Tuesday, May 27, 2014

IRS Prohibits Employers from Shifting Employees to Exchanges Without Penalties

Dianne De La Mare

The Internal Revenue Service (IRS) has just released a new Q&A that clarifies that employer cash contributions to help employees with the Affordable Care Act (ACA) Health Insurance Exchange plan costs will violate federal requirements and will result in significant employer penalties.

Up to this point, many employers believed that they could help their employees pay for insurance with a tax-free contribution of cash to help pay for insurance through the Health Exchanges; but the IRS has just clarified that it considers such arrangements “employer payment plans” that do not comply with the federal law.

Under IRS Notice 2013-54, these types of employer payment plans are considered to be a group health plan subject to the market reforms (including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventative care without cost sharing). These plans cannot be integrated with individual policies to satisfy the market reforms. Consequently, this type of arrangement fails to satisfy the market reforms and the employer could be subject to a $100/day excise tax per each applicable employee (e.g., resulting in a tax penalty of up to $36,500 per year, per employee).

By way of background, IRS Notice 2013-54 was issued on Sept. 13, 2013, and explains how the ACA’s market reforms apply to certain types of group health plans, including health reimbursement arrangements, health fexible spending arrangements and certain other employer healthcare arrangements (e.g., where an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy.)

The US Department of Labor (DoL) has issued a notice substantially identical to IRS Notice 2013-54, and US Department of Health and Human Services (HHS) will shortly issue guidance to reflect that it concurs with Notice 2013-54.

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