In the past, employers were able to reimburse employees for the cost of their individual medical policies, on a tax-free basis per Internal Revenue Code §106. Since federal subsidies are now available for individual policies purchased through the Health Insurance Marketplace, federal agencies do not want employers to incentivize employees to purchase their own coverage. Therefore, substantially identical guidance was issued by the IRS, Notice 2013-54, and the DOL, Technical Release 2013-03. Under this guidance employers will violate the ACA if they provide tax-free reimbursement to employees or allow pre-tax salary reductions through a cafeteria plan to pay for individual policies. This prohibition applies to all individual medical policies, whether purchased through the Marketplace or direct from an insurance carrier.
For more information please review Keller’s Employer Reimbursements for Health Insurance. Additionally, the DOL just released FAQs regarding employer reimbursements for individual coverage. Please contact your Keller account team with any questions.