Health Insurance Reimbursement Plans–Important Reminders

With the recent decision from the United States Supreme Court to uphold the Patient Protection and Affordability Act, we want to remind you of some important issues facing employers. Most of you are aware of the highly publicized requirements for all individuals to have health insurance coverage and for large employers (those with 50 or more full time equivalent employees) to offer health insurance to their employees. The attention to large employers may have led small employers to incorrectly believe the law does not affect them.

One very important and overlooked issue deals with employer payment plans. This new provision applies to all employers, regardless of size.

Many employers have not provided group health insurance coverage but have reimbursed their employees for some or all of their individual health insurance premiums. These payment plans were perfectly legal under the old law. Under the new law these arrangements are deemed to impose an annual dollar limit on health care and, therefore are prohibited. For small employers (less than 50 full time equivalent employees in 2014 and 2015) the prohibition begins July 1, 2015. The prohibition is already in effect for large employers. (Note – S Corporation owners are not affected by this rule. However, changes are coming in the near future which will affect the way S Corporation owners pay for their own health insurance.)

The excise tax (penalty) for violation is severe. It is $100 per day, per employee. For example, assume an employer with ten employees pays each of them a monthly amount as a reimbursement for their health insurance premiums. If this plan is in place from July 1, 2015 through December 31, 2015 the penalty is $184,000 (10 employees; $100 per day; 184 days.)

What can you do?

  1. Begin offering group health insurance. If health insurance is offered it must be on a non-discriminatory basis. The Department of Labor is encouraging small employers to use the SHOP Marketplace to obtain group coverage.
  2. Raise your employees’ salaries. The increase cannot be a disguise to continue paying the reimbursement. You may make a decision for other business reasons for the need to increase salaries.
  3. Use after tax payroll withholdings to be applied toward health coverage. Employers may forward an employee’s after tax withholdings to a health insurance provider at the direction of the employee.

Any decision will require thorough analysis of your situation. We are here to assist you in complying with these difficult new provisions. Please let us know if you need assistance dealing with these important issues.