Earlier this year, the IRS issued Notice 2015-17 (the “Notice”), which addresses employer direct payment or reimbursement of individual health plan premiums. Prior to the Affordable Care Act (ACA), employers were allowed to reimburse premiums paid for individual coverage on a tax-favored basis. Many small employers adopted this type of arrangement rather than sponsoring a group health plan. However, the Notice confirms that these employer payment plans will fail to comply with many of the ACA market reforms for group health plans (i.e., prohibition of annual limits on essential health benefits). Consequently, an employer may not either directly pay premiums for individual policies or reimburse employees for individual policy premiums, even on an after-tax basis.
The Notice does, however, make available limited relief from excise taxes for small employers that sponsor employer payment plans. For purposes of the Notice, a small employer is an employer that is not an applicable large employer (ALE). Generally, an ALE is an employer that employed at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. Pursuant to the Notice, excise taxes will not apply to employer payment plans for 2014. Small employers also will not be assessed an excise tax from January 1 through June 30, 2015. After June 30, the relief provided under the Notice is no longer available and small employers that continue to offer employer payment plans may be liable for an excise tax of $100/day.
Employers eligible for the aforementioned relief are also not required to file Form 8928, which is used by group health plans to self-report excise taxes, solely for having employer payment plans during the transition relief period. The transition relief provided under the Notice does not extend to stand-alone health reimbursement arrangements (HRAs) or HRAs that reimburse medical expenses other than insurance premiums.
The Notice clarifies that an employer payment plan does not include an arrangement where an employer increases an employee’s compensation but does not condition the payment of the additional compensation on the purchase of health coverage or otherwise endorse a particular insurer, policy, or form of health insurance. Additionally, the reimbursement prohibition applies to individual medical policy premiums and not the reimbursement of COBRA premiums.
For a copy of the Notice, visit: http://www.irs.gov/pub/irs-drop/n-15-17.pdf
Hall Benefits Law, LLC
