Thursday, March 5, 2015

ACA FAQ of the Month: Can I Pay My Employee’s Premium for Individual Health Insurance Coverage?

March 2015
By: Peter E. Hansen, Esq.

Nope. This type of strategy is known as a “premium reimbursement arrangement” or “employer payment plan,” and could result in fines of up to $100 per day, per employee. The recently-released IRS Notice 2015-17, available at http://www.irs.gov/pub/irs-drop/n-15-17.pdf, reiterates that employers cannot subsidize individual health insurance coverage by either reimbursing an employee for premiums paid, or paying premiums directly to the insurance carrier on the employee’s behalf.

Fortunately, limited transitional relief is available for small employers (meaning those who employ fewer than 50 employees) who currently engage in this practice – but only for pre-tax reimbursements, and only until June 30, 2015. Large employers must stop reimbursing employees’ premiums immediately, and small employers should begin preparing to end this practice as soon as possible given the June 30 deadline.

Of course, employers still have options to help employees with the cost of health insurance. The safest way to help is to sponsor a group health plan, but for employers who want to avoid sponsoring a group health plan but wish to help employees pay for coverage, I generally recommend increasing employees’ wages to help them pay for their insurance directly. The IRS Notice clarifies that employers who go this route will avoid penalties, provided that the increase is available regardless of whether the employee in fact uses the extra compensation for health insurance premiums. Put another way, employers cannot condition the wage increase on health insurance premiums; rather, the employee must be able to use the wages however he or she chooses.


Questions? Suggestion for a future Obamacare FAQ of the Month? Please contact WS Attorney Peter E. Hansen at (262) 560-9696, or email pehansen@wesselssherman.com.