Penalties Apply To Employer Payment Plans That Do Not Comply With ACA’s Market Reforms

The Internal Revenue Service has issued new Questions and Answers for Affordable Care Act Tax Provisions that address the consequences to an employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the health insurance marketplace or outside the marketplace).

Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in the notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms.

Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100 per day excise tax per applicable employee (which amounts to $36,500 per year, per employee) under Code Sec. 4980D.

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