If you are an employer with 50 or fewer full-time equivalent employees for whom you reimburse an employee for some or all of the premium expenses incurred for an individual health insurance policy or you directly pay a premium for an individual health insurance policy, you have until June 30, 2015 to stop such practices or face a $100 per day per employee penalty. The penalty can add up to $36,500 per employee per year.
Reimbursing employees for substantiated premiums for individual health plans or remitting premiums on an employee's behalf is a considered a medical reimbursement plan. The market reforms of the Affordable Care Act (ACA) prohibit group health plans that have 2 employees or more from imposing annual dollar limits on essential health benefits and are required to provide preventative health services to employees at no cost. The IRS and DOL have stated that these medical reimbursement plans are considered prohibited group health plans and by their very nature violate the market reforms of the ACA.
So what can you do to avoid the penalty and still contribute towards the cost of your employee's health insurance? You can implement an ACA compliant group health insurance plan, but this may increase the total health insurance cost. Another option is to increase the wages of your employees to help cover the cost. However, you have to be careful how you do this. If you increase your employee's wages with the stipulation that the increase is conditioned on their purchase of insurance coverage, you will have a group health plan that will fail to satisfy the ACA and you will still be subject to the penalty. You must increase the wages with no strings attached. If the employee doesn't spend the money on insurance coverage, you can't take the money back.
If you do not institute an ACA compliant group health insurance plan, you may not want to make any payments on behalf of your employees when it comes to paying for their health insurance costs and premiums. One of the most misunderstood aspects of the guidance is the level of involvement necessary for an employer after-tax arrangement be considered a group health plan subject to the market reforms of the ACA. The guidance has made it clear that group health plans include an employer's payment of individual health insurance policies with after tax dollars. Only time will tell how much is too much employer involvement.
If you have any questions, please contact your advisor at the 415 Group.