Axim Overview

Coverage Analysis

Last November, federal regulators issued a new regulation, IRS Reg 1.5000A-3(e), for amounts paid by employers to employees who opt-out of the employer’s health plan be treated as additional employee contributions under the affordability component of the ACA’s employer mandate rules. Specifically, the reg provides that amounts made available under a cafeteria plan are treated as employer contributions for affordability purposes only if the amounts can be used only to purchase health coverage. In other words, opt-out amounts that can be taken as cash or used to purchase any cafeteria plan benefits other than health coverage must be treated as employee contributions. Technically, the new reg applies for purposes of the individual mandate of the ACA and does not specifically address how affordability should be determined for purposes of the ACA’s employer mandate, but there is no apparent reason why affordability would be determined differently for employer mandate purposes than it is for individual mandate purposes. This position is a radical departure from conventional notions of “employee cost,” and therefore it is unlikely that employers with these or similar arrangements have considered the opt-out amount as part of the ACA affordability “employee cost” calculation. However controversial the new reg, it apparently reflects the position the regulators plan to take starting on January 1, 2015 when the ACA affordability rules generally become effective. Example: Although the text of the new regulation is extremely confusing, the current consensus among benefits professionals is that the new rule may be illustrated by the following example: -An employee's required contribution for individual coverage under the employer's health plan is $90 per month. -The employer offers a cash opt-out payment of $50 per month to the employee if health plan coverage is declined. -The “cost” to the employee for purposes of determining ACA affordability is $140 (not $90). (The regulators reach this conclusion, because, in their mind, in order to participate in the plan, the “cost” to the affected individuals is the normal contribution they must pay, plus the “economic cost” of the foregone credit amount). Real World Impact on Employers If an employee elects to participate in the health plan rather than receiving the opt-out payment, no employer mandate penalty can be triggered for that employee. However, if an employee opts-out and receives the payment, and purchases subsidized coverage on an exchange, the IRS presumably will determine whether the actual employee charge to employees for least expensive self-only coverage ($90 in the above example), plus the amount of the opt-out ($50 in the above example), exceeds the affordability test and, if so, will assess the $3,000 affordability penalty on the employer. Related Recent Guidance: This new reg appears related to Q&A guidance issued by the regulators several weeks ago stating that offering high claim participants a health plan opt-out credit unlawfully “discriminates” against those individuals because it results in “charging” them the normal contribution to participate in the plan, plus the amount of the credit. Effect on SCA Cash-in-Lieu Approaches There is no reason to expect that the regulators will not apply this new reg to the common situation in which an SCA contractor does or does not make an otherwise affordable health plan available, but offers or requires some employees to take cash-in-lieu of fringe in place of the plan. Effect on “Benefit Dollar” and “Non-Benefit Eligible” Approaches The new regulation also would appear to be applicable to many common arrangements where the employer makes available “benefits dollars” other than cash to employees who waive health plan coverage, as well as to employers that employ “benefit eligible” and “benefit ineligible” classes of employees. Timing Issues In addition to the rather “challenging” logical and statutory support for the reg, its timing could not be worse. Many “large” (meaning 100 or more employees as measured under the ACA) employers affected by the new rule with calendar year health plans have already completed their 2015 annual enrollment – or non-enrollment if they pay cash in lieu of fringe -- and are now faced with making a decision about how to respond to the new reg with respect to events that are already in motion. Next Steps for Employers Of course, the regulators could withdraw or alter the new reg, or “clarify” that the reg does not apply in the manner described above, either on their own or in response to public outcry (if such an outcry ever develops). However, in the meantime, employers that offer payments or credits for opting-out of health coverage, or that pay cash to employees in lieu of health coverage, or that have a “non-benefit eligible” employee class, should determine the steps they should take to respond to the new reg. The bottom line: While health plan opt-outs might seem like an option that meets government contracting SCA requirements, it won’t meet ACA employer mandate regulations. If found non-compliant you could be facing steep penalties. If you already have an existing health plan, make sure it meets the ACA's“affordable” and “minimum value” guidelines. If you don’t currently have a health plan… get one. Whether it’s a standard health care plan or a self-funded one, you’ll save yourself a lot hassle and potentially large penalties. Working with a partner likeAxim Fringe Solutions Group, LLC can provide you with both the resources and expertise for navigating the ACA and SCA. Let us take care of the compliance and administrative burden so you can focus on staying competitive and winning more contracts. If you want to know more about how Axim FSG can help please contact us. Follow Axim Fringe Solutions Group on Twitter & LinkedIn.    

Design + Development by Web Mobile Image