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Agencies Prohibit All Employer Reimbursement of Individual Premiums

Wednesday, January 14, 2015

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

OnNov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS)and the Treasury issued FAQs clarifying that all individual premiumreimbursement arrangements are prohibited. Despite the previously widespreadunderstanding that only pre-tax reimbursement arrangements are prohibited, theclarification includes pre-tax and post-tax premium reimbursements and cashcompensation for individual premiums.

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

In addition, the Nov. 6 FAQs clarify that anemployer cannot offer a choice between enrollment in the standard group healthplan or cash only to employees with a high claims risk. This practiceconstitutes unlawful discrimination based on one or more health factors, whichviolates federal nondiscrimination laws. 

Violation of this guidance by offering prohibited individualpremium reimbursement arrangements to employees may trigger penalties. UnderCode Section 4980D, an employer could be fined an excise tax of $100 per day

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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