IRS Guidance Sends Clear Warning to Employers

The Internal Revenue Service issued pointed guidance that employers who reimburse employees’ premiums for individual health insurance are offering a group health plan (employer payment plan).

These employer payment plans are considered to be group health plans subject to market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.

The IRS clarified that such arrangements cannot be integrated with individual policies to satisfy the employer mandate. Violations expose employers to excise taxes of $36,500 per year ($100 per day) for each applicable employee. Allowing an employee to choose between applying an after-tax amount toward health coverage or receiving that amount as cash compensation would generally not be considered an employer payment plan.