ACA Update: Feds Prohibit All Employer Reimbursement of Individual Premiums

Due to the rising costs of providing group health insurance, some employers have considered helping employees pay for individual health coverage instead of offering an employer-sponsored group plan. However, these employer reimbursement arrangements do not comply with Affordable Care Act (ACA) requirements.

On Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury issued FAQs clarifying that all individual premium reimbursement arrangements are prohibited. Despite the previously widespread understanding that only pre-tax reimbursement arrangements are prohibited, the clarification includes pre-tax and post-tax premium reimbursements and cash compensation for individual premiums.

An employer arrangement that provides cash reimbursement for an individual market policy is considered to be part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax for the employee. Therefore, the arrangement is group health plan coverage subject to the ACA’s market reform provisions.

In addition, the Nov. 6 FAQs clarify that an employer cannot offer a choice between enrollment in the standard group health plan or cash only to employees with a high claims risk. This practice constitutes unlawful discrimination based on one or more health factors, which violates federal nondiscrimination laws.

Violation of this guidance by offering prohibited individual premium reimbursement arrangements to employees may trigger penalties. Under Code Section 4980D, an employer could be fined an excise tax of $100 per day for each applicable employee ($36,500 per year per employee).

The information contained in this newsletter is not intended as legal advice. Please consult a professional for more detailed analysis and specific information.

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About CIBCsolutions

CIBC is a leader in the development and implementation of innovative employee benefits plans. Headquartered an hour south of Chicago in Kankakee, CIBC has branch offices throughout Illinois serving private sector clients, non-profit organizations, governmental agencies and Taft-Hartley health and welfare funds across the Midwest. Over the past two decades, we have creatively addressed the employee benefits needs of hundreds of organizations — some with as few as two employees and others with as many as 25,000 employees around the globe. A relationship with CIBC gives you access to a team of employee benefits experts who are among the most knowledgeable consultants, analysts and account managers in the industry. With more than 75 years of experience, our team commands the respect of insurers and health care providers nationwide.

Posted on January 7, 2015, in Health Care Reform, Human resources, Individual and Family Health and tagged , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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