Could Opt Out Credits Impact ACA Affordability 

Traditionally, employers have not thought of opt-out credits as increasing the cost of employee coverage. But in a recent HIPAA FAQ unrelated to affordability, regulators said that cash payments — or opt-outs — offered only to employees likely to generate high claims costs violate HIPAA’s prohibition against discrimination on the basis of health status.

The regulators reasoned that when an employer offers these cash opt-out incentives, the targeted “unhealthy” employees who enroll in the employer’s group health plan are effectively paying more than other “healthy” employees who enroll without losing any cash payment. While all employees ostensibly pay the same cost for coverage under the plan’s terms, the targeted employees’ true cost is the stated premium contribution plus the cash opt-out payment they forgo by enrolling in the employer’s health plan. Clear as mud, right?

Some employers offer a cash payment more broadly to all employees who waive the employer’s group health plan. If the reasoning of the high-cost claims opt-out provision applies generally to opt-outs, the required contribution of any employee eligible for an opt-out would be the premium contribution plus the opt-out amount — raising the required employee contribution by the amount of the opt-out.

Admittedly, this could be a stretch. For now, it is unclear whether the same analysis applies when calculating the affordability of coverage under ACA’s play-or-pay requirements, individual mandate, and eligibility standards for public exchange subsidies. To date, IRS has not indicated that it will apply this HIPAA opt-out analysis to affordability calculations. Because of the lack of direct IRS guidance on this opt-out issue as it applies to affordability — and because employers have not traditionally thought of opt-outs as increasing the cost of employee coverage — it’s not clear that IRS would require employers to include opt-outs in the cost of employee coverage without addressing this issue explicitly.

But to be on the safe side, employers should consider whether their opt-out credits may adversely affect the affordability of their coverage. If you have an opt-out design, you will want to monitor future guidance and review your plan’s affordability with legal counsel.