On May 3, 2013, the IRS released proposed regulations on certain provisions relating to the federal premium tax credits that eligible individuals will use to purchase subsidized health insurance coverage from public exchanges starting in 2014.
The regulations are important for employers that are subject to the Affordable Care Act’s (ACA’s) employer shared responsibility provisions because they affect the determination of whether coverage offered by employers is “affordable.” Coverage is “affordable” if the employee’s annual contribution for self-only coverage under the plan does not exceed 9.5% of the individual’s household income. Employers will owe a tax if they fail to provide affordable coverage and full time employees purchase subsidized coverage from a public exchange.
The proposed regulations address the impact of employer-provided wellness programs. If adopted, they would require employers offering such programs to include any penalties that would be applied, and not to include any premium contribution reductions that would be available under the wellness program when determining whether coverage is “affordable”, except in two situations:
- Wellness Programs in Existence on May 3, 2013. For plan years beginning before January 1, 2015, and only to the extent of the wellness program terms in effect on May 3, 2013, an employer may treat employees as “participating” in a wellness program and therefore being eligible to make the reduced premium contribution applicable to employees who have satisfied the wellness program’s criteria. This relief does not appear to apply to any increase in the reward or penalty under the wellness program after May 3, 2013. In addition, the relief applies to any employee who is in a class of employees eligible for the wellness program on May 3, 2013, even if the employee was hired after that date.
- Wellness Programs Related to Tobacco Use. An employer may assume that all employees will pay the contribution rate for non-tobacco users (i.e., the “participating”, or lower rate) or for employees who complete a tobacco-related wellness program. Unlike the proposed safe harbor for wellness programs in existence on May 3, 2013, this rule is ongoing and is not limited to plan years beginning before January 1, 2015.