FAQ

In short, it depends on what the qualifying life event is. As a reminder, when an employer offers pre-tax coverage through a Section 125 cafeteria plan, employee elections are generally irrevocable and cannot be changed midyear without a qualifying life event. There are two types of qualifying life events: HIPAA Special Enrollment Rights (SER) and optional, or permissible, Section 125 events.

The HIPAA SER events are:

• Birth
• Adoption
• Marriage
• Loss of eligibility for other group coverage
• Loss of Medicaid or CHIP
• Gain of eligibility for Medicaid or CHIP premium assistance program

Employees currently enrolled in the group medical plan who experience a HIPAA SER have the right to switch benefit plan options. For example, if an employee is enrolled in HDHP single coverage and gets married, they have the right to add the spouse and switch to a different medical plan option (such as to a PPO plan). This is an entitlement under HIPAA. Neither the employer nor the insurer can deny the employee the right to switch plans under these circumstances. Please note that the HIPAA SER rules don’t apply to stand-alone dental or vision plans, which are generally excepted from HIPAA portability governance.

The second type of qualifying events are the optional events under Section 125, which include:

• Change in status (employment, marital status, number of dependents, residence)
• Change in cost (significant and insignificant)
• Significant coverage curtailment
• Addition or significant improvement of benefits package option
• Change in coverage under another employer plan
• Loss of coverage sponsored by governmental or educational institution
• Certain judgments, orders or decrees
• Medicare or Medicaid entitlement
• FMLA leaves of absence
• Reduction of hours without loss of eligibility
• Exchange enrollment

These events are optional for both an employer and an insurer (or TPA/stop-loss carrier). If an employer intends to permit midyear election changes based on these events, their written Section 125 plan document would need to provide for such and the insurer’s policy (for a fully insured plan) or the TPA and stop-loss agreements (for a self-insured plan) would need to be in agreement. Employers should confirm with the insurer, TPA, and/or stop-loss carrier prior to allowing an employee to change plan options for a permissible event. Additionally, the action that the employee wishes to take must be consistent with the event that occurred. This consistency rule may limit the situations when an employee can change plan options depending on the facts and circumstances of the specific event.

Where there’s overlap between the HIPAA SER and optional Section 125 rules (for example, between the HIPAA SER event of marriage and the Section 125 event of change in marital status), remember that the HIPAA SER events along with the right to switch medical plan options are an entitlement to an eligible employee and cannot be denied by employer or insurer practice.

Lastly, remember that employers must operate the plan in accordance with the Section 125 rules and their written Section 125 Plan Document. Allowing employee election changes outside of those guidelines would put the employer at risk of disqualification of the plan’s tax status. On the other hand, denying an employee a HIPAA SER could result in DOL enforcement, an IRS excise tax penalty, or legal action against the plan. Employers should carefully review their plan documents and ensure their internal procedures align. Employers should also educate employees on the impact of HSA contribution limits in the event the change creates a change in eligibility for HSA contributions (for example, if an employee changes from an HDHP to a PPO plan).

Yes. At the beginning of a COBRA continuation period, employers must offer qualified beneficiaries the opportunity to continue the same coverage in place on the day before the qualifying event. Following the initial COBRA election, when an open enrollment period is available for similarly situated employees under the plan, or when a qualified beneficiary experiences a HIPAA special enrollment event, the qualified beneficiary may make coverage changes. This means that qualified beneficiaries can enroll dependents because of marriage, birth, adoption, or loss of other health plan coverage. HIPAA special enrollment rights only arise for qualified beneficiaries receiving COBRA coverage, not for former qualified beneficiaries who failed to timely elect coverage following a qualifying event.

Generally, any family members added during open enrollment or HIPAA special enrollment do not become independent qualified beneficiaries. The one exception to this rule is children born to or placed for adoption with the covered employee during a period of COBRA continuation coverage. Those children are considered independent qualified beneficiaries, but the maximum duration of their COBRA continuation coverage is tied to their parent’s initial qualifying event (not the birthdate or adoption date).

During open enrollment, qualified beneficiaries must be able to drop or add family members and change coverage elections, just as if they were a non-COBRA enrolled employee. Each qualified beneficiary has independent open enrollment rights to change benefit coverage options as if each qualified beneficiary were an active employee. Importantly, plan administrators must notify COBRA qualified beneficiaries of any coverage changes ahead of open enrollment.

