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EEOC Regulation of Employee Wellness Programs
Employers are increasingly offering wellness plans designed to improve employee health, enhance productivity and help control health care costs. The ACA allows employers to provide financial incentives to participants in a wellness program of as much as 30 percent of the total cost of coverage when tied to participation in the program. The Equal Employment Opportunity Commission (EEOC) finalized regulations in May 2016 governing employer wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).
The ADA and GINA contain exceptions the prohibition of asking employees about their own health conditions or those of their family members when that information is collected as part of a voluntary wellness program. The EEOC's final regulations governing the treatment of employer wellness programs under the ADA and GINA are not entirely aligned with the ACA regulations. The differences between the EEOC's rules and the ACA regulations complicate the task of designing compliant wellness programs.
The final ADA wellness regulation includes standards on what makes a wellness program "voluntary." To be considered voluntary, an employer cannot require employee participation in the program. Nor can an employer deny coverage under any of its group health plan (or in particular benefit packages within its group health plan) for non-participation or limit the extent of benefits.
One of the most significant areas of misalignment with the ACA involves the calculation of the allowable financial incentives. Under EEOC's rules, the total allowable incentive (financial or in-kind) cannot exceed 30 percent of the total cost of self-only coverage. In contrast, the ACA authorizes incentives of up to 30 percent of the cost of coverage in which the employee is enrolled.
Under the final GINA wellness regulations, an employer may offer a limited incentive for an employee's spouse as part of a voluntary employer-sponsored wellness plan as long as each of the requirements concerning health or genetic services provided on a voluntary basis is met.
Consistent with the ADA final rule, the maximum total inducement for a spouse to provide information about his or her health status equals 30 percent of the total cost of the employee's self-only coverage.
Outlook: On March 2, 2017 a legislative proposal, H.R. 1313, the Preserving Employee Wellness Programs Act to encourage and reaffirm ACA compliant employer-sponsored wellness programs was introduced. The bill seeks to provide certainty to employers offering innovative ACA-compliant employee wellness programs and to eliminate confusion for employers offering employee wellness programs that lower health insurance premiums to reward healthy lifestyle choices. On August 22, the EEOC was ordered by the U.S. District Court for the District of Columbia to reconsider its wellness regulations. The EEOC is expected to release new rules in October 2019, and it could limit the incentives employers offer to induce employees to participate in wellness programs.
The Tax Treatment of Employer-Sponsored Health Care
According to a report from the Congressional Budget Office and the staff of the Joint Committee on Taxation, one of the largest revenue losses for the federal government is due to the preferential tax treatment of employment-based health care coverage. Under current law, the value of both employer and most employee contributions for health insurance are excluded from employee federal income tax and employer and employee payroll taxes. As such, the tax treatment of employer-sponsored health care benefits could come under scrutiny as lawmakers look to tax reform to make the tax code fairer and to generate revenue to pay for other/future health care initiatives.
In the 114th Congress, Speaker of the House Paul Ryan (R-WI) commissioned six committee-led task forces charged with developing a bold, pro-growth agenda. Among the priorities outlined is replacing the Affordable Care Act (ACA) and overhauling the tax code—both of which are important to the HR profession and could potentially impact employer-sponsored benefits.
Outlook: With Republicans in control of both Chambers of Congress, the White House efforts to repeal and replace the ACA will be a priority in the 115th Congress. On Thursday, May 4 the House of Representatives passed a bill to repeal and replace the tax provisions of the ACA. The bill, H.R. 1628 the American Health Care Act did not include any proposals to limit the tax treatment of employer-sponsored health benefits. The bill, did include a provision to delay the ACA excise tax to 2026, among other provisions. The bill includes several provisions of interest to the HR profession and the workplace, including a reduction to the ACA's employer mandate penalty and a delay of the 40 percent "Cadillac" tax on high-value employer-sponsored health benefits, among other provisions. On Friday, July 28, the Senate rejected the Health Care Freedom Act (also known as the "Skinny bill") by a vote of 49 to 51, ending immediate efforts to repeal and replace the Affordable Care Act (ACA). This proposal was offered as a substitute amendment to the House-passed H.R. 1628, the American Health Care Act (AHCA).
In addition, President Donald Trump signed an executive order on January 20, titled "Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal." The order directs federal agencies that administer certain aspects of the ACA to waive or delay taxes, penalties and regulatory burdens on purchasers of health insurance "to the maximum extent permitted by law." Following up on his initialaction, Trump signed on October 12 another health care executive order Specifically, this executive order proposes to allow small employers to band together through an association health plan (AHP) to buy health insurance across state lines. Regulations currently stipulate that members of an association health plan must be in the same industry and must be involved in the day-to-day decisions of a business. Current law allows businesses that have employees in several states to buy insurance across state lines. This executive order also directs the U.S. Department of Labor to modernize its current interpretation of the Employee Retirement Income Security Act (ERISA), to allow the formation of AHPs. The executive order would also allow people to buy low-cost, short-term health insurance plans (currently limited to three months) and proposes to expand the use of health savings accounts.
Looking ahead, in the last Congress, a proposal to cap the excludability of employer-sponsored health coverage from taxation was floated. Specifically, the plan proposes to adjust the cap based on geography and omits employee contributions made on a pre-tax basis to an HSA from counting toward the cost of coverage for purposes of the cap. Given the preferential tax treatment of employer-sponsored health benefits and as Congress considers proposals to generate revenue to pay for other/future healthcare initiatives, employer-sponsored health care benefits will come under scrutiny.
Definition of Full-Time
Under the ACA, employers with more than 50 full-time employees are required to provide affordable group health insurance coverage to employees and their dependents or face financial penalties. The ACA defines a full-time employee as an individual who works an average of at least 30 hours per week. This definition is inconsistent with standard employment practices in the United States today, which typically define full-time employment as 40 hours a week or more, and other federal laws. As a result, some employers have opted to eliminate health care coverage for part-time employees to cover the costs of providing coverage to full-time employees, while others have reengineered staffing models to lower employee hours below the 30-hour threshold to avoid coverage requirements.
Outlook: Bipartisan, bicameral legislation to amend the ACA's definition of "full-time" employee has been introduced. Representatives Jackie Walorski (R-IN) and Daniel Lipinski (D-IL) introduced H.R. 3798, the Save American Workers Act, and Senators Susan Collins (R-ME) and Joe Donnelly (D-IN) introduced S. 1782, the Forty Hours Is Full-Time Act. These proposals would amend the Internal Revenue Code to modify the definition of a full-time employee from 30 hours to 40 hours of service per week for purposes of the employer mandate. The bill would not require employers to change their definition of full-time. Instead, the bill would provide employers the flexibility to determine what constitutes "full-time" (between 30 to 40 hours) for their business.
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