Affordable Care Act – IRS Provides Transitional Guidance on Certain Types of Health Reimbursement Arrangements
The IRS recently issued Notice 2015-17 that provided significant interim guidance for many employers. The noteworthy provisions include:
1. Transitional Relief for Small Employers for Insurance Premium Reimbursement to Employees
The $100 per day/per person excise tax under IRC §4980D will not be asserted for any failure to satisfy the market reform provisions under the Affordable Care Act by employer payment plans that pay, or reimburse employees for individual health policy premiums or Medicare Part B or Part D premiums (1) for 2014 for employers that are not Applicable Large Employers (“ALEs”) for 2014, and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015.
After June 30, 2015, such employers may be liable for the Code §4980D excise tax.
An ALE generally is, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year.
For determining whether an entity was an ALE for 2014 and for 2015, an employer may determine its status as an ALE by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2013 calendar year for determining ALE status for 2014 and during the 2014 calendar year for determining ALE status for 2015, as applicable (rather than by reference to the entire 2013 calendar year and the entire 2014 calendar year).
Employers eligible for the relief that have employer payment plans are not required to file IRS Form 8928 solely as a result of having such arrangements for the period for which the employer is eligible for the relief.
This relief does not extend to stand-alone HRAs or other arrangements that reimburse employees for medical expenses other than insurance premiums.
2. Treatment of S-Corporation Health Care Arrangements for 2% Shareholders
Until further guidance is issued by the IRS, andat least through 2015, the $100 per day/per person excise tax under IRC §4980D will not be asserted for any failure to satisfy the market reforms for a 2% S-Corporation shareholder-employee healthcare arrangement. Taxpayers may continue to rely on Notice 2008-1 with regard to the tax treatment for the payment of health insurance for 2% S-Corporation shareholders.
The guidance in this section does not apply to reimbursements of individual health insurance coverage with respect to employees of an S-Corporation who are not 2% shareholders.
3.Integration of Medicare Premium Payment or Reimbursement Arrangement with a Group Health Plan
An arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees constitutes an employer payment plan, as described in Notice 2013-54, and if such an arrangement covers two or more active employees, is a group health plan subject to the market reforms. An employer payment plan cannot be integrated with Medicare coverage to satisfy the market reform provisions because Medicare coverage is not a group health plan.
If the Medicare premium payments or reimbursements are integrated with a group health plan offered by the employer for purposes of the annual dollar limit prohibition and the preventive services requirements, the payment or reimbursement of such premiums is permitted.
4. Increases in employee compensation to assist with payments of individual market coverage
An arrangement where an employer increases an employee’s compensation, but does not condition the payment of the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form, or issuer of health insurance), will not be treated as an employer payment plan. Such arrangement will not be subject to the $100 per day/per person excise tax under IRC §4980D.
5.Insurance Premium Reimbursement Plans – Generally
The IRS provided in the Notice that, although Rev. Rul. 61-146 permitted insurance payments or reimbursements for individual health insurance for employees on a pre-tax basis, this guidance did take into consideration the Affordable Care Act.
This type of arrangement is subject to the market reform provisions of the Affordable Care Act that are applicable to group health plans without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Thus, except as otherwise provided in the Notice, such individual insurance reimbursement plans are subject to the $100 per day/per person excise tax under IRC §4980D.
The IRS has temporarily reversed the prior guidance on the reimbursement of insurance premiums. The short period from the issuance of this notice until the June 30, 2015 deadline emphasizes that the IRS has these various types of reimbursement plans/arrangements on its radar. Employers should expect enforcement action to begin in 2016 or 2017.
If you would like more information about these interim guidelines or other ACA issues, please contact Marc Wise at 248.827.1883 or firstname.lastname@example.org.