Reform Alerts - News from the Blues' Office of Health Reform

Additional clarifications on nondiscrimination based on health status by group health plans

January 30, 2015

On Nov. 6, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury released FAQs clarifying that employers are prohibited from offering employees with high claims risk a choice between enrolling in the employer’s group health plan or receiving cash.

Specifically, an employer may not offer a “cash or coverage” option to certain employees because of those employees’ health status.

An employer is not prohibited from offering all employees the option to receive cash if employees decide not to select health benefits. However, the offer must be provided in a uniform and consistent manner.

This applies to employers offering group health plans.

When does this guidance take effect?

The FAQ is a statement of the agencies’ position regarding existing regulations.

Additional details

If an employer offers an employee with a risk of high claims a choice between receiving cash or selecting the employer group health plan, the offer constitutes discrimination based on health factors. The employer then violates nondiscrimination requirements under the ACA, ERISA and HIPAA.

  • The DOL, HHS and Treasury have determined that providing cash as an alternative to health coverage for individuals that have adverse health factors is not the benign discrimination allowed under health status nondiscrimination rules.
    • A “cash or coverage” arrangement discourages employees from participating in the group health plan.
  • A “cash or coverage” arrangement increases the cost of participating in the group health plan because the high-risk individual must turn down the cash payment to participate in the plan.
    • This violates the prohibition on health status discrimination in terms of premium contribution or enrollment criteria.
  • The choice between taxable cash and a tax-favored benefit (selection of coverage under a group health plan) requires a Code section 125 cafeteria plan. Therefore, the effective additional cost to select coverage under the group health plan could result in discrimination in favor of highly compensated employees.
    • This violates Code section 125 cafeteria plan nondiscrimination rules.

Where can I get more information?

The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. The impact of these reforms on individual situations may vary. This overview is intended as an educational tool only and does not replace a more rigorous review of the law’s applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. As required by US Treasury Regulations, we also inform you that any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.