New Guidance and Relief for Employer Payment of Individual Premiums (Part I)

by Clarke & Company Benefits Posted on: February 24, 2015Categories: HR & Compliance

In the past, many employers have helped employees pay for individual health insurance policies instead of offering an employer-sponsored plan. In recent months, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) have released several pieces of guidance addressing these arrangements.

The Departments’ guidance specifically addresses “employer payment plans,” under which an employer reimburses or pays premiums for an employee’s individual health insurance policy.

According to this guidance, employer payment plans do not comply with several ACA provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.

IRS Notice 2015-17

On Feb. 18, 2015, the Internal Revenue Service (IRS) issued Notice 2015-17. This notice:

Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation healthcare arrangements for 2-percent shareholder-employees;
Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
States that employer payments for individual premiums can be excludable from an employee’s income under the tax code, but will still violate the ACA’s market reforms.

The DOL and HHS have reviewed the notice and agree with the guidance provided. The Departments noted that they expect to issue further clarifications regarding other aspects of employer payment plans and HRAs in the near future.

Increases in Employee Compensation

Notice 2015-17 clarifies that, if an employer increases an employee’s compensation, but does not condition the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form or issuer of health insurance), it is not considered an employer payment plan.

According to the IRS, providing employees with information about the Exchange or the premium tax credit is not endorsement of a particular policy, form or issuer of health insurance. Because this type of arrangement generally will not constitute a group health plan, it is not subject to the ACA’s market reforms.

Excise Tax Delay for Small Employers

Small employers have often helped employees pay for individual coverage. As noted above, these employers would normally be subject to an excise tax of $100 per day for each employee.

Notice 2015-17 provides a delay in the excise tax penalty for employers that are not applicable large employers (ALEs) under the ACA’s employer shared responsibility rules. These employers may need additional time to obtain group health coverage or to adopt a suitable alternative.

Therefore, an excise tax will not be assessed for violations of the ACA’s market reforms by certain employer payment plans that pay (or reimburse employees) for individual health policy premiums or Medicare Part B or Part D premiums.

This transition relief is available on a temporary basis. Employers may be eligible for relief from the excise tax as late as June 30, 2015. Specifically:

For 2014, the relief applies to employers that are not ALEs in 2014.
For Jan. 1 to June 30, 2015, the relief applies to employers that are not ALEs in 2015.

After June 30, 2015, these employers may be liable for the excise tax.

This relief does not extend to stand-alone HRAs or other arrangements that reimburse employees for medical expenses other than insurance premiums.

Employers eligible for this relief are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans) as a result of having these arrangements during the period for which the employer is eligible for the relief.

New Guidance and Relief for Employer Payment of Individual Premiums (Part I)