Employer Reimbursements for Health Insurance Premiums
If an employer does not establish a health insurance plan for their employees, but reimburses those employees for premiums they pay for health insurance, such arrangements are described as an employer payment plan.
As of July 1, 2015, businesses of all sizes are no longer permitted to directly reimburse employees for medical costs or individual insurance premiums.
- Companies that continue to engage in employer payment plans will now face a penalty of $100/day per employee, up to a maximum of $500,000/year per company under section 4980D of the Internal Revenue Code.
- Plans where the employer reimbursed their employees for their individual plan premiums must now follow ACA guidelines.
The only risk-free way to avoid paying the employer penalty is to offer a group health insurance plan.
- Employers can still "gross" up an employee's pay to assist with paying for individual coverage (such as adding an additional $100 a month to an employee's taxable wages), but the employer cannot require the employee to use the additional amount to pay for insurance.
- If an employer offers an opt-out benefit (also known as cash-in-lieu) on a post-tax basis, IRS regulations prevent employers from telling employees how to spend their benefit money.
- Employers are also prohibited from asking or persuading employees not to participate in a group plan.
- Dental and vision benefits are excepted benefits and can be reimbursed.
- An HRA or employer payment plan that, by its terms, reimburses or pays directly for only excepted benefits is not required to comply with the market reforms, including the annual dollar limit prohibition. See Notice 2015-87, Q/A-5.
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