Can my employer change wage rates based upon medical coverage choices?

Question

Prior to this year my employer used to reduce our hourly rate if we elected to enroll in one of the employer sponsored medical plans available. This reduction in rate was in addition to any weekly fees required to pay for the medical coverage. It was claimed that the extra deduction was required to cover administration costs.

I found out this week that new employees or employees who hadn't elected to receive coverage previously and who are signing up for coverage in the current enrollment period no longer have to face a deduction in their hourly rate.

When I asked our HR department about this they stated that the PPACA contains a provision that prevents employers from doing this anymore. To quote they said "Due to the federal requirements pertaining to insurance and what employers are allowed to offer and negotiate, wage rates are no longer impacted by changes to insurance".

This makes sense to me in that the PPACA might want to prevent employers from reducing insurance costs by reducing wages. However, I then asked if employees who had coverage from previous years and were going through the enrollment process now would get back the rate reduction taken previously.

My employer said no, referring to the aforementioned quote, and re-iterated that they are no longer allowed to make wage changes (positive or negative) based upon medical coverage choices.

This simply can't be true can it? I can understand the PPACA wanting to prevent employers from reducing wages but I can't believe it would prevent employers from increasing wages. I believe that my company is conveniently using this as an excuse to avoid having to give back the rate deduction to all of the employees it previously took it from but I can't find any references to this part of the law that I can take to my company's HR department to argue with.

If anybody can provide any assistance on this issue, I would be most grateful.

Answer 1

The federal government recently put out a number of rules and other guidance on how employers are and are not allowed to reimburse employees based on what benefits they are offered (see the FAQs available here , especially FAQ 22 and Technical Release 2013-03.

Essentially, the government wants to prohibit employers from encouraging workers to decline coverage offered by the employer (especially high-risk employees) and take coverage on the exchanges, when the employer offers to reimburse the employee for the cost of coverage on the exchange. This is intended to disallow employers from offering coverage (so that they do not owe a penalty for not offering it), but then not actually paying the cost of employee benefits for employees who decline coverage with the employer and take coverage with an exchange. Because in many industries a worker also would receive a subsidy by going to the exchange, there can be cases where the net cost to the worker plus the employer penalty is still lower than the cost of employer-provided benefits, which apart from these rules could give the employer an incentive to "push" employees who are already being offered "affordable" coverage through their employer to the exchanges.

As part of these rules, your employer can no longer make wage changes solely based on your election to take or decline employer-offered coverage. Again, this is meant to keep insurers from "paying you" not to take their coverage and to take subsidized exchange coverage instead. These rules don't prevent them from charging employees for the benefits they select. If, for example, they paid you more because you are declining coverage, the government is now considering this "discrimination" against those who are participating in the employer's health plan.

They can still increase your wages to compensate for changes in benefit costs, no longer offering health coverage, or other reasons, just not solely on the basis of your benefit election.

There are also two good blog articles about these rules here and here.

Hope that helps!