Whether health insurance offered to full-time employees is deemed to be affordable is critical to determining if employees are eligible for premium tax credits. That also affects whether employers face the play-or-pay penalty.
Defining Affordability in Health Insurance Premiums
Health care reform provisions cite coverage as unaffordable when the cost is greater than 9.5 percent of an employee’s household income. How are you going to collect information on all of your employees’ total household income? That can be based on your employees’ spouse and dependents. And, it’s not something that’s going to be readily available.
Fortunately, the IRS will allow employers to use workers’ W-2 earnings rather than household income to assess insurance affordability. This should overcome practical problems and simplify the process. With this provision, employers can determine that an employee’s payment for self-only premiums for the company’s least-expensive policy does not exceed 9.5 percent of W-2 wages. If that’s true, employers aren’t subject to play-or-pay penalties even when employees qualify for the premium tax credit or a cost-sharing reduction.
Reconciling Wellness Programs and the Americans with Disabilities Act
Aware of how preventive action can control health care costs, employers have been implementing wellness programs to encourage employees to lose weight, stop smoking, exercise, etc. And, health care reform permits employers to offer rewards of as much as 30 percent of the cost of premiums as an incentive when 2014 arrives. This year, current rules hold that down to 20 percent of premiums.
The federal law enforcement agency that deals with workplace discrimination is the U.S. Equal Employment Opportunity Commission (EEOC). It’s been somewhat ambiguous about how to apply the Americans with Disabilities Act (ADA) to standard-based wellness programs like those employers are currently embracing.
The EEOC says its position has not changed on this issue, and it has previously stated programs that include disability-related inquiries or require medical exams do violate the ADA. The EEOC still hasn’t officially ruled on whether wellness programs requiring medical exams for financial incentives are considered to be “involuntary.” A definite statement is called for to help employers avoid ADA problems.
These are only two of the many problems and challenges business owners will be facing in implementing these new rules. A bigger problem may be the question of whether 9.5% of wages is really affordable. Premiums are going to be substantially more expensive starting in 2014, and many small businesses are expected to drop their group coverage plans.