All coverage options available to similarly situated active employees during open enrollment must also be made available to qualified beneficiaries, including any coverage modifications. This means that qualified beneficiaries must be allowed to switch elections between plans of different types (e.g., add medical, even if only enrolled in dental as of the qualifying event) during open enrollment, assuming active employees are given that choice.

Example: A qualified beneficiary (QB) was a participant in her employer’s group dental plan when she terminated employment, but not the group medical plan. QB experienced a COBRA qualifying event following her employment termination and elected to continue her dental coverage under COBRA. Three months later, the employer held an open enrollment period for active employees. During open enrollment, active employees enrolled only in group dental coverage can enroll in group medical coverage. Can QB enroll in the employer’s group medical plan during open enrollment?

Yes. The COBRA regulations require employers to offer COBRA qualified beneficiaries the same open enrollment period rights available to similarly situated active employees. Therefore, QB can elect group medical coverage during open enrollment.

An employer can provide tax-free student loan payment assistance only through a formal education assistance program. If they do not have one in place, they must adopt one. Otherwise, the benefit cannot be provided on a tax-free basis.

The CARES Act added (and the CAA, 2021 extended) “eligible student loan repayments” to the list of items that can be reimbursed under an educational assistance program under Code Section 127. That list also includes, but is not limited to, tuition, fees, and similar payments, books, supplies, and equipment. That said, the student loan repayment benefit applies to payments made by the employer, whether paid to the employee or a lender, of principal or interest on any qualified higher education loan (including undergraduate and graduate school) for the education of the employee (but not of a spouse, domestic partner, or other dependent) before January 1, 2026. Student loan repayments (and other forms of education assistance covered by Section 127) are limited to $5,250 per calendar year.

As mentioned, employers interested in providing this benefit will need to adopt or amend a Section 127 plan document (to include student loan repayments as an eligible reimbursement). It cannot be offered through a cafeteria plan. An overview of some of the key requirements of an educational assistance program includes:

Written Plan – A written plan document is required to establish a qualified educational assistance program. The document should fully describe the eligibility, benefits, and rules of operation and should be formally adopted by the employer.

No Cash Opt Out – Employers must not offer a choice between educational assistance and cash/taxable benefits. In other words, no cash in lieu of benefits is permitted. As noted above, an educational assistance program cannot be included in an employer's cafeteria plan.

Notice – In order for a program to be a qualified educational assistance program, reasonable notification of the availability and terms of the program must be provided to eligible employees.

Substantiation – Employers should obtain substantiation from employees seeking payments under the program.

Eligibility – Only employees as defined by Section 127 can participate, including current employees (and those on leave), former employees who retired or were laid off, leased employees, and self-employed individuals (partners, sole proprietors, more than 2% Subchapter S shareholders, and independent contractors). Note that if the class of eligible employees is defined too narrowly, then there is a risk that the plan will fail the nondiscrimination tests, the result being that the plan would lose its qualified status (all tax benefits are lost).

Nondiscrimination – The educational assistance program cannot discriminate in favor of highly compensated employees (HCEs). For this purpose, an HCE is a person who is either:

• A more than 5% owner; or
• An employee who made more than a certain amount for the previous year (for example, an HCE in 2024 was someone who made $150,000 in 2023) and, if elected by the employer, was also in the “top-paid group” (generally the top-paid 20% of employees) for the previous year.

Employers considering adopting or amending a Section 127 student loan assistance program should consult with their tax advisor and/or legal counsel for specific advice and guidance.

Provided you are HSA-eligible for the entire calendar year, you can contribute up to the applicable IRS annual family HSA contribution limit ($8,300 for 2024, $7,750 for 2023) to an HSA. If you are 55 or older at year-end, you can also contribute an additional $1,000 catch-up contribution. Your domestic partner, if HSA-eligible, can also contribute the family maximum (and, if applicable, a catch-up contribution) to their own HSA.

To review, to be eligible to make (or receive) HSA contributions, an individual must:

• Be covered by a qualified HDHP.
• Not have other “impermissible coverage” (i.e., coverage that provides medical benefits before the HDHP statutory minimum deductible is met, with limited exceptions — e.g., preventive care).
• Not be enrolled in Medicare.
• Not be claimed (or eligible to be claimed) as a dependent on someone else's tax return.

Generally, an individual’s contribution limit is based upon their months of eligibility and applicable coverage tier (e.g., single or family; family for this purpose is coverage other than single).

So, if you are an HSA-eligible employee with family HDHP coverage for the entire calendar year, you can make or receive HSA contributions up to the family contribution limit (regardless of the HSA-eligible status of your domestic partner or any other covered family members).

