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Employer Reimbursement of Individual Premiums Prohibited under ACA

Due to the rising costs of health coverage, employers have shown interest in helping employees pay for individual health insurance policies instead of offering an employer sponsored plan.

In response, on Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury  issued FAQ guidance clarifying that these arrangements do not comply with the Affordable Care Act’s market reforms and may subject employers to penalties.  Although it was widely believed that these penalties would apply only to pre-tax arrangements, the FAQs clarify that after-tax reimbursements and cash compensation for individual premiums also do not comply with the ACA’s market reforms and may trigger the excise tax penalties.

This guidance essentially prohibits all employer arrangements that reimburse employees for individual premiums, whether employers treat the money as pre-tax or post-tax for employees.  Moreover, Code Section 105  reimbursement plans that are established to help employees purchase individual polices are also not permitted.

These arrangements may trigger an excise tax of $100 per day for each applicable employee.  Please consult your advisor if you have questions about these provisions.

Information in this article provided by RPG Solutions

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