Prior to the Affordable Care Act (ACA), wellness plans became popular with many businesses because of their ability to reduce medical claims and healthcare costs. This was accomplished by their emphasis on healthy lifestyles and preventive care. These cost reductions were the primary incentive for business owners.
Enter the ACA. New guidelines now add additional incentives for employers to implement a wellness plan. Two types of wellness plans are outlined, health contingent and participatory. A compliant wellness plan in either of these two categories can now be treated for tax purposes on par with a group health plan. This opens the door for compliant wellness plans to be included in a Section 125 “Cafeteria Plan”, which means the value of the plan can be treated as a pre-tax deduction from employee wages / salaries. Better yet, a high percentage of that amount is eligible as a “health related / medical expense” which can be an after tax reimbursement using Section 105.
The result of these accounting shifts is that the employees’ reportable income is reduced while their take-home pay does not decline. This causes a reduction in FICA and withholding amounts for each participating employee. This also creates a reduction in company matching FICA contributions. Results are showing net dollar savings for the company of thousands, tens of thousands, or more depending upon the size of the company.
The company saves money, the employees have access to a full featured wellness program, and net tax savings for the employees even allows for additional voluntary benefits at no reduction in their take-home pay. As a part of the core wellness program, the employees receive a health risk assessment, access to multiple preventive care screenings, wellness coaches, dietitians, telemedicine benefits, and a host of other services.
The only restrictions to these plans are that eligible employees must be W2 full-time (30 hours or more per week). Businesses with high turn-over, seasonal workers, or 1099 independent contractors generally will not qualify. Although virtually any size company may qualify, to be fully compliant, a company should have a MEC (Minimum Essential Coverage) group health plan in place. Non-profits and municipalities can even qualify if they and their employees contribute to FICA. The plan must be offered to all eligible employees, but there is no minimum participation required.