Relief For Small Employers Reimbursing Individual Policies

Recently the Department of Labor (DOL) and Health and Human Services (HHS) offered temporary relief for small employers reimbursing individual policies. The Affordable Care Act (ACA) guidance was released in late March and allows business owners with less than 50 employees, who have been reimbursing their employees for individual health insurance policies to continue the practice until July 1st, 2015.

Background on Reimbursing Individual Policies:

There has been a lot of bad information circulating the internet from health insurance experts, attorneys as well as some CPA’s about the practice of reimbursing employees for individual policies  The advice to many employers has been it’s okay to cancel your group health plan and allow employees to buy individual policies either privately or on the health exchanges and the employee will be reimbursed pre-tax or post tax for the premium.

The reason behind this advice is simple; group health insurance rates have been skyrocketing for many years and many employers have trouble keeping up with the higher premiums.

Individual policies that can be purchased on the public exchanges on average are cheaper. So many small business owners have taken this ill-advice and cancelled their group health plans and told employees to purchase an individual plan instead. This has been a grey area for quite some time since the inception of Affordable Care Act (ACA)

Well now the Governmental Departments overseeing Health Care Reform have finally given a clear ruling that these arrangements called, “employer payment plans” are subject to the market reform provisions of The Affordable Care Act. These arrangements may be subject to a $100/day excise tax per applicable employee which is $36,500 per year per employee.

To make matters worse, the IRS has already admitted that it will take almost 2 years to begin their ACA compliance reviews and those businesses who have not been compliant or have been using “grey area” tactics such as individual health insurance reimbursement, could find themselves receiving hefty fines.

For more information about this ruling, please visit our ACA Compliance Center Library and click on the 03/19/15 compliance bulletin, “Relief of Small Employers Reimbursing Individual Policies.”