This article applies to employers with at least 50 “full-time equivalent” employees (FTEs) who offer wellness programs with financial incentives/penalties. Specifically, the matrix below summarizes how the Affordable Care Act (ACA) Affordability and Minimum Value calculations are affected by employer financial incentives/penalties under “results-oriented” wellness programs. Note that these calculations differ for tobacco cessation/reduction wellness programs versus all other types of “results-oriented” wellness programs.
Bottom line: Employers who need to read this article are:
- ALEs (applicable large employers)
- who set employee contributions for group health plan coverage at amounts that just barely meet Affordability, and
- also have incentives/penalties for results-oriented Wellness programs that are not aimed at tobacco reduction/cessation.
Affordable Care Act (ACA). The ACA provides that “applicable large employers” (ALEs) will be subject to penalties if they don’t meet the ACA employer shared responsibility (ESR) provisions and if at least one full-time employee purchases coverage in the Marketplace and qualifies for a subsidy. Two major criteria under the ESR provisions are Affordability and Minimum Value (MV).
Wellness programs. Under a nondiscriminatory “results-based” wellness program, the financial incentives to employees to satisfy the terms of the wellness program might be lower premiums and/or reduced cost-sharing. (An alternative way of looking at it is that the financial penalty for not satisfying the terms would be higher premiums or increased cost-sharing.) The ACA increased the maximum HIPAA incentive for wellness programs from 20% to 30% of the total cost of coverage under the group health plans, and regulations issued November 20, 2012 increased the maximum percentage to 50% for tobacco cessation or reduction programs.
Most wellness programs are subject not only to HIPAA and ACA requirements, but also to requirements under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) – both of which are administered by the EEOC. Current EEOC regulations limit the maximum wellness incentive/penalty to 30% of the total cost of employee-only coverage. Due to a pending court case (AARP v EEOC), it’s possible this will be reduced after 2018 or even that no incentive or penalty will be allowed for wellness plans that are subject to ADA and GINA requirements (this is most wellness plans). The court has asked the EEOC to submit by the end of March 2018 what it proposes as the maximum incentive amount and the rationale behind it, and to issue final regulations by the fall.
What the Matrix Shows
The matrix below shows how the Affordability and MV calculations for 2018 (and prior years) are affected by the wellness program financial incentives/penalties for employees who meet/don’t meet certain activities under the wellness program. Keep in mind this is likely to change after 2018 due to the AARP v EEOC law suit.
For all the wellness programs below, the assumption is that they are nondiscriminatory “results-oriented” wellness programs, and the reward for meeting the standard is either a premium reduction (this affects Affordability) or reduced cost-sharing (this affect Minimum Value calculation). Cost-sharing includes deductibles, co-pays and out-of-pocket maximums.
|Type of Wellness Incentive/Penalty||How this counts toward Affordability||How this counts toward Minimum Value|
|Incentives for Tobacco cessation/ reduction wellness program||Assume all employees meet the program requirements, so premium amount used in affordability calculation (for all employees) is the lower premium for non-smokers or those who have satisfied the tobacco cessation/reduction program, not the higher premium that smokers must pay.||Assume all employees meet the terms of the program, so the reduced cost-sharing they receive counts toward MV calculation for all employees (even those who smoke or do not meet reasonable alternative standard).|
|Incentives for other Wellness programs
(Not aimed at tobacco reduction/cessation)
|Assume all employees fail to meet the terms of the program, so the premium amount used in the affordability calculation (for all employees) is the higher premium paid by those who fail to meet the requirement. * This makes it more likely the plan will fail the test and the employer will be subject to a penalty if the affected employee buys health insurance in the Marketplace and receives a subsidy.||Assume all employees fail to meet the terms of the program, so the higher cost-sharing they have counts toward MV calculation, * making it harder for the plan to meet the MV test.|
* Historical note: For plan years beginning before January 1, 2015, a transition rule in the proposed regulations provided relief for the non-tobacco use wellness programs. It provided that an employer would not be liable for the employer mandate penalty if an employee purchased coverage in an exchange and received a premium tax credit or cost-reduction subsidy because the employer coverage was not affordable or did not provide minimum value if the employer coverage would have been affordable or provided MV if the employee had met the requirements of a nondiscriminatory wellness program that was in effect on May 3, 2013.