Healthcare Updates

Health Reimbursement Arrangements

An “employer payment plan” is defined in Notice 2015-17 as an arrangement under which an employer reimburses employees (or pays directly) for all or part of the premium for individual coverage. Many employers refer to these as “premium reimbursement plans.” The problem with them is that the IRS considers them to be a type of “group health plan” to which various Affordable Care Act market reforms apply, such as the requirement to cover preventive care, and the prohibition on annual or lifetime dollar limits on essential health benefits. Premium reimbursement plans, by definition, cannot meet these Affordable Care Act requirements (e.g., because the annual dollar limit is the amount of the premium reimbursement, not an unlimited amount).

Group health plans of any size that fails to comply with Affordable Care Act market reforms may be subject to an excise tax of $100 per day for each affected employee (that’s $36,500 per year for each affected employee). Additionally, employers are supposed to self-report their violations and pay the excise tax using IRS Form 8928.

Prior IRS guidance has clarified that these employer payment plans violate the Affordable Care Act market reforms whether the employer pays or reimburses for premiums on a pre-tax or an after-tax basis. Notice 2015-17 also acknowledges that such arrangements on a pre-tax basis would not be taxable to employees (per Code section 106), but that they are, nonetheless, not compliant with Affordable Care Act market reform requirements so will subject the employer to the section 4980D excise tax of $100 per day per affected employee.

Simply Increasing Employee Compensation is Allowable

Notice 2015-17 does clarify that an employer payment plan is not created if an employer simply increases an employee’s compensation but does not condition the increase on the employee purchasing health coverage. Such an increase in compensation does not constitute a group health plan, so it is not subject to the market reforms. An employer can provide employees with information about the marketplace or the premium tax credit under Code section 36B.

Employers who have not been offering premium reimbursement plans need not take any action.

Small employers who have been paying or reimbursing premiums for individual insurance contracts must stop doing so no later than June 30, 2015, to avoid being subject to the 100.00 per employee day penalty.

Small and large employers who have been paying or reimbursing premiums for individual insurance should decide whether they want to just increase compensation for employees for whom the employer will no longer be reimbursing for premiums.

Here is the link from the IRS website for the publication

http://www.irs.gov/pub/irs-drop/n-15-17.pdf

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