On February 18, the IRS issued Notice 2015-17 to provide yet more guidance on the applicability of the “market reform” provisions of the Affordable Care Act to arrangements under which an employer pays for, or reimburses the cost of, some or all of the cost of an employee’s individual health insurance premiums. This guidance is the latest in a series of pronouncements issued by the IRS and the Department of Labor over the past couple of years. (We previously wrote about the prior guidance here.)
The Notice starts by saying that it “reiterates the conclusion” that employer payment plans are group health plans that are subject to the market reform provisions. As such, they will virtually automatically fail to comply with these provisions, because the benefit is limited to the cost of the premiums, and the plan does not comply with various mandates such as first-dollar coverage for preventive care services and the prohibition against lifetime or annual limits on benefits. The “excise tax” for this compliance failure is Draconian: $100 per day per affected employee. (It is self-reported using Form 8928.)
The Notice goes on to provide some helpful transition relief for small employers, which in our experience are the ones who are most likely to consider helping their employees through individual health insurance policies. The relief is available to employers who are not “applicable large employers,” which generally means that it is available to employers who employed an average of 50 full-time employees or equivalents during the preceding calendar year. These employers have until June 30, 2015 to come into compliance with the rules before they are assessed the excise tax.
The Notice also indicates that, until further guidance is issued, and in any event not until 2016, arrangements that cover only more-than-2% owners of an S corporation are not subject to the excise tax.
With respect to reimbursements of, or payments for, Medicare Part B or Part D premiums, the Notice indicates that, if the arrangement covers two or more current employees, it is a group health plan subject to the market reform provisions. Therefore, the arrangement would be subject to the excise tax unless it is integrated, in a manner specified in the Notice, with another group health plan offered by the employer.
The Notice also reiterates the following points that were made in the earlier guidance:
- An arrangement that covers just one active employee is not a “group health plan” and therefore is not subject to the market reform provisions. However, different arrangements offered to different employees can be considered a single arrangement with two or more employees, and therefore a “group health plan.”
- If an employer increases an employee’s compensation, but does not condition the increase on the purchase of health coverage, or endorse a particular policy, form or issuer of health insurance, the arrangement is not subject to the market reform provisions.
- Payments for, or reimbursements of, employees’ individual health policies are subject to the market reform provisions, regardless of whether they are done pre-tax or after-tax.
The Notice indicates that it has been reviewed by the Department of Labor and the U.S. Department of Health and Human Services, which have advised the IRS that they agree with the Notice. The IRS also promises that there will be additional guidance “in the near future.”