New Obamacare rules deal blow to employers

New Obamacare rules deal big blow to employers

May 14, 2013 By Jared Bilski

Companies have been hoping that their wellness program incentives will help their health plans meet affordability and minimal value requirements under Obamacare. So chances are they won’t like the guidance the IRS just issued.

Recently, the IRS — one of the three agencies responsible for issuing compliance deadlines and guidance for the Affordable Care Act — released a flurry of Obamacare guidance.

A major chunk of that guidance was dedicated to clearing up some confusion surrounding wellness programs and their role in determining minimum value and affordable coverage.

As you know, Obamacare requires employers with 50 or more full-time equivalent employees (FTEs) to offer affordable coverage that meets the feds’ minimum value and affordability standards to all FTEs starting January 1, 2014 or pay a penalty.

Health care is deemed affordable if an employee’s contribution toward self-only coverage doesn’t exceed 9.5% of his or her household income.

The minimum — or “actuarial” — value is the percentage (on average) of the total cost of care a plan will cover.

For example: If a plan has an actuarial value of 60% (the minimum percentage of coverage a plan can cover to not be penalized under the law), an individual under that plan would be responsible for 40% of the cost of his or her care.

The minimum value “metal levels” under Obamacare are as follows:

bronze plans will cover 60% of care costs
silver plans will cover 70%
gold plans will cover 80%, and
platinum plans will cover 90%.

A one-year exception

The IRS’ new guidance says for a limited period of time — from May 3, 2013 through January 1, 2015 — employers can assume that all of their employees will earn any discounts and incentives offered through their wellness program when calculating their plan’s “value” and “affordability.”

Example: If a wellness plan offers employees who volunteer to take a health risk assessment $200 off of their premiums or deductible, the plan’s minimum value metal level and affordability can be calculated as if all employees will earn that $200 incentive.

This is the one exception the IRS added to the guidance.

Tobacco vs. non-tobacco incentives

After Jan. 1, 2015, wellness incentives will be divided into two main categories:

incentives that aim to reduce or prevent tobacco usage, and
those that don’t.

From then on, how a company’s health plan affordability and minimum value is determined will depend on what category its wellness incentives fall into.

When it comes to wellness program incentives specific to tobacco usage, health plans should assume all employees will earn the program’s incentives when it comes to determining the plan’s affordability and minimum value.

Example: If a company’s wellness program offers a premium discount to non-smokers, the company can use the discounted premium when calculating the affordability and minimum value of its health plan.

And if a plan penalizes smokers — with higher premiums or cost-sharing — the plan can calculate affordability and minimum value using the figures all non-smokers would pay.

On the other hand, when it comes to determining affordability and minimum value for health plans with all other wellness incentives not geared toward smoking prevention, plans should assume that all employees will fail to satisfy the wellness program’s requirements to earn incentives.

Therefore, all non-smoking-based incentives/penalties offered through an employer’s wellness plan won’t factor into the affordability and minimum-value calculations after Jan. 1, 2015.

Hopes crushed

Bottom line: Employers’ hopes about the majority of their wellness program incentives helping their health plans meet minimum-value and affordability requirements have effectively been crushed by the feds.

Many experts in the benefits community aren’t happy with the distinction the feds made between wellness programs and feel the moves adds more confusion to complying with Obamacare’s many regs.

As Paul Dennett, senior vice president, health policy, at the American Benefits Council, put it, “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.”

Another potential drawback: The move could also make smokers feel even more singled out.