Employer groups are asking agents why they can’t pay for their employees’ individual premiums either on or off the exchange. Agents can easily find answers to protect their clients from making this costly mistake in several recent IRS publications.
Under IRS notice 2013-54 an employer that reimburses employees for their individual health insurance, inside or outside the Marketplace, has created an employer payment plan. An employer payment plan, according to this notice is considered to be a group health plan subject to market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.
On May 13, 2014, the IRS issued FAQs addressing the consequences for employers that do not establish a health insurance plan for their own employees, but instead reimburse those employees for premiums they pay for health insurance. Because these employer payment plans do not comply with the ACA’s market reforms, the IRS indicated in the FAQs that these arrangements may be subject to an excise tax of $100 per day for each applicable employee ($36,500 per year, per employee) under Code section 4980D.
The notice does not reference an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. The IRS implies that the arrangement could still be subject to the $100 per day per employee excise tax penalty.