Affordability Calculation Undermines Wellness Programs Beginning in 2015

The Affordable Care Act requires that employers offer affordable health care coverage to full-time employee beginning January 1, 2014 (or pay a penalty).  Coverage is affordable if the employee's contribution toward self-only coverage does not exceed 9.5% of his or her household income.  Until now, it was not clear how wellness plan surcharges would impact the affordability calculations.

Based on the pre-release of guidance that is expected to be published today (May 3), wellness plan surcharges must be included in the premium for purposes of the affordability calculation.  Two exceptions are provided for arrangements that satisfy the wellness plan rules:  (1) surcharges based on tobacco use; and (2) for any plan year beginning prior to January 1, 2015, surcharges for any wellness arrangement, but only to the extent the terms of the wellness arrangement were in effect on May 3, 2013.  Under this guidance, the premium that applies to non-tobacco users is used to test affordability for all employees regardless of tobacco use; however, any other wellness surcharge (except those described above in the transitional relief provision) must be included in the employee’s share of the premium when calculating affordability.