The Internal Revenue Service (IRS) this week announced that it will provide temporary transition relief through the middle of 2015 for “small employers” (those with less than 50 full-time employees, including full-time equivalents) that offer “employer payment plans.”
Employer payment plans are plans under which an employer either (a) reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or (b) directly pays a premium for an individual health insurance policy covering the employee. The IRS has previously stated that such “employer health plans” are “group health plans” that will fail to satisfy the Affordable Care Act’s market reforms because they are incompatible with the ACA’s prohibition on annual dollar limits and free preventative services requirements. IRS Notice 2015-17 further provides that:
- Increases in employee compensation that are not conditioned on the employee purchasing health coverage are not employer payment plans; and
- Employer payment plans, as a general matter, are group health plans that violate the ACA’s market reforms regardless of whether reimbursements are provided on a pre- or post-tax basis to employees.
Below is a more detailed discussion of the IRS Notice.
IRS Notice 2015-17 provides limited transition relief for certain employers that offer employer payment plans. Specifically:
- Small employers (those not subject to the ACA’s “employer mandate” on account of having less than fifty full-time employees, including full-time equivalents) who have been offering health coverage through employer payment plans will not be subject to excise taxes for:
- 2014 for employers who had less than 50 full-time equivalent employees in 2014; and
- January 1 through June 30, 2015 for employers who have less than 50 full-time equivalent employees in 2015.
Importantly, this transition relief does not apply to stand-alone HRA’s or other arrangements to reimburse employees for medical expenses other than insurance premiums.
- S Corporation employer payment plans covering a 2-percent shareholder will not be subject to excise taxes for violating the ACA’s market reforms at least through the end of 2015. The Notice states that the IRS is considering additional guidance on the market reforms’ applicability to 2-percent shareholder-employee health care arrangements.
- Employer payment plans that pay for or reimburse premiums for Medicare Parts B or D will be considered integrated with another GHP offered by the employer if certain specified conditions are met. If the employer payment plans are “integrated” with another GHP, they will be considered to satisfy the market reform rules.
- HRAs that pay for or reimburse premiums for TRICARE will be considered “integrated” with another GHP offered by the employer if certain conditions are met. If the HRAs are “integrated” with another GHP, they will be considered to satisfy the market reform rules.