Opt-Out Payment 180! And, ER Shared Responsibility Payments Indexed.
Departments change their minds on opt-out guidance: Until future guidance is issued, opt-out payments under existing opt-out arrangements (as defined in the Notice) are not added to the stated cost of the employer’s lowest cost self-only health coverage for ACA affordability test purposes.
As you may recall from prior meetings, webinars and other presentations, beginning in 2014 the regulators began to state that Section 125 Cafeteria Plan benefit dollars, payments to participants who opt-out of medical benefits, Service Contract Act and Davis-Bacon cash-in-lieu-of-fringe payments, cash options required under Union contracts, and similar types of payments create issues under the “affordability test” of the Affordable Care Act.
The typical example provided by the regulators was as follows:
An employer charges $250 per month for its lowest cost self-only medical benefits coverage. The employer offers a $125 opt-out bonus if the employee waives coverage (or simply pays the employee $100 as cash-in-lieu of coverage). The employer is treated, for ACA affordability purposes, as “charging” the employee $375 for its lowest cost self-only coverage. (The regulators’ rationale is that an employee wishing to enjoy coverage must pay $250 plus “forego $125” to have coverage, and therefore the coverage “costs” the employee $375.)
Numerous commentators challenged the regulators’ logic on this point and requested that they withdraw this position. (The AFL-CIO, for example, held an in-person meeting with the regulators formally requesting that they withdraw their position on including the opt-out-credits in their calculations.)
Last week the Departments (HHS, IRS, DOL) issued Notice 2015-87 which, although it does not withdraw the position, provides additional time for employers to comply with it in some cases (and, perhaps, is intended to provide additional time for the regulators to consider withdrawing their position).
The following are some of the most important points made in this extremely complex Notice:
- For plan years beginning before 2017 (as defined in the Notice), employer “benefit dollars” or “flex contributions” that can be used by Section 125 plan participants for health, other benefits or cash are not added to the stated cost of the employer’s lowest cost self-only health coverage for ACA affordability test purposes.
- Until future guidance is issued, opt-out payments under existing opt-out arrangements (as defined in the Notice) are not added to the stated cost of the employer’s lowest cost self-only health coverage for ACA affordability test purposes.
- Until future guidance is issued, cash-in-lieu payments under the SCA or Davis-Bacon Act are not added to the stated cost of the employer’s lowest cost self-only health coverage for ACA affordability test purposes.
The Departments hinted in the Notice that they would consider further relief for opt-out payments that are “conditioned on the employee meeting certain conditions such as demonstrating that the employee has other coverage,” and hinted that they may consider further unspecified relief for SCA and Davis-Bacon employers.
The Departments’ prior position was effective January 1, 2015. This Notice provides retroactive, limited and highly technical relief that at least will provide some breathing room to some employers who found themselves struggling to comply with the regulators’ position.
Department also update the payments due under ACA’s Shared Responsibility Structure
- Question 13: Under § 4980H(c)(5), in the case of any calendar year after 2014, the applicable dollar amounts of $2,000 and $3,000 under § 4980H(c)(1) and (b)(1) are increased based on the premium adjustment percentage as defined in § 1302(c)(4) of the Affordable Care Act (4.213431463 for 2015* and 8.316047520 for 2016**) rounded to the lowest multiple of $10. What are those amounts for calendar years 2015 and 2016?
- Answer 13: For calendar year 2015, the adjusted $2,000 amount in §4980H(c)(1) is $2,080 ($2,000 x .04213431463 = $84.27 plus $2,000 rounded down to $2,080), and the adjusted $3,000 amount in §4980H(b)(1) is $3,120 ($3,000 x .04213431463 = $126.40 plus $3,000 rounded down to $3,120). For calendar year 2016, the adjusted $2,000 amount in §4980H(c)(1) is $2,160 ($2,000 x .08316047520 = $166.32 plus $2,000 rounded down to $2,160), and the adjusted $3,000 amount in §4980H(b)(1) is $3,240 ($3,000 x .08316047520 = $249.48 plus $3,000 rounded down to $3,240). Treasury and IRS anticipate that adjustments for future years will be posted on the IRS.gov website.
- 2015 Sledge-hammer fine $2,080
- 2015 Tack-hammer fine $3,120 ($260/month)
- 2016 Sledge-hammer fine $2,160
- 2016 Tack-hammer fine $3,240 ($270/month)
*See 79 FR 13744, 13802 (Mar. 11, 2014).
**See 80 FR 10750, 10825 (Feb. 27, 2015)