Additionally, your covered domestic partner, if HSA-eligible, can establish their own HSA and can also make or receive HSA contributions into that separate HSA up to the family contribution limit. Note that if your family tier HDHP also covered an HSA-eligible adult child (i.e., a child who was no longer eligible to be claimed as a tax dependent), the adult child could also contribute up to the family limit to an HSA.

By contrast, if an employee’s family tier HDHP covered a spouse and any child(ren) who are the employee’s tax dependents, these individuals could not collectively contribute more than the family HSA contribution limit, although they could have separate HSA accounts. However, an employee and spouse, if eligible, could each contribute the additional $1,000 catch-up contribution to their own HSA.

HSA-eligible individuals, including domestic partners, who cannot make contributions through an employer’s cafeteria plan can generally contribute post-tax and take a deduction on their personal income tax returns. As a reminder, the deadline to make or receive HSA contributions is the tax filing deadline for the year (for 2023 HSA contributions, generally, April 15, 2024). This is also the deadline for withdrawing any excess contributions (i.e., contributions that exceed an individual’s applicable maximum limit) for 2023 to avoid a penalty tax.

For specific tax advice and guidance, individuals should always consult with a professional tax advisor or legal counsel.

For more information regarding HSAs, please ask your broker or consultant for a copy of the following NFP publication Health Savings Accounts: A Guide for Employers, and register for our March 20, 2024, webinar, Kick-Starting Spring with a Compliance Refresher on HSAs.

Under ERISA, the plan administrator is obligated to provide certain documents to any participant or beneficiary under the plan when requested in writing. The documents that must be provided include the latest updated SPD (including interim summaries of material modifications), the latest annual report (i.e., Form 5500), any terminal report (i.e., final Form 5500 for a terminated plan), any bargaining agreement, any trust agreement, and “any contract or other instruments under which the plan is established or operated.” Participants and beneficiaries may request to examine documents or to be given copies of documents. If examination is requested, the plan administrator must make the documents available at the principal office of the administrator and “in such other places as may be necessary to make available all pertinent information to all participants.” So, the answer to the question depends on whether the request is coming from a participant or beneficiary and whether the requested documents are included in the list of documents that must be furnished.

Only participants and beneficiaries are entitled to receive documents upon request. The term “participant” means an employee or former employee of any employer who is or may become eligible for benefits under an ERISA plan “maintained for the employees of such employer” or whose beneficiaries may be eligible for benefits. This would include employees who are eligible but not enrolled in the plan, COBRA qualified beneficiaries, and covered retirees. A beneficiary is a person designated by a participant, or by the terms of an ERISA plan, who is or may become entitled to a benefit under the plan. This would include eligible spouses and children and healthcare providers who have received an assignment of benefits that includes requesting documents. So, if the employee whose attorney has requested the documents falls into one of these definitions, then the plan administrator must produce the documents described in the second paragraph, above, or risk being exposed to the daily penalty.

But the plan administrator does not have to produce all documents that the participant or beneficiary asks for, depending on whether they are “any contract or other instruments under which the plan is established or operated.” There are differing court opinions on whether various other documents must be disclosed, including claims-related documents, guidelines used to review benefits claims, TPA contracts, and minutes of meetings.

Participants and beneficiaries may request to examine documents or to be given copies of documents. If examination is requested, the plan administrator must make the documents available at the principal office of the administrator and “in such other places as may be necessary to make available all pertinent information to all participants.” If copies of documents are requested, the plan administrator may charge reasonable copying costs, not to exceed 25 cents per page, or the actual cost, whichever is less. Failure to produce requested documents within thirty days of the request may result in a $110 per day penalty.

It is advisable to consult with legal counsel if and when you receive a request for production of documents.

No. While the ACA requires applicable large employers to offer their full-time employees (and dependents) the opportunity to enroll in affordable minimum value coverage under an eligible employer-sponsored plan, this requirement does not apply to independent contractors, assuming they are properly classified as such.

The analysis used for purposes of the ACA is similar to but not precisely the same as that used for other employment classifications such as that used for determining worker status under the Fair Labor Standards Act (FLSA), which were discussed in the January 17, 2024, Compliance Corner article.

ACA rules define an “employee” as any individual performing services if the relationship between the employee and the person for whom the employee performs such services is the legal relationship of employer and employee, which exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished.

