Employers May be Subject to ACA Fine for Cash/Payroll Reimbursements

As of July 1, 2015, applicable small employers may be subject to further financial penalties for making cash reimbursements to employees for non-group health insurance coverage. On February 18, 2015, the IRS issued Notice 2015-17, which clarified the prohibition against employers making cash/payroll reimbursements to employees for the health benefits the employees purchase outside of the employer group health plan. These cash reimbursement “arrangements” (a.k.a. employer payment plans) are currently prohibited under the Affordable Care Act (ACA) and its accompanying regulatory guidance. The IRS Notice offered transition relief from the excise tax under § 4980D for failure to satisfy the market reforms in certain circumstances. The transition relief, which expired on June 30, 2015, applied to employers that offered:

(1) employer payment plans (described above);

(2) S corporation healthcare arrangements for 2-percent shareholder-employees;

(3) Medicare premium reimbursement arrangements; or

(4) TRICARE-related health reimbursement arrangements (HRAs).

IRS Notice 2015-17 offered the temporary relief from the § 4980D excise tax for failure to satisfy the ACA market reforms, such as the prohibition on annual limits. Under the notice, small employers (e.g., employers who generally employ fewer than 50 full-time and full-time-equivalent employees in prior years) with employer payment plans got relief for 2014 and up to July 1, 2015.

Now is the time to review your organization’s compliance to avoid IRS fines and penalties. Refer to the Health Care Reform Learning Zone on the MSEC website for further information.