Small employers used to be able to reimburse employees for their Individual Plan premiums. This was called “Employer Payment Plans” or sometimes referred to as an “Employer Reimbursement Plan”.
The Internal Revenue Service, Department of Labor and Department of Health and Human Services have each issued frequently asked questions stating that Employer Payment Plans for individual health insurance coverage fail to comply with the market reforms that apply to group health plans under the Affordable Care Act (ACA).
Employers that violate this rule are subject to an excise tax of up to $100 per day ($36,500 per year) for each affected employee.
This type of payment plan was allowed for a short period of time but now it has been determined to not be ACA compliant and will need to end.
If you currently pay your employees Individual Plan premiums directly to their carrier you will need to stop on or before June 30, 2015. Any employers who continue to pay the premiums for their employees after this date will be subject to penalties.
The Easy Fix
One way around this issue is for the employer to add the dollar amount that was paid in premiums to the employees regular paycheck, as a pay increase. The amount must not be listed on their paystub as anything regarding insurance premiums and an employer can not mandate that the additional pay must go to the insurance carrier to cover their individual insurance premiums. The Employee must be the one that makes the payment to the insurance company. Keep in mind that if an employer does choose to increase the employees pay, the employer will be increasing the employees taxable income.
Please refer to IRS Notice 2015-17 for more information about these changes.