Talking Tuesday-Employer Penalty and the ACA
Did you know that since the IRS and Treasury published Notice 2013-54 in September 2013, pre-tax employer reimbursement of an employee’s individual health insurance premiums has been a hot topic of conversation? Many employers in the past, have reimbursed employees for individual health insurance policies in lieu of offering a group health plan (called “employer payment plans”). This type of arrangement is no longer permissible and the IRS has reaffirmed its position on this by answering the following question:
What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?
Referencing Notice 2013-54, the IRS emphasizes that these employer payment plans are considered group health plans under the Affordable Care Act (the “ACA”) or The Patient Protection and Affordable Care Act (PPACA). As group health plans, these arrangements are subject to the PPACA market reforms, including the prohibition on annual limits and the requirement to cover preventive care without cost-sharing. Employer payment plans cannot be integrated with individual health insurance plans in order to satisfy the market reform requirements.
Importantly, this recent FAQ highlights the consequences for employers who continue to operate employer payment plans to reimburse employees for the cost of individual health insurance policies.
The consequence? A penalty of up to $100 per day per applicable employee. If that did not get your attention, the IRS also points out that the penalty could total $36,500 per year per employee. This figure does not include potential liability as a result of additional DOL enforcement of compliance with the market reforms, incorporated into the Employee Retirement Income Security Act (ERISA) by the Public Health Service Act (PHSA).
This information is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact their legal counsel for legal advice. The contents above may be affected by future regulations and sub-regulatory guidance.