Employer payment plans, which include arrangements where an employer pays, or reimburses an employee, for some or all of the premium expenses incurred for an individual health insurance policy, violate market reforms under the Affordable Care Act (“ACA”).

Notice 2015-17 is the latest in a series of IRS guidance on these arrangements (see our earlier post on this topic here). While it reiterates previous conclusions regarding the failure of the arrangements to satisfy the ACA, it also provides excise-tax transition relief for certain small employers.

Limited Transitional Relief for Non-ALEs

Noncompliant group health plans may be liable for a $100/day excise tax for failure to satisfy ACA market reforms. The new Notice, while reiterating that conclusion, provides that the tax will not be asserted under two conditions:

  1. Until June 30, 2015, if the plan is not sponsored by an Applicable Large Employer (“ALE”). An ALE, for a given calendar year, generally had an average of 50 or more full-time employees during the preceding calendar year. If the employer was not an ALE for 2014, no tax will be asserted for 2014. If the employer is not an ALE for 2015, no tax will be asserted for the period January 1 through June 30, 2015.
  2. Until further guidance is issued, where there is any failure to satisfy market reforms by an S corporation 2%+ shareholder-employee healthcare arrangement. The relief does not apply to such plans covering S corporation employees who are not 2%+ shareholders.

Employers eligible for this relief are not required to file IRS Form 8928 solely because they have the above-described arrangements during the relief-eligible period.

Caution: This relief does not extend to stand-alone Health Reimbursement Arrangements or other arrangements to reimburse employees for medical expenses other than insurance premiums.

What Can Employers Do?

The Notice provides that employers who increase an employee’s taxable compensation to assist with payments of individual market coverage do not violate the ACA provided the increase is not conditioned on the employee’s purchase of coverage. Even an after-tax employer payment plan will violates the ACA if it is conditioned on the employee’s purchase of coverage.

Special Rules re Medicare/Tricare Reimbursement

The Notice indicates that an employer arrangement paying/reimbursing two or more active employees’ Medicare Part B or Part D premiums is a prohibited HRA. However, such a plan may avoid violating the ACA if it is integrated under the following circumstances:

  1. The employer offers employees another group health plan that does not consist solely of excepted benefits and offers minimum value coverage;
  2. Employees participating in the HRA are actually enrolled in Medicare Parts A and B;
  3. The HRA is only available to employees enrolled in Medicare Parts A and B or Part D; and
  4. The HRA is limited to Medicare Part B or D premiums and excepted benefits, including Medigap premiums.

Likewise, a plan that reimburses two or more employees for TRICARE-related medical expenses violates the ACA unless it is integrated with another group health plan, under circumstances similar to those described above.

We thank our intern, Megan Lasswell, for her assistance in preparing this post.