Federal regulators re-emphasize that premium reimbursement arrangements for individual policies are prohibited
January 16, 2015
On Nov. 6, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury released FAQs reiterating that employers are prohibited from using premium reimbursement arrangements to:
- Fund the purchase of an individual market policy
- Provide cash reimbursements for the purchase of an individual market policy OR
- Use a vendor to establish a Code section 105 reimbursement plan to help employees pay for individual market insurance coverage, while concurrently seeking premium tax credits for Marketplace coverage.
A premium reimbursement arrangement includes, but is not limited to, a health reimbursement arrangement (HRA) or certain health flexible spending arrangements (FSA).
Background
On May 13, the IRS released an FAQ emphasizing that an employer cannot reimburse or provide additional funds for employees to pay for individual coverage on or off the Marketplace. The FAQ was intended to reinforce guidance that the DOL and the IRS issued in September 2013 that prohibits employers from establishing a standalone HRA or similar instrument (which the IRS and DOL describe with the generic term “employer payment plan”) to pay for individual market coverage.
Exceptions
There is an exception for retiree-only HRAs.
Penalties
Employers who establish employer payment plans to assist with the purchase of individual market policies may be subject to a penalty of $100 per day per employee per infraction. HRAs and other employer payment plans are generally only compliant with ACA market reforms if they are integrated with an ACA compliant group health plan.
More information can be found at:
The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. The impact of these reforms on individual situations may vary. This overview is intended as an educational tool only and does not replace a more rigorous review of the law’s applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. As required by US Treasury Regulations, we also inform you that any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.