Many employers have targeted wellness as the cornerstone of their health-care management strategy. These employers have reasoned that healthier employees mean fewer catastrophic medical conditions and, as a result, lower claims and premiums.
It is no wonder that employers have introduced incentives to increase employee participation in Health Risk Assessments (HRAs), exercise and nutrition programs, smoking cessation and other wellness activities. Employers have even offered a reduction in employee contributions to the cost of health insurance premiums as an inducement for wellness program participation.
But employers who offer such reductions could face a problem under the federal Affordable Care Act (ACA).
The reform law calls for employers to face possible assessments if they do not make affordable coverage available to employees. Here’s the catch - affordability is determined by the employee’s contribution towards the premium cost of employee-only insurance. An employer with two employee costs – a lower cost for wellness participants and a higher cost for those who choose not to participate - may find insurance affordable at the reduced cost and unaffordable at the higher cost.
The hope was that the ACA, since it allows employers to discount employee contributions for wellness participation, would allow employers to use the discounted contribution to determine if its health insurance is affordable. Under recently proposed Internal Revenue Service regulations, the answer is yes and no.
- The regulations state that an employer must use the cost of self-only insurance to an employee who does not participate in the wellness program when calculating affordability.
- The only exception is when the lower cost is attributable to rewards associated with tobacco-related wellness incentives. For example, if the monthly employee contribution for the employer’s lowest-cost employee only plan of minimum value is $250 for those who smoke and do not participate in a smoking secession program and $200 for those who either don’t smoke or do smoke but participate in a smoking secession program, then affordability will be based on the $200 employee cost. However, if the lower $200 employee cost is due to an employee’s participation in another wellness program such as weight watchers, then affordability is based on the higher $250 cost.
Employers should consider wellness incentives such as reduced premium contributions for wellness participants, but be aware of the potential impact on your health plan. The unintended consequence of a poorly structured wellness incentive may lead to the exodus of employees from your plan and an inbox full of assessment notices from the Massachusetts Health Connector.
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