Dodging ACA reform carries a hefty price tag


The consequences for employers continuing to allocate funds on a pre-tax basis for employees to buy health insurance are getting pretty serious.

The IRS, a bureau of the Department of Treasury, issued a bulletin in May outlining specific repercussions for employers that reimburse employees for premiums paid on individual health insurance coverage, which is not allowed under the Affordable Care Act.

Employers allocating a certain amount of finances for employees to purchase their own plan either inside or outside of an approved health insurance exchange may be liable for an excise tax of $100 per day for each employee, or $36,500 per year per applicable individual, as stated in the IRS bulletin.

The IRS calls this type of health insurance arrangement an “employer payment plan” under Notice 2013-54 and considers it a group health plan, which is subject to market reform laws and policies.

Marti Lolli, senior director of product development and health care reform at Priority Health, said the initial ruling in September 2013 was a surprise since it was an unresolved area prior to the ruling, and the recent bulletin by the IRS specified how the fines would work if employers continued to offer the arrangements.

“They said if the employer provides the employee with an allowance and you designate those dollars as being for health insurance, now you fall under the health insurance rules,” said Lolli. “You have to offer coverage that looks a certain way and you can’t have limitations on that coverage. So they said once you step into that mode, it starts looking like an employer-sponsored plan and then all the other rules apply.”

Priority Health serves 65 counties in the Lower Peninsula and has offices in Grand Rapids, Holland, Jackson, Kalamazoo, Traverse City and Farmington Hills.

Lolli said before IRS Notice 2013-54, there were a lot of employers that thought they could send employees to the health insurance exchange and give them an allowance to buy coverage.

“A lot of employers don’t understand this,” said Lolli. “I would say, by and large, it is probably like much of the reform that is misunderstood. … Employers are struggling to try to understand all of the reform in its entirety and it is a challenge.”

The IRS bulletin clarified that employers who reimburse employees for purchasing their own individual plan do not have the ability to accommodate individual policies necessary to satisfy market reform, such as prohibition on annual limits, made on an after-tax basis, and the requirement to provide certain preventive care without cost sharing.

“We never provided vehicles for employers to do that because we felt, legally, it was a bit of a gray area and there was a bit of risk involved in doing that,” said Lolli. “Now employers can give employees money, but it has to be in terms of a salary increase or something like that … a bonus, and they can’t peg those dollars for insurance.”

She said a reimbursement arrangement for individual premiums between employers and employees was considered non-compliant with ACA market reform as of this year.

“There is no leeway for switching over,” said Lolli. “As we have seen with many of the elements of reform — the enforcement period — they are rather lenient at first, understanding that employers may need time to comply or time to understand, but if I were an employer, I probably wouldn’t bank on that.”

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