It's an understandable response to the Affordable Care Act to simply throw in the towel and give your employees some cash to buy health coverage on their own. Unfortunately, it's not as simple as that. The U.S. Department of Labor has just tackled that topic in its most recent round of "frequently asked questions," surrounding the implementation of the health care law. Here are some highlights of the latest guidance.

1. Toll Free: 877.880.4477
Phone: 281.880.6525
Paying Employees to Buy Health Coverage?
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Know the Ground Rules
Workers who are covered
under federal overtime pay
protections must be paid at a
rate not less than one and
one-half times their regular
rate of pay after 40 hours of
work in a workweek.
You can learn more about this
guidance at the DOL website.
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2. Does your company's health insurance plan include health reimbursement
arrangements (HRAs) or flexible spending accounts (FSAs)? If so, you should
know these plan components are both subject to the Affordable Care Act
(ACA) and its "market reform" provisions. The Department of Labor and other
principal agencies have issued another round of guidance1 to answer some of
the frequently asked questions about health care reform, including questions
about the use of HRAs and FSAs.
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»
According to the new guidance, HRAs and FSAs
are covered by the Affordable Care Act's
prohibition on annual benefit limits and are
required to provide the same set of preventive
health benefits as any other compliant health
plan. The sticking point comes when you try to
bolt HRA or FSA accounts onto an "individual
market" policy. That cannot be done.
You can learn more about this
guidance at the DOL website.

3. Heath Plan Defined
Whenever an employer "uses an arrangement that provides cash
reimbursement for the purchase of an individual market policy or other
arrangement established or maintained for the purpose of providing medical
care to employees, without regard to whether the employer treats the money
as pre-tax or post tax to the employee," it is a bona fide ERISA plan. According
to the Labor Department, that means it is subject to the Affordable Care Act.
The guidance also tackled two other issues. One involves a product being sold
to employers today with the claim that they can terminate their existing health
plan and use this one instead. The "product" is a reimbursement plan "that
works with health insurance brokers or agents to help employees select
individual insurance policies, and allow eligible employees access to the
premium tax credits" available to those who buy coverage through a public
exchange.2
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4. Design Flaws
The Labor Department maintains such plans have two flaws. First, they fall
under the definition of a health plan, and therefore are subject to ERISA and
the ACA. "The mere fact that the employer does not get involved with an
employee's individual selection or purchase of an individual health insurance
policy does not prevent the arrangement from being a group health plan," the
agency states.
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5. To determine whether an unorthodox arrangement aimed at helping
employees secure coverage is or is not an ERISA plan, the government weighs
the facts and circumstances of the case. Variables include the employer's
"involvement in the overall scheme," and "the absence of an unfettered right
by the employee to receive the employer contributions in cash.“
The second and lethal strike against this health benefit arrangement, according
to the Labor Department, is that it "cannot be integrated with individual
market policies to satisfy the market reforms.“
Finally, the Labor Department's third area of guidance involves plans in which
employers seek to facilitate special independent arrangements for "high claims
risk" employees. Specifically, some employers have sought to separate high-risk
employees from their covered health benefit pool by offering them
enough money to buy a policy on their own, such as through a state-run high-risk
pool plan. They use the example of offering an additional $10,000 to high-risk
employees. The example also assumes that the contribution toward
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standard coverage for each other employee is $2,500.

6. Limits of "Benign Discrimination"
The reason employers may have believed such arrangements would have
passed muster is that the law does permit plans to contain "more favorable
rules for eligibility or reduced premiums or contributions based on an adverse
health factor." That is known as "benign discrimination."
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7. Such favorable discrimination has been approved for plans that allow an
employee with a disabled dependent child to maintain dependent coverage for
that child at an age beyond that permitted for non-disabled children. Another
example of permissible favorable discrimination is absolving disabled
employees of any responsibility to share in the cost of their health benefits.
But benign discrimination doesn't fly in what the Labor Department calls "cash
or coverage" arrangements. One reason for this is ... high-risk employees who
decline the cash option are considered to be discriminated against unfavorably
because they pay more than other employees. By the Labor Department's
logic, that's due to the fact that employees in this group each make the same
$2,500 contribution to the standard plan as all other employees, but have an
added $10,000 opportunity cost by foregoing the cash option. "The effective
required contribution by that high-claim-risk employee for plan coverage is
$12,500," the Labor Department reasons.
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8. The Department of Labor also states that its statutory authority to regulate
benign discrimination is limited to the kind that is designed within the terms of
the health plan itself, but not in cases that fall beyond the internal rules of the
standard health plan, such as "cash or coverage" arrangements.
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9. 14550 Torrey Chase Blvd., Ste. 360 Houston, TX 77014 USA
Toll Free
Phone
Fax
:
:
:
877.880.4477
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10. 14550 Torrey Chase Blvd., Ste. 360 Houston, TX 77014 USA
Toll Free
Phone
Fax
:
:
:
877.880.4477
281.880.6525
281.866.9426
E-mail : info@hrp.net
www.hrp.net