If an individual who works for the employer is properly classified as an independent contractor, then that individual would not be an employee of the employer. Accordingly, employers should not be offering ACA coverage to those who are truly independent contractors.

Note that if the health benefits are offered through a Section 125 cafeteria plan, there are specific limitations as to which individuals can participate. One such requirement is that participants are employees. So, generally, a cafeteria plan may extend participation only to current and former employees of the employer who are considered common-law employees. Accordingly, offering benefits to an ineligible class such as independent contractors could present tax qualification issues for the plan.

Additionally, from an ERISA standpoint, it is generally not advisable to extend benefit plan coverage to independent contractors or other workers who are not the employer’s common-law employees, former common-law employees, or their dependents. Allowing 1099 workers to participate in an ERISA group health plan contrary to the plan document terms would likely be a fiduciary violation. Additionally, the employer could end up self-funding the benefits if the insurer or stop-loss carrier, as applicable, learned ineligible individuals were enrolled in the coverage.

Another potential risk is inadvertently creating a multiple employer welfare arrangement (MEWA) if the employer is essentially letting individuals who are self-employed (i.e., employed by another employer) participate in the plan. MEWAs may be subject to significant state insurance-law regulation and are subject to additional ERISA reporting requirements.

So, when an employer is considering whether the group health coverage should be offered to independent contractors, it is advisable for the employer to engage employment law counsel and review their relationship with the independent contractors to ensure they are properly classified as such. The determination is based upon the specific facts and circumstances of the parties’ relationship. Proper classification of workers has been an ongoing focus of regulators, and misclassification can give rise to potential claims and liabilities for an employer.

For the first question, the answer is yes, if the carrier (for fully insured benefits) or stop-loss carrier and TPA (for self-insured benefits) allow the plan sponsor to extend eligibility to part-time employees. Employers need to ensure the eligibility criteria is clearly defined, properly documented in plan documents, and communicated effectively to employees. This should include information on how part-time hours are calculated to ensure only those who are truly eligible receive an offer of coverage.

The second question about charging different premiums for part-time employees versus full-time employees is a bit more challenging. To begin, if we are discussing medical coverage and the employer is an Applicable Large Employer (ALE) subject to the ACA’s employer mandate, there are specific rules in place to identify full-time employees under the ACA, which may be different than the criteria an employer uses to identify part-time employees for benefits other than medical coverage. ALEs subject to the employer mandate must comply with those rules and offer affordable coverage or potentially face a penalty. Employers who are unsure as to whether they are considered an ALE should work with their consultant, advisor, or benefits counsel to better understand those obligations.

For employees who are not considered full-time under the ACA but are still offered medical coverage (such as those averaging 20 hours per week) or for other benefit offerings besides medical, it may be possible to charge a higher premium to part-time employees; however, there are things to consider. Employers will need to consider nondiscrimination rules, which is the idea that a plan should not favor highly compensated employees. We see these rules under both Section 105 and Section 125 of the IRC; Section 105 applies only to self-insured benefits, while Section 125 applies to pretax benefits. Generally, employers may vary benefit offerings and employer contributions based on bona fide employment classifications. Bona fide business classifications include those based on an objective business purpose (in other words, there must be a business reason for forming the classification — it can’t be formed solely to divide employees with respect to benefit offerings). Examples of allowable classifications include different geographic locations, offices, business lines, job titles, or hourly work expectations. Other examples include salaried versus hourly, part-time versus full-time, or union versus non-union. Even with a bona fide business class, the variance in employer contribution must not discriminate in favor of highly compensated employees. If highly compensated employees are being favored, then the plan is at risk for discrimination.

Employers who extend benefits eligibility to part-time employees but charge higher premiums should be aware of nondiscrimination rules and undergo testing to ensure the plan is not discriminatory based on the variance. For more information on these rules, please ask your broker or consultant for a copy of our Sections 105 and 125 Nondiscrimination Rules: A Guide for Employers publication.

Not in most cases, which can be an unwelcome surprise to a business owner who also works day-to-day for their business. After all, cafeteria plans are designed for employees and owner-employees are employees too, right? 

Not according to the Internal Revenue Code (the Code), where Section 125 establishes the rules for cafeteria plans (aka Section 125 plans), which limits participation in those plans to “employees,” a term that excludes individuals deemed “self-employed” under the Code, including sole proprietors, partners in partnerships and LLPs, members of LLCs, and more-than-2% owners of S corporations. 

