Each employee pays 9.5% of pay as their share of premium

[Flyboyjohn]

I've been anticipating some employer wanting to do this and it's finally happened.

Each employee will be required to pay 9.5% of their Box 1 wages as their share of the premium for the lowest cost minimum value coverage and the employer will pay the difference.

I can't find a problem with this approach (other than the administrative challenges) and I suspect it won't violate the yet-to-be-released non-discrimination regs since it favors the lower paid employees.

Anybody disagree?

[GMK]

OK, say the total monthly premium for single coverage is $500. A person making $5500 a month pays 9.5% for their premium payment, which is $522.50. Who gets the $22.50?

Or if the higher paid employees do not have to pay a full 9.5%, is there a potential non-discrim problem?

[Flyboyjohn]

Good point GMK, unless it's applied uniformly to all employees it might violate the non-discrim regs if, as and when they're issued and effective but in the meantime should be OK

[GBurns]

I recently read a good explanation of why this would be discriminatory. I will try to find it for you.

[GBurns]

http://employeebenefits.foxrothschild.com/2013/12/articles/welfare-plans/the-9-5-conundrum-discrimination-in-employee-contributions/

http://bbibenefits.com/blog/2014/03/05/why-not-just-charge-everyone-9-5-for-health-care/

[Flyboyjohn]

Thanks George, great articles and the authors make good arguments.

Not to start an online debate but after reviewing the HIPAA non-discrimination rules in a little more depth my personal opinion is that an equally persuasive argument can be made that a 9.5% contribution rate is a bona-fide employment based classification that treats all employees similarly situated (all making the same rate of pay)in exactly the same way and differences between individual employees are not in any way linked to a prohibited health factor.

Will be interesting to see how this issue shakes out.

Thanks.

[Bill Presson]

Thanks George, great articles and the authors make good arguments.

Not to start an online debate.....

Isn't that the whole point of this board?

[GBurns]

There is the issue of the actual premium charged by the insurer in an insured plan or the imputed premium as calculated in a self funded plan. Let us say that the premium for individual coverage is $800 per month with the employee paying 25% or $200. Using 9.5% as an employment classification would mean that some employees would be over contributing while others would be under contributing. Using any across the board figure creates the same situation and you cannot take a lower $ amount from similarly situated employees. You also cannot charge more than the premium due.

I also do not think that HIPAA should be your only concern there is your state insurance laws, ADEA, section 125, section 105 (105(h) in particular, FLSA and ERISA, each of which have a little piece of the action.

I noticed that you stated that you were waiting on the release of the non-discrimination regulations. I assume that you mean the ACA regulations regarding self insured plans. If you are, be aware that the current regulations are still applicable until then and bear in mind that these will not change those which I listed in the previous paragraph. .

[Flyboyjohn]

George, if I take your example and change my facts a little bit see what you think:

Employer says the employee's share of the premium is the LESSER of $200/month or 9.5% of the employees' income (providing a premium reduction for employees earning less than about $2,100/month) you wouldn't have a problem would you?

Since we could charge everybody $200/month without any problem I can't see where charging some folks less could result in prohibited discrimination.

[KJohnson]

_{FWIW below is what the ACA regulations say with regard to the W-2 safe harbor on affordability. They disallow some end of the year "true up" but they seem to contemplate a periodic contribution that is based on a consistent percentage of all Form W-2 wages but is subject to a cap. Therefore, at least for the ACA affordability W-2 safe harbor you could have something like 9.2% (assuming you want some cushion) of W-2 wages for the pay period subject to a cap of $X per pay period. Of course just because it is contemplated under the ACA W-2 safe harbor, does not mean they have thought out all other legal constraints.}

_{In addition, to qualify for this safe harbor, the employee's required contribution must remain a consistent amount or percentage of all Form W-2 wages during the calendar year (or during the plan year for plans with non-calendar year plan years) so that an applicable large employer member is not permitted to make discretionary adjustments to the required employee contribution for a pay period. A periodic contribution that is based on a consistent percentage of all Form W-2 wages may be subject to a dollar limit specified by the employer.}

[GBurns]

Off the cuff, I do not see a problem, especially since there is no favoring of HCEs nor any age or disability discrimination.

[GBurns]

KJohnson

Can you provide a cite of where you found that wording? Thanks.

[KJohnson]

54.4980H-5(e)(2)(ii)

(e) Affordability—(1) In general. An employee who is offered coverage by an applicable large employer member may be eligible for an applicable premium tax credit or cost-sharing reduction if that offer of coverage is not affordable within the meaning of section 36B©(2)©(i) and the regulations thereunder.

(2) Affordability safe harbors for section 4980H(b) purposes. The affordability safe harbors set forth in paragraph (e)(2)(ii) through (iv) of this section apply solely for purposes of section 4980H(b), so that an applicable large employer member that offers minimum essential coverage providing minimum value will not be subject to an assessable payment under section 4980H(b) with respect to any employee receiving the applicable premium tax credit or cost-sharing reduction for a period for which the coverage is determined to be affordable under the requirements of an affordability safe harbor. This rule applies even if the applicable large employer member’s offer of coverage that meets the requirements of an affordability safe harbor is not affordable for a particular employee under section 36B©(2)©(i) and an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to that employee.

(i) Conditions of using an affordability safe harbor. An applicable large employer member may use one or more of the affordability safe harbors described in this paragraph (e)(2) only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value with respect to the self-only coverage offered to the employee. Use of any of the safe harbors is optional for an applicable large employer member, and an applicable large employer member may choose to apply the safe harbors for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. Reasonable categories generally include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria. An enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable category.

(ii) Form W-2 safe harbor–(A) Full-year offer of coverage. An employer will not be subject to an assessable payment under section 4980H(b) with respect to a full-time employee if that employee’s required contribution for the calendar year for the employer’s lowest cost self-only coverage that provides minimum value during the entire calendar year (excluding COBRA or other continuation coverage except with respect to an active employee eligible for continuation coverage) does not exceed 9.5 percent of that employee’s Form W-2 wages from the employer (and any other member of the same applicable large employer that also pays wages to that employee) for the calendar year. Application of this safe harbor is determined after the end of the calendar year and on an employee-by-employee basis, taking into account the Form W-2 wages and the required employee contribution for that year. In addition, to qualify for this safe harbor, the employee’s required contribution must remain a consistent amount or percentage of all Form W-2 wages during the calendar year (or during the plan year for plans with non-calendar year plan years) so that an applicable large employer member is not permitted to make discretionary adjustments to the required employee contribution for a pay period. A periodic contribution that is based on a consistent percentage of all Form W-2 wages may be subject to a dollar limit specified by the employer.

[GBurns]

Please note "

(2) Affordability safe harbors for section 4980H(b) purposes. The affordability safe harbors set forth in paragraph (e)(2)(ii) through (iv) of this section apply solely for purposes of section 4980H

I also noted that "an applicable large employer member may choose to apply the safe harbors for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category"

It then addresses categories "an applicable large employer member may choose to apply the safe harbors for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category."

Therein lies the basic problem of having a level % for all employees unless you are able to also categorize them so that no discrimination occurs within each category.

This only gets you out of the 4980D Affordability Penalty and is not applicable to the other laws.

Although I do not see a problem with your intended approach since it should be able to categorize the employees sufficiently so as to avoid discrimination issues, it should be done with careful analysis and legal counsel. Remember, that the categorization is different from the premium contribution requirement.