Caution for Individual Policy Reimbursement
By Mike Carlson, Builders Exchange's Association Health Plan
The IRS uses a FAQ on Employer Health Care Arrangements to highlight the potential liability for employers that, rather than establishing a group health plan, merely reimburse employees for the cost of their individual health plan premium.
Q1. 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)?
The IRS makes it clear that the consequence is that the employer may face a penalty.
Specifically, as explained in Notice 2013-54, employer reimbursement plans are considered to be group health plans and therefore subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies, however, that employer reimbursement plans cannot be integrated with individual policies to satisfy the market reforms.
Consequently, the employer may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under Code Sec. 4980 D.
Changes to expect:
For plan years beginning on and after January 1, 2014, employers should carefully evaluate arrangements under which they reimburse employees for premiums, or are otherwise involved in the purchase of individual health insurance policies that provide non-excepted medical coverage (i.e., coverage that is subject to health care reform’s mandates) for employees. These arrangements create significant compliance concerns under health care reform. Furthermore, these individual policies should not be paid for or reimbursed on a pre-tax basis under an employer's cafeteria plan. As described in more detail (left).
Let us help design your program to avoid this penalty. Contact Mike Carlson, Builders Exchange's Association Health Plan, mcarlson@craford.com or 415-755-6325.