Post­ed by Car­ol Taylor

peopleOn Novem­ber 6, 2014, the col­lec­tive Depart­ments of Health and Human Ser­vices (HHS), Labor (DOL) and the Trea­sury released three Fre­quent­ly Asked Ques­tions (FAQs) direct­ed at employ­er pay­ment plans for the pur­chase of indi­vid­ual insur­ance. While the depart­ments had pre­vi­ous­ly released sev­er­al oth­er pieces of guid­ance about these arrange­ments, this lat­est round exclaimed an emphat­ic no!

The oth­er releas­es on the top­ic start­ed well over a year ago. How­ev­er, there are still agents and admin­is­tra­tors that have insist­ed either Sec­tion 125 (Cafe­te­ria Plans) or Sec­tion 105 (Reim­burse­ment Arrange­ments) of the IRS code allowed employ­ers to deduct pre­mi­ums in a pre­tax man­ner or reim­burse for indi­vid­ual pre­mi­ums. Sev­er­al of the admin­is­tra­tors tout­ing these plans even went as far as claim­ing they were so con­fi­dent in their inter­pre­ta­tion of the reg­u­la­tions, that they would pay any fines incurred because of their advice that these plans were com­pli­ant. This lat­est round of clar­i­fi­ca­tion was a resound­ing com­ply or pay fines.

Any employ­er pay­ment that pro­vides cash reim­burse­ment for the pur­chase of an indi­vid­ual mar­ket pol­i­cy is not com­pli­ant with the Patient Pro­tec­tion and Afford­able Care Act (PPACA), whether the employ­er treats the mon­ey as pre­tax or post-tax to the employ­ee. It is inter­est­ing to note that the lat­ter pro­vi­sion has not been present in oth­er reg­u­la­to­ry releas­es, but is new with this round. While it is not clear at the moment how that would apply, a post-tax amount would put the insured in a pre­car­i­ous posi­tion, sub­ject to fines and pay­back of sub­si­dies on their own, since the addi­tion­al income could low­er the sub­sidy that they would oth­er­wise qual­i­fy for, with­out the assis­tance from the employer.

Like­wise, if a Sec­tion 105 reim­burse­ment plan is set up for the pur­chase of indi­vid­ual poli­cies, these plans are deemed non­com­pli­ant. The basis for this deter­mi­na­tion is the employer’s involve­ment of the plan, even though they may not have assist­ed the indi­vid­ual with their plan selec­tion, they are still tak­ing part by con­tribut­ing cash for the pol­i­cy purchase.

Anoth­er ques­tion delves into com­pen­sat­ing employ­ees that have a high claims risk to enroll in a Mar­ket­place plan ver­sus join­ing the group health plan offered by the employ­er. This sce­nario involves oth­er fac­tors that are pro­hib­it­ed, such as dis­crim­i­nat­ing due to a health fac­tor and eli­gi­bil­i­ty rule dis­crim­i­na­tion. These plans also fail due to the employ­er-pro­vid­ed pay­ment for pur­chase of an indi­vid­ual plan.

In all of these sce­nar­ios, since they would be deemed a group health plan, they would be sub­ject to the mar­ket reforms such as unlim­it­ed life­time max­i­mum ben­e­fits, pre­ven­tive care cov­er­age at no cost share and oth­er aspects of the law. This could also open the door for law­suits against the employ­er if the indi­vid­ual pol­i­cy failed to pay a claim for the insured.

The FAQs ref­er­ence the fines that would apply in these instances under Sec­tion 4980D. In the May 2014 release from the IRS, they spelled out the excise fines as $100 per day, per employ­ee or $36,500 annu­al­ly. How­ev­er, these fines are an excise tax in the amount of $100 per day with respect to each indi­vid­ual to whom such fail­ure relates. So, if the employ­er were to con­tribute to depen­dents’ cov­er­age, the fines would also be incurred for each depen­dent per day, in addi­tion to the employee.

It is always best to get a plan into com­pli­ance as quick­ly as pos­si­ble. With many of these hav­ing been put into place ear­li­er this year, there is still time to cor­rect at least part, but not all, of the issues. Speak with your tax coun­sel as quick­ly as pos­si­ble to get your plans into com­pli­ance. Your local Unit­ed Ben­e­fit Advi­sors office, with their vast com­pli­ance resources, can also assist you with these issues.

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