Do You Reimburse Employees for Their Individual Health Care Coverage Premiums?June 18, 2015
If you are an employer who has chosen to pay or reimburse employees premiums for purchasing individual health care coverage this could be problematic under the Affordable Care Act (ACA).
To avoid the complications of offering health care coverage yet still help employees pay health care costs, some employers have chosen to pay or reimburse employees premiums for purchasing individual health care coverage. Under the Affordable Care Act (ACA), however, this practice is problematic.
The IRS position is that, with rare exceptions, such arrangements violate the ACA’s annual dollar limit and preventive services mandates. IRS Notice 2015-17, released earlier this year, provides temporary relief in certain circumstances.
Under the relief, small employers maintaining such arrangements in 2014 or the first six months of 2015 are exempt from the excise taxes that otherwise would be assessed as well as from the requirement to self-report these violations on Form 8928. Small employers are generally those with fewer than 50 full-time employees or the equivalent.
Here are some other aspects of Notice 2015-17 that are important to be aware of:
- The Notice doesn’t provide relief to 1) arrangements that reimburse expenses other than insurance premiums or 2) stand-alone Health Reimbursement Arrangements (HRAs).
- It does provide some relief for “2% shareholder-employee health care arrangements” until additional guidance on these arrangements is issued.
- The Notice doesn’t address partnerships, even though such entities often maintain arrangements similar to S corporation 2% shareholder plans.
- It does address plans covering only one individual as an active employee, noting that such plans generally aren’t group health plans subject to the annual limit and preventive services mandates — even if they cover other employees as the one active employee’s dependents.
- The Notice does permit, in certain limited circumstances, an employer’s reimbursement of Medicare Part B or Part D premiums to be integrated with another group health plan offered by the employer for purposes of complying with the annual dollar limit and preventive services mandates.
- For purposes of complying with the annual dollar limit and preventive services mandates, the Notice does permit an HRA that pays or reimburses medical expenses for employees covered by TRICARE to be integrated with another group health plan offered by the employer. (TRICARE is a U.S. Department of Defense Military Health System health care program.)
- The Notice confirms that an arrangement paying or reimbursing employees’ premiums for individual health insurance is a group health plan subject to the ACA’s market reforms even if the payments or reimbursements are after-tax.
If your business has any type of premium payment or reimbursement arrangement for individual health care coverage, please contact Loree Dubois, CPA or any member of our Healthcare Services Group to determine what you need to do to comply with the ACA and avoid excise taxes and other negative tax consequences.