BPC fielded questions from clients and employers throughout 2015 about the prospect of dropping group health coverage and instead reimbursing employees for the cost of individual health insurance premiums. These arrangements have taken various forms over the years – pre-tax reimbursement through a cafeteria plan, simple post-tax reimbursement, or non-taxable employer payments through an HRA.
While such arrangements may appear attractive to some employers, guidance from the IRS and DOL have made it very clear such options are not viable in today’s landscape (except in some circumstances for retirees). A mountain of guidance – in the form of IRS Notices (see IRS Notice 2013-54, IRS Notice 2015-17, and even recently, IRS Notice 2015-87) and agency FAQs (see IRS FAQs here, and DOL FAQs here) made it clear they view any of these arrangements as group health plans, termed “employer payment plans,” as subject to the market reforms requiring preventive service coverage and eliminating annual and lifetime limits. Such plans, according to the IRS and DOL, fail these reforms and therefore would be subject to excise tax penalties of up to $100 per day, per employee.
While some transition relief was offered to small employers through the first half of 2015, that is now long-expired. Recently, this position achieved new status as it made its way into regulatory guidance. Volume 80 of the Federal Register, published November 18, includes a strong reiteration of the departments’ position, including this excerpt from page 72203: It has come to the Departments’ attention that there are a wide variety of account-based products being marketed...in an attempt to circumvent the guidance set forth by the Departments on the application of the annual dollar limit prohibition and the preventive services requirements to account-based plans. The Departments intend to continue to address these specific instances of noncompliance.”
Legislation to reverse this stance has been introduced and garnered some support in Congress. Should such legislation pass, BPC will promptly reach out to our client and partner community. Until that time, we certainly advise caution with respect reimbursing individual health insurance premiums.