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Cash in lieu of coverage and the ACA


Guest MarieNo

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Guest MarieNo

Does anybody have an opinion as to whether an employer will still be permitted to offer cash in lieu of coverage in 2014, without running afoul of the employer mandate? My argument in favor of this continued practice is that if an employer makes an offer of affordable coverage of a minimum value, and also an offer (under a cafeteria plan) of cash in lieu of coverage, it is the employee's choice as to which offer to accept. But the employer's offer has been made, which should satisfy the mandate. Any thoughts out there? I haven't seen anything to support or refute my argument. Thanks!

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Does anybody have an opinion as to whether an employer will still be permitted to offer cash in lieu of coverage in 2014, without running afoul of the employer mandate? My argument in favor of this continued practice is that if an employer makes an offer of affordable coverage of a minimum value, and also an offer (under a cafeteria plan) of cash in lieu of coverage, it is the employee's choice as to which offer to accept. But the employer's offer has been made, which should satisfy the mandate. Any thoughts out there? I haven't seen anything to support or refute my argument. Thanks!

Yes, the employer can continue to offer cash in lieu of coverage.

The PPACA penalty of $3,000 is applied to a large group, when an employee of that group enrolls for individual coverage at the exchange and receives the subsidy. The key is the subsidy. The subsidy is available to an employee becasue the employer failed to either provide a "qualified" level of benefits at an "affordable" cost.

So if an employer has met those two requirements, the employee will not be able to receive a subsidy. If the employer has failed and the employee receives a subsidy, the fact that the employer offered cash for opting out means nothing.

Did I understand the question and answer it?

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  • 2 years later...

Just curious if anyone can offer additional guidance or an update on this issue. I have seen a number of later (than the June 2013 date of this post) articles indicating that employers covered by the Service Contract Act ("SCA") who offer cash in lieu of benefits but sponsor and offer group health plans are likely to run into issues with the affordability requirement since the employee's ability to take cash (even if the employee turns around and uses the cash to purchase group health plan coverage through the employer) puts the employee in receipt of cash and thus means the employer has not contributed to the cost of the group health plan coverage, etc.

Would appreciate any thoughts or advice anyone might have for an employer subject to the SCA who has inadvertently (without realizing the potential ACA concerns) carried on with their cash in lieu of benefits and permitted SCA employees to purchase group coverage through the company's cafeteria plan such that the employer has arguably contributed nothing toward group health plan costs.

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Under DBRA and SCA the amount provided in the form of eligible benefits is part of the hourly wage rate. It is not an additional benefit as it is in normal cases and cannot be counted as being part of the employer's contrbution to the cost of the group health coverage.

Regarding your scenario, I doubt that the employee paid the entire premium and suggest that you re-check your facts.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns.

Thank you for your response. In the case of the SCA employees, yes they paid the entire premium. The employer did not contribute further to the benefits for the SCA employees other than the benefits portion of the wage rate. In my experience, that is not unusual as the SCA benefits rate is often sufficient to cover or mostly cover employee only cost. I feel pretty comfortable in my facts.

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I do not understand how this could be inadvertent, but who knows?

If the employee took all the WD as cash and then purchased insurance through the cafeteria plan, the employer would have had no cost under ACA, but, does the employer have to have a cost or to make a contribution? Off the cuff, I do not think that there is any such requirement. I only recall "offering" and "affordability" as the criteria.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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The issue is affordability.

If the employee can take cash in lieu then affordability is determined based on the entire premium for self-only coverage with no offset by the potential employer contribution.

So an employee for whom the premium was unaffordable (more than 9.5% of Box 1 wages)would be better off taking the employer cash, going to Marketplace and getting premium tax credits and triggering the employer 4980H(b) $3,120 penalty.

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Yes. And so while the employer has complied with the SCA and has, in essence, paid a significant amount toward benefits, the employer gets no credit for that under 4980H(b) because payment in the form of cash causes the entire amount to be viewed as an employee rather than employer payment (i.e., the employee pays in full).

I understand that several large employers and insurers / benefits providers had some earlier discussions around this with the IRS and DOL, etc. and while the regulators were initially receptive to providing some possible relief or recognition that the cash in lieu of amounts under the SCA be treated as employer contributions there has been no progress on the regulatory front. As a result, I think we are left without any direct guidance on this issue for ACA purposes which I suppose might provide some room for creative arguments along the lines of MarieNo's original post. Still, from a general tax / cafeteria plan standpoint, I think it is clear that the cash amounts used to purchase benefits would generally be viewed as employee amounts.

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