First there was no problem. Then the ACA was passed. Still no problem. Then someone realized that employers and employees may be taking advantage of existing rules that allowed a tax exemption for the payment or receipt of individual health insurance. So on September 13, 2013 the IRS and DOL issued “guidance” (interpretation) about what was going to be allowed…and what was not. The new rules basically said that an HRA could not be used to pay for individual health insurance premiums, Flexible Spending Accounts could not be used for the same reason, and any premium paid directly by an employer for an employee would be a taxable event. Not so good…but they weren’t done. Now the Department of Labor has gone further (and why?) and issued two new FAQs in this regard…
Under the newest new rules, even where an employer offers employees the cash to reimburse for the purchase of an individual market policy, it is now in violation of ACA market reforms. In other words, it is not only a taxable event, but is considered a part of a plan and thus must meet requirements under ERISA and thus Public Health Service laws…which means that violation of the law now also means the payment of an excise tax.
In a further note, the DOL has made it clear that an employer who offers an employee with high risk claims the choice between enrollment in its standard plan and cash is in violation of the Affordable Care Act, HIPAA, and ERISA…a triple threat. It constitutes discrimination (no kidding) “In the Department’s view, cash or coverage arrangements offered only to employees with a high claims risk are not permissible benign discrimination” The discrimination rule applies whether the cash payment is pre or post tax, the employer is involved in the selection or purchase of a product or not, or even if the employee obtains any individual health insurance.