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Employer Payment Plans Update

Posted on March 16th, 2015

The IRS has released Notice 2015-17 with some new information about Employer Payment Plans, which are plans that are used to reimburse employees with pre-tax dollars for individual market coverage (e.g. HRA). Previous guidance had essentially eliminated Employer Payment Plans as an option for actively employed workers because they would not be able to comply with all of the Affordable Care Act (ACA) market reforms. Notice 2015-17 elaborates on the IRS’ position of Employer Payment Plans. Here are three key takeaways from the guidance:

1. The Notice provides temporary relief for employers with fewer than 50 employees (full-time plus full-time equivalent). These employers will not be penalized for operating a non-compliant Employer Payment Plan until July 1, 2015. These employers will be subject to penalties of $100/day per applicable employee after this date. The relief does not apply to larger employers and does not apply to stand-alone HRAs that reimburse medical expenses in addition to premiums.

2. The Notice also addresses Medicare Premium Reimbursement Arrangements offered by employers to actively employed workers. It indicates these types of plans will generally comply with ACA market reforms if:

  • The employer offers the employee a group health plan with minimum value

  • The employee is actually enrolled in Part A and B

  • Premium reimbursements are only available to employees enrolled in Part A and B or D

  • Reimbursement is limited to Part B and D premiums, or premiums for excepted benefits, including Medicare Supplement plans

​Employers should proceed with caution with this type of arrangement because of other non-IRS rules.  For example, Medicare Secondary Payer rules prohibit employers from offering incentives for individuals entitled to Medicare not to enroll in the employer’s group health plan. Right now, it appears this may only be an option for employers with fewer than 20 employees and which Medicare is the primary payer.

 3. The Notice confirms after-tax arrangements can be used without being considered an Employer Payment Plan and without becoming subject to ACA market reforms so long as the contribution is treated as taxable compensation and is not conditioned upon the purchase of health coverage.

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The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.  

 

 

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