FACTS ABOUT INDIVIDUAL INSURANCE REFORM

January 9, 2015

In an effort to clear up confusion about an employer’s ability to reimburse an employee for individual insurance premiums, the Department of Labor (DOL) released “FAQs about Affordable Care Act Implementation (Part XXII)" in late 2014. These FAQs, restate compliance information about employer premium reimbursement arrangements that pay individual insurance policies premiums.

 

Employers should pay close attention to these guidelines as there is a high price for noncompliance.  An IRS FAQ on the subject states an excise tax of $100 per day for each individual to whom such failure relates ($36,500 per year, per employee) can be assessed. 

Highlights from FAQs:

Q1. My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?

A1. No. Employers may not use arrangements that provide cash reimbursement for the purchase of individual market policies. Such an employer plan is part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, regardless of whether the employer treats the money as pre-tax or post-tax to employees.

Q2. My employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with the market reforms?

A2. No. PHS Act section 2705 prohibits discrimination based on one or more health factors. In the Departments’ view, cash-or-coverage arrangements offered only to employees with high claims risk are not permissible benign discrimination.

Q3. A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employee select individual insurance policies and allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?

A3. No. The Departments have been informed that some vendors are marketing such products. However, these arrangements are problematic. The arrangement described above is a group health plan and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage.

Second, as explained in DOL Technical Release 2013-03, IRS Notice 2013-54 and two IRS FAQs, such arrangements are subject to the market reform provisions of the Affordable Care Act (ACA) and cannot be integrated with individual market policies.

 

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