What are ACA Rules for Employer Payment Plans?
We have a small non-profit office of 5 employees. We have offered health insurance in years past to our employees and done the Employer Payment Plan, where each employee chooses his or her medical insurance and the company simply pays the premiums directly.
Given that we are too small of a company to fall under any of the ObamaCare mandates, can we still pay for health insurance this way? Researching your website, it seems that – in one document – Employer Payment Plans are fine and the premiums are not considered taxable. But in another document it looks like Employer Payment Plans may not be able to incorporate the market reforms of ObamaCare, and there may be IRS fines associated with them.
Like I said, we are a very small company. So any guidelines you can give us about how we can continue to pay for our employees’ premiums would be most helpful.
Thank you so much.
Employer payment plans are valid under the ACA, count as group health plans, and are subject to market reforms (no pre-exiting conditions, no dollar limits, etc).
The wording of the guidelines is a little confusing, but from what we understand: HRAs and employer payment plans are fine as long as 1) an employer has 50 or less FTE 2) an employee doesn't use that "group plan" to get Marketplace subsidies. The gist being healthcare arrangements can't be used to skirt the requirement to offer minimum essential coverage. Since you have a small business with less than 50 FTE your Employer Payment Plan shouldn't be a problem unless it meets one of the two previous criteria.
We wrote up a detailed page on HRAs, Employer Payment Plans, FSAs, and other employer arrangements to try to clarify this. We will update that page as we learn more, so check it for a final answer moving forward.
Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code. - IRS
Please note, we aren't legal, tax, or medical experts. We are simply trying to interpret these documents the best we can. We will review our site to make sure to avoid any potential confusion. However, we certainly wouldn't mind some extra clarification and input from our readers!
When in doubt fall back on these document from the department of labor and IRS.
- Department of Labor Technical Release No. 2013-03 provides final rules for Employer Healthcare Arrangements under the ACA.
- The IRS issued this clarification on HealthCare Arrangements and potential fees.
From what I am reading IRS Notice 2015-17 clarifies 2013-54 and makes it clear that businesses should be transitioning away from employer payment plans.https://www.irs.gov/pub/irs-drop/n-15-17.pdf
Question 1 (Transition Relief for Small Employers from the Code § 4980D
Excise Tax ): Small employers have in the past often offered their employees health
coverage through arrangements that would constitute an employer payment plan as
described in Notice 2013-54. If an employer offered coverage through such an
arrangement, will the employer owe an excise tax under Code § 4980D?
Answer 1: In general, yes; however, this notice provides limited transition relief
for coverage sponsored by an employer that is not an ALE under §§54.4980H-1(a)(4)
Notice 2013-54 concludes that the arrangements constituting employer payment
plans as described in that notice fail to comply with the market reforms and may subject
employers to the excise tax under Code § 4980D. At the same time, the Departments
understand that some employers that had been offering health coverage through an
employer payment plan may need additional time to obtain group health coverage or
adopt a suitable alternative.
The SHOP Marketplace addresses many of the concerns of small employers.
However, because the market is still transitioning and the transition by eligible
employers to SHOP Marketplace coverage or other alternatives will take time to
implement, this guidance provides that the excise tax under Code § 4980D will not be
asserted for any failure to satisfy the market reforms by employer payment plans that
pay, or reimburse employees for individual health policy premiums or Medicare part B or
Part D premiums (1) for 2014 for employers that are not ALEs for 2014, and (2) for
January 1 through June 30, 2015 for employers that are not ALEs for 2015. After June
30, 2015, such employers may be liable for the Code § 4980D excise tax.
For purposes of this Q&A-1, an ALE generally is, with respect to a calendar year,
an employer that employed an average of at least 50 full-time employees (including fulltime
equivalent employees) on business days during the preceding calendar year. See
Code § 4980H(c)(2) and §§ 54.4980H-1(a)(4) and -2. For determining whether an entity
was an ALE for 2014 and for 2015, an employer may determine its status as an
applicable large employer by reference to a period of at least six consecutive calendar
months, as chosen by the employer, during the 2013 calendar year for determining ALE
status for 2014 and during the 2014 calendar year for determining ALE status for 2015,
as applicable (rather than by reference to the entire 2013 calendar year and the entire
2014 calendar year, as applicable). See section IX.E of the preamble to the proposed
regulations under § 4980H (78 FR 218, 238) (Jan. 2, 2013) and section XV.D.3 of the
preamble to the final regulations under § 4980H (79 FR 8544, 8573) (Feb. 12, 2014).
Employers eligible for the relief described in this Q&A-1 that have employer
payment plans are not required to file IRS Form 8928 (regarding failures to satisfy
requirements for group health plans under chapter 100 of the Code, including the
market reforms) solely as a result of having such arrangements for the period for which
the employer is eligible for the relief. This relief does not extend to stand-alone HRAs or
other arrangements to reimburse employees for medical expenses other than insurance
So the bottom line is: An employer must offer a group plan in general as coverage. However, if the employer isn’t required to offer coverage they can choose a health reimbursement plan that doesn’t count as coverage. The trick is not to offer an HRA that counts as coverage and try to reimburse an employees individual coverage.
This is all rule of thumb and not exact professional advice. Always check with a professional when it comes to health choices as a business. Our focus is on the law as a whole and we aren’t business law experts or tax experts. Not to say our advice is wrong, just want to make sure this is clear.