Employers who reimburse employees for their individual health insurance policies may find themselves in violation of the “market reform” restrictions in the ACA. The penalty for noncompliance with these restrictions is $100 per day, per employee. It’s important to note that these reimbursement rules apply to all employers, regardless of size, and for health care plans effective beginning on or after January 1, 2014.
Generally speaking, the ACA market reform requirements do not permit employers to subsidize or reimburse employees for individual health insurance policies on either a pre-tax or after-tax basis. It appears that employers may be allowed to increase an employee’s taxable wages to provide funds that the employee may use to purchase an individual insurance policy. However, the employer may not require that the additional wages be used to pay for insurance; the employee must be allowed to decide whether to use the funds for that purpose or not.
Be aware that the IRS may issue further guidance on this issue. Because the penalties for noncompliance with the rules governing employer reimbursement arrangements are so severe, all employers should carefully review their situation to be sure they are meeting the new ACA requirements.
Please contact the office for more information.
Written by: Doug Rodrigues