Fine for Paying Employees Health Care Premiums?
Did you know you can be fined up to $36,500 for paying your employees health care premiums? According to the ACA guidelines, employers are not allowed to pay for their employees’ individual health plans.
While you may think you’re doing your employees a favor, if a small business drops their health coverage and their employees pick up individual policies to cover their families, the company cannot directly pay their health premiums. The owner can, however, raise the wages of the employees to compensate for this. But the employer cannot simply write a check to the insurance companies on behalf of their employees.
The IRS issued an FAQ addressing the potential consequences of an arrangement where an employer reimburses employees for the purchase of individual health insurance premiums on a tax-favored basis (referred to as an “employer payment plan”).
For this purpose, individual health insurance premiums includes individual coverage purchased either inside or outside of the Health Insurance Marketplace.
The FAQ follows up on earlier guidance describing these types of arrangements (Notice 2013- 54). Employer payment plans include arrangements that reimburse some or all of an employee’s individual health insurance premiums on a tax-free basis (including reimbursement through a HRA or a direct payment by the employer to an insurance company).
Under the Affordable Care Act (“ACA”), an employer payment plan is considered a group health plan subject to the market reforms, including the prohibition on annual dollar limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.These arrangements cannot be integrated with individual policies to satisfy the ACA’s requirements.
Consequently, employer payment plans will not satisfy the market reforms under the ACA and employers offering such a program may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee). An employer payment plan generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or may take that amount in cash compensation.
For more information on the Affordable Care Act or Group Health Insurance Benefits, please contact:
2237 Lancaster Pike
PO Box 100
Shillington, PA 19607