IRS Guidance Emphasizes Health Care Reform Penalties If Employers Reimburse Employees' Individual Insurance Premiums
Below is a excerpt from recent EBIA comments regarding the IRS Guidance (Q&A) regarding Employer Health Care Arrangements.
See IRS Notice -
Available at http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements
EBIA Comment: Notice 2013-54 staked out the IRS position that employer payment plans do not comply with health care reform because they typically do not provide first-dollar coverage for preventive services and are deemed to impose annual dollar limits up to the cost of the individual coverage purchased through them—but, crucially, they cannot integrate with underlying individual policies in order to achieve compliance. That message has met with some resistance in the benefits community, however, as some argue that arrangements reimbursing individual health insurance premiums (1) do not violate the annual dollar-limit prohibition because insurance premiums are outside the definition of EHB (and thus are exempt from the prohibition on annual dollar limits), and (2) can satisfy the preventive service mandate if designed to provide first-dollar coverage for preventive care.
The new guidance seems intended to refute this analysis (although it could have been more explicit, particularly with regard to premiums as EHB). The guidance is also consistent with informal remarks by IRS officials at the March 2014 ECFC conference, stating that employer funding of individual health insurance policies with pre-tax dollars violates the annual limit and preventive services reforms. (While the guidance reiterates that voluntary after-tax arrangements are generally permissible, employers considering such arrangements should also tread carefully and endeavor to stay within the DOL’s voluntary plans safe harbor, as referenced in Notice 2013-54 and Technical Release 2013-03.) By focusing on the magnitude of the excise taxes and the unanimity of the IRS, DOL, and HHS positions, this guidance sends a clear warning to employers still using—or contemplating—an employer payment plan.
Contributing Editors: EBIA Staff.