IRS Issues Guidance on Employers and the Individual Exchange

On May 13, 2014 the IRS issued guidance for large employers warning that they will not be in compliance with the Patient Protection and Affordable Care Act (PPACA) if they move employees to public exchanges by allocating pre-tax dollar amounts to purchase individual health insurance (either inside or outside of an exchange). Premium reimbursement arrangements provided on an after-tax basis are still permissible.


According to the IRS, “employer payment plans” in which employers reimburse employees on a pre-tax basis for individual health insurance premiums do not comply with PPACA’s market reforms. These pre-tax employer payment plans may be subject to an excise tax of $100 per/day for each applicable employee ($36,500 per year per employee).


An “employer payment plan” generally does not include an employer-sponsored arrangement that allows an employee to choose either cash or an after-tax amount to be applied toward health coverage. Thus, premium reimbursement arrangements made on an after-tax basis are not considered “employer payment plans” and will still be permitted. Employers that plan on using after-tax premium reimbursement arrangements should be aware that these arrangements may be considered ERISA plans.


Should you have any questions, please contact your Conner Strong & Buckelew account representative.

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