Being employed by the business (for example, as its CEO) does not change this determination because, from a tax perspective, at least, a person who works for a business they own is essentially working for themselves (i.e., they are self-employed). 

At first glance, it might seem unfair to prohibit owners who are also employees from participating in plans designed for employees of their businesses. But these owner-employees derive benefits from these plans in a different way because business entities, such as partnerships, LLCs, and S corporations, are not themselves subject to federal income taxation. Rather, their incomes “pass through” directly to their owners for taxation as individual income only. 

These “self-employed” owners therefore directly benefit as individual taxpayers from the advantages that cafeteria plans provide to their company’s bottom lines, such as the FICA and FUTA savings derived from the salary reductions of participating employees, in addition to the other benefits these plans already offer to employers, such as the ability to provide an array of competitive benefits that attract and retain a talented and productive workforce. 

(In contrast, C corporations are subject to “double taxation” under the Code: Taxation of income at both the corporate level and at the individual (owner) level. Notably, owner-employees of C corporations are eligible to participate in cafeteria plans.) 

It’s also important to remember that owner-employees can still enjoy many of the same (or at least substantially similar) benefits that their company’s cafeteria plans provide to their employees. 

For instance, although owner-employees may not be able to pay health coverage premiums through the cafeteria plan, they may be able to take an above-the-line deduction on their own income taxes for health coverage. Additionally, they may not be able to make “pre-tax” contributions to their HSAs through the cafeteria plan, but if eligible, they may be able to make their own direct contributions to their HSAs, for which they can also take an above-the-line deduction. They may not be able to participate in their company’s dependent care assistance program (aka DCAP or dependent care FSA) through the cafeteria plan, but they may be eligible for a DCAP funded outside of a cafeteria plan, subject, of course, to nondiscrimination rules, or they may be eligible for the dependent care tax credit that is available to most individual taxpayers under the Code. 

All individual tax situations are different, of course, and owner-employees should consult with their own tax advisors as to their own eligibility for the tax deductions and credits described in the above paragraph. The essential point is that self-employed individuals, such as most owner-employees, may not be eligible to participate in cafeteria plans, but they may still be able to enjoy many of the benefits provided to their employees through those plans. However, they will have to do so through means generally available to taxpayers rather than those available only to employees.

Generally, an employee’s election made through a cafeteria plan is irrevocable once the plan year begins, unless the individual experiences an Internal Revenue Code Section 125 qualifying event that allows them to change their elections (assuming the Section 125 plan document also recognizes the event). But Section 125 (i.e., the cafeteria plan regulations) does not prohibit election changes before the period of coverage begins. This means the employer may allow election changes before the plan year begins but is not required to do so.

It is ultimately the employer’s choice whether to allow any changes. If the employer allows changes, an employee does not need any particular reason to make a change. Note that cafeteria plan terms must be applied uniformly to all participants, so any exceptions to a plan requirement that elections be made during the open enrollment period must be applied equally. Despite the added administrative difficulty, there are certain employee circumstances that may persuade an employer to allow post-open enrollment/pre-plan year election changes, such as if an employee has a shift in health insurance needs or was unavailable during the open enrollment window. Many employers will end open enrollment with enough time before the plan year begins to fix any mistakes and conduct any preliminary discrimination testing.

Under Section 125, employees make annual elections under a cafeteria plan that are irrevocable during the plan year. However, regulations allow midyear changes to those elections when an employee or their dependents experience specific qualifying events. One of these events occurs when an employee, their spouse, or their dependent experience a change in status, such as a change in residence. However, there are limits to the change in residence qualifying event.

The change in residence becomes a qualifying event when that change affects the employee’s or dependent’s eligibility for coverage. Unless the relocation makes the moving individual ineligible or newly eligible under the plan, the move would not be considered a change in status qualifying event.

On the other hand, there would likely be a qualifying event if the relocation resulted in the employee or dependent moving outside of a network that would provide service. For example, if the plan were an HMO and the employee or dependent moved out of the HMO service area and therefore couldn't receive any coverage where they lived, then that move would be a qualifying event. However, if the employee or dependent is eligible under the plan before and after the move (which is often the case for PPO plans or HDHPs with a national network), then a change in residence is not a qualifying event.

It is important to understand these limits. Employers that allow midyear changes without a qualifying event risk disqualifying the entire plan. If the plan is disqualified, then neither the employer nor employees can pay for their coverage on a pretax basis.

