Benefits and Compensation, Uncategorized

Cafeteria Plans Can Help Employers Avoid Pay-or-Play Penalties

Employer contributions to a Section 125 cafeteria plan can be deducted from the employee’s cost of a health plan for purposes of determining the affordability of coverage, final IRS rules on minimum essential coverage published on Nov. 26 (79 Fed. Reg. 70464) stipulate.

In order to be deducted, the café plan benefit must not be taxable and the money can be used only for medical expenses.

Further, if it is to be credited for the employer’s in affordability calculations, money in cafeteria plans must not be limited to cost-sharing; it must be capable of being used to pay premiums. If café plan amounts may be used only for cost-sharing, they will be counted for purposes of minimum value, but not for affordability, the rule stated.

These deductions could be important in shielding employers from shared responsibility payments, and they increase the likelihood that coverage will pass health care reform’s affordability test. Employer sponsored health coverage that is too expensive (9.5 percent or more of the employee’s household income) is one reason pay-or-play penalties are levied.

Health reimbursement arrangements that are integrated with MEC coverage again can make the difference between employer penalties or no penalties, because employer contributions to an HRA do count toward an employee’s required contribution (and increase the employer plan’s chance of passing reform’s affordability test), even if the worker uses the HRA money to buy MEC on an exchange.

HRAs that are not integrated with minimum essential coverage cannot shield an employer from health care reform’s no-coverage penalty, and company HRAs cannot be considered integrated with MEC purchased on an exchange, IRS stated in Notice 2013-54.

The Nov. 26 final rule goes on to state that wellness incentives paid go to the employer’s credit when counting affordability only if the incentives relate to tobacco use. Otherwise, affordability will be determined by counting the premium as if the employee failed to satisfy the requirement of a wellness program.