The Impact of the ACA Employer Shared Responsibility Rules and Wellness Program Limits on COVID-19 Premium Surcharges
In a previous post, we reported on an announcement by Delta Airlines that it would impose a premium surcharge on employees covered under its group health plan who failed to get vaccinated for COVID-19. This follow-on post focuses on the consequences of Delta’s decision as it affects compliance with the Affordable Care Act’s employer shared responsibility provisions and wellness program rules.
The ACA’s employer shared responsibility rules
The ACA’s employer shared responsibility rules establish two layers of penalties:
Under the first layer, an employer may either offer minimum essential (health insurance) coverage to substantially all of its full-time employees (and their dependents) or pay a potentially large fine if any full-time employee is certified to receive a premium tax credit or cost-sharing reduction.
The second layer of penalty arises in instances in which an employer has made an offer of coverage sufficient to satisfy the first rule, but the coverage is either unaffordable or fails to provide minimum value.
A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan (e.g., a major medical plan that covers inpatient and outpatient hospital and physician services). Coverage is affordable if the amount of the employee’s contribution for self-only coverage does not exceed 9.5 percent (as adjusted for years after 2014 for increases in the cost of living) of the employee’s household income. For 2021, the affordability threshold is 9.83 percent; for 2022, it is 9.61 percent. Under a 2014 final rule, employers are permitted to use one of three safe harbors (W-2 wages, Federal Poverty Line, rate-of-pay) to determine household income.
A 2013 final regulation governs the design and operation of wellness programs that offer an incentive or reward, or, as styled in Delta’s case, imposes a surcharge. (We describe these rules in a 2014 post, available here.) The final regulations adopt a general rule under which affordability is determined by assuming that each employee fails to satisfy the requirements of a wellness program. Thus, whether coverage is affordable is determined with the reward not included or the penalty included (except in the case of a surcharge imposed on smokers).
By way of example, assume an employer offers its employees minimum value coverage for self-only coverage, the premium cost of which is $500 per month. The employee portion of the premium is $150 per month; the employer pays the balance. The coverage would be affordable under the ACA’s affordability standard for any employee with a household income of at least $18,311 ($18,311 x 9.83 = $1,800; $1,800/12 = $150). The employer implements a wellness program that charges $100 extra each month for employees enrolled in health insurance who are unvaccinated. This coverage would only be affordable under the ACA’s affordability standard for any employee with a household income of at least $30,518 ($30,518 x 9.83% = $3,000; $3,000/12 = $250). Under the rule described above, the employer would have to assume all of the employees were not vaccinated and would, therefore, be charged $250 per month as opposed to $150. Thus, employer in this instance would report $250—not $150—on line 15 of Form 1095-C, even for employees who are fully vaccinated.
The wellness and voluntary wellness Program rules
Separately, there is the matter of the 30% upper limit imposed under the ACA wellness final regulations. Under these rules, the total reward for the wellness program must not exceed 30 percent (or 50 percent for programs designed to prevent or reduce tobacco use) of the cost of employee-only coverage under the plan. If dependents may participate in the wellness program, the reward must not exceed 30 percent (or 50 percent) of the cost of the coverage in which an employee and any dependents are enrolled. In the example above, the annual cost of coverage (i.e., the aggregate premium cost) is $6,000, 30% of which is $1,800 or $150 per month—which exceeds the amount of the surcharge in the example. The surcharge therefore satisfies the applicable limit.
As we explained in our previous post, a surcharge that passes muster under the ACA wellness rules does not necessarily guarantee compliance with the ADA provisions governing voluntary wellness programs. But since the EEOC has yet to issue guidance addressing the matter (including by reissuing previously withdrawn final rules that would have addressed it), employers are currently left to design their programs based on assumptions of what would be considered compliant. Given the compelling need for a robust national response to the COVID-19 pandemic, some form of EEOC guidance would be most welcome.