law affordability test, under newly proposed Internal Revenue Service (IRS) regulations.
The eagerly awaited regulations, released April 30, deal with one of the last major employer-related areas for which there has been no guidance in how to comply with the Patient Protection and Affordable Care Act. The regulation involves the relationship between a healthcare plan premium affordability test—slated under the reform law to go into effect in 2014—and premium discounts employers offer employees to give them a financial incentive to participate in their wellness programs.
Under that test, coverage is considered affordable as long as the premium paid by an employee for individual coverage does not exceed 9.5 percent of wages or household income. If the premium contribution exceeds that threshold, the coverage is considered "unaffordable," subjecting the employer to a $3,000 penalty. Until now, it wasn't clear whether premium discounts some employers provide for wellness program participation would be included or excluded when running the affordability test.
Now, the IRS said premium discounts would be excluded in running the affordability test, with the exception of tobacco cessation programs. For example, if an employee charged employees a monthly premium of $100 for single coverage if they participated in a wellness program and $120 for those who did not, employers would use the $120 premium assessment in testing whether the coverage was affordable.
However, in the case of premium discounts offered in connection with participation in tobacco cessation programs, employers would be allowed to use the lower premium paid by employees participating in the tobacco cessation program or non-smokers in running the affordability test.
The IRS, in the proposed guidance, minimized the effect of not allowing the lower premium contribution paid by wellness program participants to be used when calculating whether the healthcare plan is affordable.
"In many circumstances, these rules relating to the effect of premium-related wellness program rewards on affordability will have no practical consequences. They matter only when the employer sets the level of the employee's required contribution to self-only premium, and establishes a wellness program that provides for a level of premium discount, in such a manner that the employee's required contribution" would fail the 9.5 percent premium affordability test, except for the premium discount under the wellness program, the IRS said.
Employee benefits experts are baffled why all corporate wellness programs were not given the same treatment as tobacco cessation programs.
"It is very disappointing news for employers with wellness programs," said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.
"It's not clear why the proposed rules would have one rule that applies to completing a wellness program that addresses tobacco use, and an entirely different rule for any other kind of wellness program. It seems as though the rules should be consistent, and this will add one more wrinkle to what will already be a real challenge to communicate to employees," said Paul Dennett, senior vice president, health policy, at the American Benefits Council in Washington.
"This is a step in the wrong direction. It would have a definite negative impact on wellness programs," said Gretchen Young, senior vice president, health policy, with the ERISA Industry Committee in Washington.
This report appeared on the website of Business Insurance magazine, a Chicago-based sister publication of Tire Business.