Cash-in-Lieu, the ACA and Bargaining: Some Things to Keep in Mind

Kacie Kefgen

By Kacie Kefgen, MASB Assistant Director of Labor Relations and Legal Services

DashBoard, April 20, 2016

Over the past few months, we have been getting a question here in the office that goes something like this:

I have heard that the Affordable Care Act might impact the cash-in-lieu benefits that our district offers to our employees. What’s going on and what should we know?

As you know, the ACA requires, among other things, that large employers pay an Employer Shared Responsibility penalty if:

  • The employer does not offer health coverage to at least 95% of its full-time employees (anyone working more than 30 hours per week) and their dependents, or
  • The employer offers coverage, but that coverage was either unaffordable (more than 9.5% of income) or did not provide minimum value.

This past December, the Internal Revenue Service issued Notice 2015-87, which provides additional guidance on a variety of ACA issues, including cash-in-lieu or opt-out benefits. While the guidance in the notice does not comprise enforceable regulations, it seems to be a precursor to what the U.S. Department of Treasury and the IRS intends to make official. Also, the guidance states that the effective date for these new rules will be Dec. 16, 2015, even though the regulations are not yet effective.

In a nutshell, the Notice describes the way the IRS views cash-in-lieu options’ impact on the employee’s total cost for the purposes of determining whether health insurance coverage is affordable. In the calculation, the IRS would not only include the employee’s share of the premium, but it would also include any amount that the employee would not get as a result of choosing coverage rather than cash-in-lieu.

Imagine a district offers a health insurance plan that would require an employee to pay $300 per month toward the premium. The district also offers a $200 per month cash-in-lieu benefit to employees who opt to use a spouse’s insurance plan instead of the district-sponsored plan.

Grandfather Clause?

Before you go into full panic mode because your district has such an arrangement, it is possible that the district would qualify for a grandfather clause. While we have no solid regulations from the IRS here, the Notice outlines that the federal government would not apply the above formula to cash-in-lieu arrangements in place before Dec. 16, 2015.

But what if we have a new collective bargaining agreement after Dec. 16, 2015? Would that be a “new” arrangement?

Since we do not have official federal regulations on this question, it is not possible to be certain. However, I have spoken with insurance brokers who believe that if a district has had cash-in-lieu in some form before Dec. 16, 2015, the district is likely safe to continue that practice into new collective bargaining agreements and not be required to use the formula above.

It is possible that subsequent guidance from the IRS may impact future cash-in-lieu arrangements, so stay tuned.

When in doubt, give someone a call.

The Affordable Care Act and all of its implications can be tricky to navigate. You should have a basic understanding of the moving parts, but if you have questions about your district’s individual circumstances, you should seek guidance from your district’s legal counsel and your insurance broker to ensure that you make the best decisions you can for your district and your employees.

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