That said, there could be other qualifying events that would apply, given the circumstances. For example, a cafeteria plan may permit a qualifying event for a loss of coverage under any group health coverage sponsored by a governmental or educational institution, including a foreign government group health plan. If the relocating dependent has coverage through their government and will lose it by virtue of moving to the US, then that could make the move a qualifying event.

There are a few other points to keep in mind. Changes in residence and the loss of coverage under a governmental health plan are permissible qualifying events, which means that employers can choose whether to include them in their plan. Additionally, these events do not apply to health FSAs, so the employee could not change their health FSA election on account of either of those qualifying events.

With any wellness program, the compliance considerations and required disclosures vary depending upon the specific design, activities, and rewards. Numerous benefits compliance laws can be implicated, as explained at a high-level below.

ERISA, COBRA, and Other Group Health Plan Laws

First, some wellness programs provide medical care (e.g., a medical exam); others simply provide general health and fitness information (e.g., a nutritional webinar). The determination of whether a program provides medical care is normally based upon whether it involves individualized diagnosis and treatment as opposed to broad-based education and general recommendations.

If a wellness program provides medical care, it generally would be considered a group health plan and thus required to comply with group health plan laws, including the ACA, ERISA, COBRA, and HIPAA. In such case, the employer would typically offer the wellness program only to those participating in the major medical plan because it would be difficult for the wellness program to satisfy these laws independently. Among other items, the ERISA plan documents and COBRA materials would need to be updated to incorporate the wellness program, and a HIPAA business associate agreement should be entered with the wellness vendor.

HIPAA, ADA, and GINA Wellness Plan Rules

Second, specific wellness plan nondiscrimination rules may be implicated.

HIPAA’s health status nondiscrimination rules classify wellness programs as “participatory” or “health contingent”. Participatory programs provide a reward to participants who complete some wellness-based health activity that does not require satisfying a health standard. Participatory standards may involve completing a health risk assessment or receiving preventive care. Participatory programs must be made available to all similarly situated individuals.

Health contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. Health contingent programs can be either activity-based, requiring completion of a physical activity (e.g., walking) or outcome-based, requiring attainment of a particular outcome (e.g., not smoking, achieving certain blood pressure level). HIPAA requires such programs to be reasonably designed and available to all similarly situated employees at least once per year, with the reward amount not more than 30% (or 50% if tobacco-related) of the group health premium. Additionally, and importantly, notice of a reasonable alternative standard (i.e., another way to achieve the reward) must be included in all materials, including enrollment materials, involving the health contingent wellness program. HHS has provided sample language for this purpose.

The ADA wellness rules apply if the wellness program involves a medical exam (e.g., biometric screening) or disability-related inquiries (e.g., as part of a health risk assessment). The ADA rules require voluntary participation, confidentiality, and reasonable design and accommodation (so those with a disability can participate). Notice must also be provided explaining how any medical information is collected and used. The EEOC, which enforces the ADA, has provided a sample notice.

The Genetic Information Nondiscrimination Act (GINA) comes into play if the wellness program involves the collection of genetic information, such as family medical history (including that of a spouse), as part of a health risk assessment. GINA requires, among other items, specific written authorization from a program participant using a form that describes the type of genetic information that will be collected, the purposes for which it will be used, and the restrictions that will apply.

A concern with any wellness program that implicates the ADA or GINA is the lack of any current guidance regarding permitted reward incentive limits. (Prior EEOC rules were withdrawn in 2019 after a legal challenge and never replaced.) Employers should consult with legal counsel for guidance on this issue.

Internal Revenue Code

Third, employers should consider potential tax implications when providing wellness program rewards. Generally, employer contributions towards the group medical premium or to an HSA, HRA or FSA (within permitted limits) would be nontaxable. However, cash or cash equivalent rewards (e.g., gift cards) are taxable, and the employer should make sure these amounts are properly reported.

ACA Employer Mandate

Additionally, an applicable large employer subject to the ACA employer mandate would need to consider the effect of any premium discount on the determination of whether the coverage offered to a full-time employee is affordable. Generally, employer wellness program discounts, except for tobacco-related discounts, are not factored into the employee premium rate for ACA affordability purposes.

Enrollment season is a great time for employers to review their wellness program compliance and ensure any required notices are provided to employees. Given the complexity of laws that can be implicated with any wellness program, it is advisable for employers to engage their legal counsel in the review process.

For further information regarding wellness program compliance, please ask your consultant or broker for copies of our related publications, including our employer guides on Point Solution Programs and the Final HIPAA Wellness Program Rules.