Calculating Affordability with a Wellness Program

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The Affordable Care Act’s (ACA) new wellness incentives, often called the bright spot or silver lining of the ACA for employers, increase the premium differentials an employer can charge employees from 20% to 30% for participation in a health contingent wellness program. A 50% differential is allowed for wellness programs that include tobacco cessation. Originally, it was unclear how those increased incentives would affect affordability requirements within the ACA that require the cost of employer sponsored coverage not to exceed 9.5% of an employee’s household income.

The IRS has clarified that all wellness incentive, except those for tobacco cessation, cannot be considered when calculating affordability. This means affordability must be calculated on what the least healthy, non-smoking employee pays for coverage.

This clarification has drawn the ire of wellness experts as it creates less incentive for employers and employees to invest in their long-term health.