Regulators’ Comments on High Claimant Opt-Out Features

In the latest installment of their largely unprecedented flurry of guidance under the Affordable Care Act, late last week the regulators published their thoughts on the practice -- currently being contemplated (or implemented) by some employers -- of providing opt-out bonuses to high claim health plan participants.

In very general terms, these employers are approaching high claim participants in their health plan and providing them with an additional benefit not available to low claim participants; namely, an unrestricted, taxable cash opt-out bonus if they decide not to participate in the employer’s health plan. (This is a variation on the decades old practice by some employers of offering all employees an opt-out bonus – or, in some cases, “benefit dollars” – if they decide not to participate in the employer’s health plan.)

In last week’s guidance, the DOL, the IRS and the HHS announced their view that this large claimant variation on the opt-out concept violates several laws. In essence, the regulators concluded that offering this additional option to large claimants actually “discriminates” against them (rather than in favor of them) by “increasing” their required contribution for plan participation.

The regulators support their position by arguing that these large claimants have to “effectively pay more” to participate in the plan than low claimants not offered the bonus, because the large claimants have to make the same contribution as the low claimants in order to participate in the plan, plus “forego” their bonus amount, which the regulators characterize as an “additional contribution” imposed only on them.

Regardless of how a particular employer feels about the logical (or legal) support for this newly-announced position of the regulators, they should consider it thoughtfully before proceeding with a large claimant opt-out program. (As we have discussed with a number of our clients, those programs also raise a number of other legal issues that need to be considered carefully by employers.)