Due to the rising costs of health coverage, employers have shown interest in helping employees pay for individual health insurance policies instead of offering employer-sponsored plans.
However, on November 6, 2014, guidance was issued stating that these arrangements do not comply with the Affordable Care Act. In addition, the guidance provided stated that this type of arrangement may subject employers to penalties.
Here is a brief, high-level summary of guidance that has been released regarding this topic:
- This guidance essentially prohibits all employer arrangements that reimburse employees for individual premiums, whether employers treat the money as pre-tax or post-tax for employees.
- This latest guidance from the IRS follows up guidance that was issued in September 2013, which clarified that health reimbursement arrangements (HRAs), certain health flexible spending arrangements (FSAs) and other employer payment plans are considered group health plans subject to the ACA’s market reforms and cannot be integrated with individual policies to satisfy those requirements.
- The IRS further clarified the issue in May 2014 when it issued two FAQs addressing the consequences for employers who reimburse employees for individual health insurance premiums. Because these employer payment plans do not comply with the ACA’s market reforms, the IRS indicated in the FAQs that these arrangements may trigger an excise tax of $100 per day for each applicable employee. This same penalty would apply to employers who violate the new ruling against reimbursing employees for individual premiums.
- The latest guidance also stated that products claiming to help employers obtain Marketplace subsidies for their workers through a Code Section 105 reimbursement plan are also not permitted.
I hope that you find this summary helpful. For additional information, or if you have any questions, please contact the CBG Benefits team at 781-759-1222.