New Guidance on Employer Payment of Individual Premiums

The Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) recent guidance specifically addresses “employer payment plans,” under which an employer reimburses or pays premiums for an employee’s individual health insurance policy.

According to this guidance, employer payment plans do not comply with several ACA provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.

On Feb. 18, 2015, the Internal Revenue Service (IRS) issued Notice 2015-17 in which:
  • Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
  • Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
  • Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation healthcare arrangements for 2-percent shareholder-employees;
  • Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
  • States that employer payments for individual premiums can be excludable from an employee’s income under the tax code, but will still violate the ACA’s market reforms.

The DOL and HHS have reviewed the notice and agree with the guidance provided. The Departments noted that they expect to issue further clarifications regarding other aspects of employer payment plans and HRAs in the near future.   Read More»

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