Employers Cannot Reimburse Individual Health Care Policies on a Pretax Basis

The IRS recently posted FAQ’s concerning employer healthcare arrangements. The Service clarified that an arrangement where an employer reimburses employees on a pretax basis for health insurance premiums the employee pays on an individual policy is considered an employer payment plan. Employer payment plans are considered to be group health plans and subject to the rules under the Affordable Care Act (ACA). This type of arrangement fails to meet all of the ACA rules, including the prohibition on annual limits for essential health benefits. This type of employer payment plan may be subject to a $100 per day, per employee excise tax which is up to $36,500 per year, per employee.

An arrangement where an employer reimburses employees on an after-tax basis or gives employees the option of receiving that amount as cash compensation is not considered an employer payment plan. This type of arrangement will not incur the $100 per day, per employee penalty, however the employer may be subject to the other ACA penalties for failing to offer affordable health coverage.

For more information:

IRS FAQ – Employer Health Care Arrangements

Notice 2013-54

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