Limited Relief for Certain Employer Health Plan Premium Payments or Reimbursements

April 2015

Under so-called “employer payment plans” (“EPPs”), an employer pays or reimburses an employee for substantiated premium costs under individual health plan insurance coverage (i.e., nonemployer individual health plan coverage). Well-settled Internal Revenue Service (“IRS”) guidance provides that such payments or reimbursements are not taxable to the employee.

However, such EPPs are treated as group health plans (“GHPs”) that, based on their usual design, will fail to comply with certain market reforms that apply to GHPs under the Affordable Care Act (“ACA”). In guidance issued collectively by the IRS, Department of Labor, and Department of Health and Human Services (collectively, the “Agencies”), in the form of November 2014 Frequently Asked Questions (“FAQs”) and a September 2013 IRS Notice (Notice 2013-54), the Agencies clarified that an EPP will normally violate the ACA market reforms, without regard to whether the employer treats the payment or reimbursement amount as taxable or nontaxable to the employee. Because such EPPs cannot be “integrated” with individual market health insurance coverage, these EPPs will likely violate the ACA which could result in the imposition of significant excise tax penalties on the employer.

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