New Year & New Rules for Small Employers Health Reimbursement Plans
With the start of 2016, it is imperative to review current IRS rules for employers who reimburse employees for the cost of individual health coverage.
Employer group health plans must abide by a number of rules, including the market reform rules adopted by the Affordable Care Act. The transition relief offered to small employers by the IRS for 2014 through June 30, 2015 is no longer available. Employers with employee payment plans, under which they reimburse their employees for all or part of the cost of obtaining individual health insurance are in violation of certain Affordable Care Act rules, and are at risk for a $100 per day per affected employee excise tax ($36,500/per employee a year) if they continue to use such an arrangement. This refers to employer payment plans that pay, or reimburse, employees for individual health policy premiums or Medicare Part B or Part D premiums. Plans with fewer than two participants are exempt from the ACA compliance rules and penalties.
The tax treatment of health insurance premiums plans for 2-percent shareholders continues to apply. This means that the premiums paid in wages are deductible by the shareholder. If an employee (including a 2-percent shareholder-employee) is covered under a reimbursement arrangement with other-than-self-only coverage (such as family coverage), and another employee is covered by that same coverage as a spouse or dependent of the first employee, the arrangement would be considered to cover only the one employee and hence not be subject to the group health plan requirements.
Employers may raise the compensation of their employees to assist in the purchase of individual health insurance without being subject to the group health plan requirements at all, as long as they do not condition the compensation on obtaining health insurance. It is important to note that direct payment of an employee’s health insurance premium in lieu of reimbursement still constitutes a reimbursement.
An arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees is an employer payment plan subject to the market reforms if it covers two or more active employees. Such an arrangement must be integrated with another group plan if it is to avoid the excise tax. Such a plan is integrated with another group health plan if: (1) the employer offers a group health plan (other than the employer payment plan) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value; (2) the employee participating in the employer payment plan is actually enrolled in Medicare Parts A and B; (3) the employer payment plan is available only to employees who are enrolled in Medicare Part A and Part B or Part D; and (4) the employer payment plan is limited to reimbursement of Medicare Part B or Part D premiums and excepted benefits, including Medigap premiums.