Employers facing the rising costs to provide health coverage have shown interest in helping employees pay for individual health care, instead of offering an employer sponsored plan. These arrangements do not comply with the Affordable Care Acts reforms and can incur penalties.
To clarify, after-tax reimbursements and cash compensations from the employer to cover the individual premiums of employees are prohibited under the Affordable Care Act, and can trigger excise penalties. This applies whether employers reimburse pre-tax or post-tax amounts to employees.
Health insurance reimbursement arrangements, certain health flexible spending arrangements, and any other employer payment plan involving the employee fall under group health plans and are subject to the Affordable Care Acts market reforms, such as the annual limit prohibition and the preventative care coverage requirement. Affordable Care Act market reforms cannot be integrated with individual policies while satisfying the above requirements, rendering these plans prohibited.
The penalty the IRS has laid out for violating these parameters is $100 a day, per applicable employee.
If an employer offers the choice between enrollment in the standard group health care plan or cash only to employees with high claims risk, they are practicing unlawful discrimination and are in violation of federal nondiscriminatory laws. It is not considered benign discrimination. This also applies to employers offering the choice between taxable cash and tax-favored qualified benefits only to high-risk employees.
In this case, employers violate the nondiscriminatory provisions, regardless of whether:
- The employee treats the case as pre-tax or post-tax
- The employer is involved in purchasing or selecting any individual market product
- The employer obtains any individual health insurance
Be wary that certain vendors are marketing that instead of providing a group health insurance plan, employers can establish a reimbursement plan with health insurance brokers, which would help employees select individual insurance policies allowing them to access subsidies for Exchange coverage. This is problematic because:
- These arrangements would act as a group health plan, exempting them from being eligible for Exchange subsidies.
- If employers are not involved with individual employee selecting or purchase process, it doesn’t prevent the arrangement from being a group health plan.
The noted employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms. Because they do not conform to Affordable Care Act regulations, they are liable to trigger penalties and excise taxes.
To discuss options for providing health insurance to your employees under ACA regulations contact ERM Insurance at (949) 222-0444. We service Orange County and Los Angeles and strive to keep your business current on the latest healthcare reform regulations, so get in touch with one of our expert brokers today!