IRS urged to amend rule excluding wellness discounts in affordability test

An employer benefits lobbying group wants to amend a proposed health care reform law rule that generally would bar employers from counting premium discounts for employees who participate in wellness programs to determine if the cost of health coverage passes an affordability test.

The Internal Revenue Service regulation involves the relationship between the health plan premium affordability test — now slated to go in effect in 2015 — and discounts employers offer employees as a financial incentive to participate in their wellness programs.

Under that test, coverage would be considered affordable as long as the premium paid by an employee for individual coverage does not exceed 9.5% of wages or household income. If the employee's premium exceeds that threshold, the coverage would be considered “unaffordable” and subject the employer to a $3,000 penalty.

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In its proposed regulations, the IRS said premium discounts would be excluded in running the affordability test, with the exception of tobacco-cessation programs.

For example, if an employer charged employees a monthly premium of $100 for single coverage for participating in a wellness program and $120 for those not participating, employers would use the $120 figure for the affordability test.

However, for premium discounts offered for participating in tobacco-cessation programs, employers would be allowed to use the lower premium paid by employees participating in the tobacco-cessation program or nonsmokers to run the affordability test.

However, in a Wednesday letter to the IRS, the ERISA Industry Committee said that all wellness incentive programs — not just those to encourage employees to stop smoking — should be taken into account to determine if health plan coverage is affordable.

“The selective recognition of wellness incentives, as proposed in these regulations, discourages the most effective and efficient use of wellness programs by those employees who would most benefit from incentives to become healthier,” ERIC President Scott Macey and Senior Vice President for Health Policy Gretchen Young, wrote in their letter to the IRS.