IRS Issues Transition Relief for Employer Reimbursement Plans

February 19, 2015

The IRS just issued Notice 2015-17, which reiterates prior guidance that employer payment plans that reimburse employees for individual market policies will violate the ACA since they are considered group health plans with annual dollar limits. This notice provides limited transitional relief from ACA excise tax penalties for small employer payment plans and provides additional guidance, as follows:

  • Small employers (averaging less than 50 full-time equivalent employees in prior calendar year) in 2014 or 2015 will not be subject to ACA penalties for reimbursing employees for individual market policies or Medicare Part B or D premiums in 2014 or 2015, until June 30, 2015.  This transition relief is to provide additional time for small employers to implement a group plan or make other arrangements.  Starting July 1, 2015, ACA penalties apply to small employers who continue to reimburse employees for these policies.
  • S-Corporations that reimburse 2%+ shareholders for individual market policies will not be subject to ACA penalties through the end of 2015.  Additional guidance may be published to determine if such plans are subject to ACA reforms or not.
  • An HRA that reimburses Medicare premiums for two or more active employees is an employer payment plan that violates the ACA.  However, the HRA will not violate the ACA if it is integrated with another group health plan.  The HRA will be considered integrated if (1) the employer offers another group health plan to the employees that does consist solely of excepted benefits and provides minimum value; (2) employees participating in the HRA are enrolled in Medicare Parts A and B; (3) the HRA is only available to employees enrolled in Medicare Parts A, B or D; and (4) reimbursements are only for Medicare Part B or D premiums and excepted benefits, including Medigap plans. Employers with 20 or more employees should take care not to violate Medicare Secondary Payer rules, which prohibit financial incentives to Medicare-eligible employees that discourage enrollment in the employer-sponsored group health plan.
  • An HRA that reimburses for TRICARE-related medical expenses for two or more active employees is an employer payment plan that violates the ACA. However, the HRA will not violate the ACA if it is integrated with another group health plan. The HRA will be considered integrated if (1) the employer offers another group health plan to the employees that does consist solely of excepted benefits and provides minimum value; (2) employees participating in the HRA are enrolled in TRICARE; (3) the HRA is only available to employees enrolled in TRICARE; and (4) reimbursements are only for TRICARE cost sharing and excepted benefits, including TRICARE supplemental premiums. Employers should take care not to violate TRICARE rules which prohibit financial incentives to TRICARE-eligible employees that discourage enrollment in employer-sponsored group health plan.
     
  • Employers that increase salary (taxable compensation) to assist with the cost of individual policies will not violate the ACA as long as the additional salary is not conditioned on the purchase of health coverage.

Lastly, the notice confirms that even if a reimbursement for an individual market policy is made on an after-tax basis under an employer payment plan, it will violate the ACA.

Please contact Keller’s Legislative Compliance Department if you need additional information.