Compliance Dangers of Arrangements that Assist Employees with the Payment of Individual Health Insurance Premiums
By this time, all advisors should be aware that the IRS considers it a violation of the provisions of the Affordable Care Act (ACA) for an employer to maintain any type of arrangement that reimburses current employees pre-tax for individual major medical premiums.
In addition, recent IRS guidance has stressed that if the reimbursement is conditional on the employee having obtained health insurance coverage, such an arrangement will violate the ACA EVEN IF the employer adds the payment to the employee’s W-2 as taxable compensation.
The penalty for continuing to maintain such an arrangement is potentially $100 per day PER EMPLOYEE with no maximum penalty amount. Potentially, this could mean a penalty of $36,500 per employee per year.
Temporary relief for certain small employers.
On February 18th, the IRS issued Notice 2015-17 which gives small employers (employers with fewer than 50 FT equivalent employees) through June 30th, 2015 to end all non-compliant arrangements without being subject to the penalty tax. This relief was NOT extended to employers in the 50-100 or over 100 employee groups.
New health savings account rules for 2016
Health and Human Services recently issued a statement which indicates that beginning in 2016 a High Deductible Health Plan (HDHP) cannot impose an out-of-pocket maximum for an individual that is greater than that imposed by the law for self-only coverage, even if the policy provides other than self-only (i.e., family) coverage.
This interpretation effectively embeds an individual out-of-pocket maximum limit in all family HDHP plans that have an out-of-pocket limit greater than the self-only out-of-pocket limit. For example: if a person purchased a family HDHP coverage with a $10,000 out-of-pocket limit, the plan would have to begin payment of benefits when ANY individual covered under the policy has incurred $6,850 of covered expenses (the annual limit on cost-sharing for 2016 for self-only coverage).